Gary Townsend's  Instablog

Gary Townsend
Send Message
Gary Townsend - Since 2007, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund based in Chevy Chase, Maryland. Mr. Townsend has 30 years banking, regulatory, and investment experience. He started his business career in 1978, as... More
My company:
Hill-Townsend Capital LLC
My blog:
Daily Market Financial Stock Summary
  • U.S. Futures Cautiously Higher After Latest Euro Summit; Chinese Stocks Reverse, Move Up 0 comments
    Jan 9, 2012 9:02 AM | about stocks: FHN, MTB
    This morning.  U.S. equity markets are in a confirmed uptrend.  The uptrend began on November 28th, when the SPX opened at 1158.67.  The SPX 50-day moving average has trended higher since October 13th.  Yesterday, the SPX, DJI, and Nasdaq closed above their respective 20-, 50-, 100-, and 200-day moving averages.  The NYSE composite indexes closed -2.53% below its 200-day moving average.  Overnight, Chinese equity markets reversed early losses and closed with their best gains since early December. Markets were closed in Japan. European bourses are moderately higher ahead of the U.S. employment report.  The dollar is weaker.  U.S. equity options markets suggest a bearish short-term outlook.  Commodities prices are mostly higher. U.S. Treasury yields are higher, with the 10-year at 1.968%, up from 1.958% the prior day.  U.S. repo rates are at 3 bps. 
    There are indications that the ECB’s new bank lending facilities have begun to ease interbank lending problems.  Overnight and 3-month LIBO remain elevated, and Euribor-OIS spreads remain near 2011 highs, but are no longer trending upward.  Also, the 3-month Euro basis swap fell is now better than both its 50- and 100-day moving averages and is below -100 bps for the first time since October 31st.
    U.S. equity futures are moderately higher.  After a fair value adjustment of -0.79 points, March SPX equity futures are at 1275.30, up +1.89 points.  The SPX opens at 1277.81, -6.29% below its April 29, 2011, multi-year 1363.61 closing high, but +2.40% and +2.98% above its respective 20- and 50-day moving averages and +5.54% and +1.53% above its respective 100- and 200-day moving averages.  Next resistance is at 1281.99.  Next support is at 1273.49.
    Friday.  Despite a strong December employment report, U.S. equity markets closed mixed in quiet trading, continuing its consolidation in what has been the top of a persistent trading range. The Nasdaq scored the best gain, up +0.16%, but the SPX, DJI, and NYSE composite closed down -0.25% and -0.45%, and -0.56%, respectively.  Technically, the day was again positive, as all indexes closed above their 20-, 50-, and 100-day moving averages, and only the NYSE composite closed below its 200-day moving average.  Volume was light, well below the 50-day moving average. Market breadth was negative.  Market segments were mixed. The leaders were technology, consumer services, and health care, which closed up +0.01%. Utilities, financials, and telecommunications, which closed off at least -0.60%.
    As on the prior two trading days, the SPX initially traded lower.  From the prior day’s 1281.06 close, the SPX traded quickly to an early 1273.34 intraday low, but buyers again stepped in,  selling pressure eased, and the SPX rallied to a mid-day intraday high of 1281.84.  All indexes reversed to modest gains at mid-day, but markets couldn’t sustain their momentum, and indexes generally weakened into the close.
    Trading desks reported trading was balanced between buyers and sellers, but noted rotation into financials, with the money center banks, particularly BAC and JPM, performing particularly well.

    Distribution days number 2 on the Nasdaq, SPX, and BKX, and 1 on the DJI and NYSE composite.
    In Asia, equity markets were closed in Japan, but in Hong Kong and Shanghai, markets reversed early losses and closed much stronger.  Volume was mixed.  The HSI closed up +1.47% on -3.70% decrease in volume.  The SHCOMP closed up +2.89% on a +51.8% increase in volume.  Nonetheless, the SHCOMP concluded its 9th consecutive weekly loss.  After a poor 2011, these indexes are at levels comparable to March 2009 and well below their 200-day moving averages.  Commentary focused on Chinese economic reports that showed increased bank lending and money supply, which supported views that monetary policy was easing. Bank reserve requirements were not cut this weekend, as had been speculated.
    In Japan, the NKY closed Friday at 8,390.35.  The index closed -1.14%% and -1.94% below its respective 20- and 50-day moving averages. 
    In China, the Hang Seng closed at 18,865.72, up from 18,593.06 at the prior day’s close.  The index opened just below 18.600 and immediately traded lower to 18,300, where it found support and began a rally that extended through the close. The intraday high 18,884.26 came in the final minutes. The index closed +1.82% and +0.31% above its respective 20- and 50-day moving averages.  All market segments closed higher. Leaders were basic materials, telecommunications, and oil and gas, which rose +1.51%. Financials rose +1.50%. Laggards were consumer goods, utilities, and technology, which closed up +0.62%. In Shanghai, the SHCOMP closed at 2,225.89, up from 2,163.40 the prior day.   The SHCOMP closed +0.68% above and -5.18% below its respective 20- and 50-day moving averages.  The index also opened lower, but found support at 2,150, reversed and rallied through the close at end just under its 2,226.10 intraday high. All market segments closed at least +1.55% higher.  Leaders were basic materials, technology, and consumer services, which closed up at least +3.59%. Laggards were telecommunications, financials, and oil and gas.
    In Europe, equity indexes are narrowly mixed. Market attention is focused on a meeting of Merkel and Sarkozy. The Euro Stoxx 50 is up +0.13%, while the FTSE and DAX are down -0.22%, and -0.24%, respectively.  Compared to the prior day’s 2,298.65 close, the Euro Stoxx 50 trades at 2,301.68, compared to a 2,311.59 intraday high and 2,289.82 intraday low.  The index is +0.62%  and +0.93% above its respective 20- and 50-day moving averages.  Most market segments are higher.  Leaders are consumer goods, consumer services, and telecommunications, which are up at least +0.40%.  Laggards are basic materials, basic materials, and financials, which are off at least -0.29%.
    Libor, LOIS, Currencies, Treasuries, Commodities:
    • Interbank lending rates continue to reflect substantial stress, centered on the health and liquidity of Eurozone banks in the current economic environment.   USD LIBOR is at 0.14900%, unchanged from 0.14900% the prior day, but below the 0.25188% year-end 2010 level.  USD 3-month LIBOR is 0.58050%, down from 0.58150% the prior day and 0.30281% at year-end 2010.
    • The US Libor-OIS (LOIS) spread fell to +49.85 bps, from 50.05 bps the prior day, and compares to 12.0 bps at the end of 2010.  Euribor-OIS eased to 92.80 bps, from 93.60 bps Friday, and 40.6 bps at the end of 2010.  A rise in the LOIS indicates an increased intra-bank lending risk premium.
    • The Euro 3-month basis swap continues to improve, rising to 97.63 bps from -101.15 bps the prior day, from a trough of -147 bps on December 14th.
    • The U.S. government overnight repo rate is 3.0 bps, unchanged from 3.0 bps Friday, and well off from the August 2nd high of 33 bps.
    • U.S. Treasury yields are slightly lower at the long end of the curve, with 2- and 10-year maturities yielding 0.256% and 1.968%, respectively, compared to 0.256% and 1.958% Friday.  The yield curve widened to +1.716%, compared to +1.702% the prior day.  In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.910% on February 4, 2011.
    • The U.S. dollar is weaker against the euro, British pound, and Japanese yen.  The dollar trades at US$81.056, but better than the intraday low of 80.961, and compares to US$81.254 at the prior day’s close, and above its US$79.003 50-day, US$77.804 100-day, and US$76.242 200-day averages.  The euro trades at US$1.2764, compared an intraday high of US$1.2786 and US$1.2717 Friday and US$1.2788 the day prior.  The euro trades worse than its US$1.3293 50-day and US$1.3566 100-day averages.  In Japan, the dollar trades at ¥76.18 compared to ¥76.97 Friday and ¥77.12 the prior day.  The yen trades better than its 50-day moving average ¥77.59.
    • Commodities prices are mostly higher, with mixed energy, higher precious metals, aluminum and copper, and higher agriculture prices.
    Volatility, Skew:
    • The VIX ended at 20.63, down -3.96% from 21.48 at the prior close.  The VIX is -12.9% below its 23.69 20-day moving average. The close was the lowest since July 27th.
    • The Euro Stoxx 50 volatility index (V2X) is down -0.56% to 30.39 from 30.56 the prior day.  The V2X index trades -18.8% below its 37.42 20-day moving average, -24.8% below the 40.40 30-day high, and +7.19% above the 28.35 30-day low.
    • The Hang Seng volatility index (VHSI) fell to 23.91, down -3.04% from 24.66 the prior day.  The VHSI index trades -9.38% below its 26.38 20-day moving average.
    • CBOE skew rose +0.45% to 118.29, from 117.76 at the prior day’s close and within a neutral (115-120) range.  The index tracks the cost of buying out-of-the-money, long-dated options.  A fall suggests that investors are buying more calls than puts, a bullish signal.
    U.S. news and economic reporting: There are no scheduled economic reports today.
    Overseas news:  In December, China’s bank lending and money supply both increased above estimates.  Today’s press reports indicate the IMF may be losing faith in the Greek government’s ability to implement structural reforms and lower its budget deficit, while another publication said a disorderly default may be only “weeks away.”  Today, French President Sarkozy and German Chancellor Merkel met and announced a further commitment to tighter EU sovereign budgetary rules and agreement on proposing a financial transactions tax. 
    Company news/ratings changes:
    ·         FHN – downgraded to underperform at BofA/ML, $7 price target
    ·         MTB – downgraded to neutral at BofA/ML, $80 price target
    3Q2011 Earnings.  The third quarter’s earnings reports surprised expectations.  Of the 494 S&P500 companies that reported earnings to date, 73% (359 out of 494) beat operating EPS estimates, versus the historical average of 62%.  In aggregate, companies beat EPS expectations by an average of +4.4% (versus a historical average of +2%).  EPS is up +14.8% over the prior year.  Though challenged in the current operating environment, 80% of companies reported increased revenues over the prior year and 58% beat revenue estimates.  In the third quarter of 2011, analysts estimate the SPX will earn $24.98 per share, compared to $24.84 and $21.49 per share in 2Q11 and 3Q10, a +0.6% and +16.2% increase, respectively. 
    With all of the 24 BKX members reporting, 75% beat operating estimates with aggregated results surprising by +14.3% and 63% have beat revenue estimates with aggregated surprising by +4.2%.  EPS is up +21.2% over the prior year, while revenue is up +1.5%.  In the third quarter of 2011, the BKX earned $1.24 per share, beating analysts’ estimate of $1.15 per share, and compared to $1.12 and $0.71 in 2Q11 and 3Q10, (an +11% and +48% increase, respectively) In the second quarter, 88% (21 of 24) beat earnings estimates on an operating basis.  Revenues also exceeded expectations, with 79% of BKX members beating estimates. 
    Valuation.  The SPX trades at 12.1x estimated 2012 earnings ($105.30) and 10.8x estimated 2013 earnings ($117.78), compared to 12.2x and 10.9 respective 2011-12 earnings Friday.  The 10-year average median Price/Earnings multiple is 20.0x.  Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -3.1%, and +0.0%, respectively.  Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.9% and +24.0%, respectively. 
    Large-cap banks trade at a median 1.32x tangible book value, and 12.3x and 10.4x 2011 and 2012 consensus earnings, respectively, compared to 1.31x tangible book value and 12.3x/10.4x 2011/2012 earnings Friday.  These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings.  Analysts expect 2012 and 2013 BKX earnings to exceed 2011 operating earnings by +4.7% and +7.0%, respectively.
    Options.  Options markets are bearish.  Composite options markets are neutral to bearish, index options markets are neutral to bearish, and equity options markets are bearish.  The composite put/call ratio closed at 0.96, compared to 0.81 the prior day and above its 5- and 10-period moving averages of 0.87 and 0.91, respectively.  The index put/call ratio closed at 1.38, compared to 1.09 the prior day, and above the 5- and 10-period moving averages of 1.20 and 1.26, respectively.  The equity put/call ratio closed the day at 0.62, compared to 0.62 the prior day and below its 5- and 10-period moving averages of 0.63 and 0.66, respectively.
    Price Exhaustion/Trend Reversal.  Technical price exhaustion metrics show both the SPX and BKX indexes at or near points of potential upward price exhaustion.  Marginal closes above recent highs would yield strong reversal signals across multiple timeframes on both indexes. 
    NYSE Indicators.  Volume fell -14.3% to 710.51 million shares, 0.79x the 50-day moving average, from 828.79 million shares Thursday.  Market breadth was negative, up volume lagged down volume.  Advancing stocks lagged decliners by -200 (compared to +656 the prior day), or 0.88:1.  Up volume led down volume by 0.66:1.
    SPX. On lower volume, the SPX fell -3.25 points, or -0.25%, to 1277.81.  Volume fell -11.35% to 586.09 million shares, down from 661.12 million shares Thursday and below the 688.93 million share 50-day moving average.  For the 10th consecutive day, the SPX closed above its 50-day moving average (1,240.85) and remained above its 200-day moving average (1,258.54), closing above that level for the 7th time in the past 9 days.  For the 102nd straight session, the SPX’s 50-day moving average closed below its 200-day moving average, but the 50-day average’s positive trend has narrowed the range considerably.  The SPX closed above its 200-week moving average (1133.84) for the 63rd straight session. 
    From its prior close at 1281.06, the SPX opened flat but quickly moved lower and set the intra-day low of 1273.34 at 9:55.  Through 11:45, the index reversed and retook its prior day’s close, setting the intra-day high of 1281.84.  For the session’s duration, the index retraced back into negative territory and found support at 1278 at 1:30.  The SPX traded near that level through the close to finish with a small loss and in the middle of the day’s mostly negative range. 
    The SPX closed above all major moving averages, above 1200 for the 25th straight session, but below 1300 for the 110th straight session.  The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th.  After peaking on June 6th at 1317.97, the 100-day moving average crossed below the 200-day average on September 7th.  On December 22nd, the 100-day set a low at 1202.28, and began an upward trend.  For the 12th straight session, the SPX closed (by +2.40%) above its 20-day moving average (1247.88).  The index closed (by +2.98%)above its 50-day moving average for the 12th straight session.  The index closed (by +5.54%) above its 100-day moving average (1210.73) for the 26th straight session.  The SPX closed +1.53% above its 200-day moving average for the 7th time in the past 9 sessions.  The 20-, 50-, and 100-day moving averages rose.  The directional momentum indicator was positive for the 11th straight session, but the trend is weak.  Relative strength fell to 59.89 from 61.17, in the middle of a neutral range.  Next resistance is at 1281.99; next support is at 1273.49.
    BKX.  On lower volume, the KBW bank index fell -0.12 points, or -0.29%, to end at 41.59, its fourth straight close above 40 but its 107th straight close below its 2010 low.  Volume fell -34.30% to 67.45 million shares, down from 102.65 million shares Thursday and below the 84.55 million share 50-day average.  The BKX closed -3.23% below its August 30, 2010, closing low of 42.98, the trough of the 2010’s correction, and -28.23% and -25.24% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.
    Financials underperformed the market, and regional banks underperformed large-cap banks.  From its prior close of 41.71, the BKX opened flat but quickly fell and reached the intra-day low of 41.14 at 9:55.  Momentum reversed sharply, and by 10:55, the index retook its break-even line and set the intra-day high of 41.82 at 11:50.  Unable to sustain its gains, the BKX fell back into negative territory at 12:05 and remained there through the day.  The sell-off continued through 1:30 when the index reached 41.35, but financials rebounded by 2:00 to the 41.60 level, where the index remained through the close.  The index finished with a small loss and in the middle of the day’s mostly negative range.
    Technical indicators are mixed, but improving.  Bank stocks have outperformed the broader market’s rebound from the October lows, but having fallen farther, trailed well behind the broader markets in 2010.  On a percentage basis, bank stocks have outperformed the broader market’s rebound from the October lows, rising +27.7% from the 32.56 October 4th intra-day low compared to an +18.9% rebound in the SPX.  However, the BKX is still -25.2% below its 2011 high on February 14th, compared to the SPX, which has corrected only -6.29% since April 29th
    Moving averages alignment is mixed, as the 20- and 50-day moving averages (39.05 and 38.72, respectively) moved above the 100-day moving average (38.01), and each average is rising.  The 100-day moving average appears to have troughed, through the 200-day moving average (43.14) continues to trend lower.  On December 16th, the 50-day average crossed above the 100-day moving average for the first time since April 25th.  The 50-day remains below the 200-day moving average, as it has since June 16th.  For the 7th time in the past 8 days, the 20-day closed (by +0.33 points) above the 50-day.  The 50-day moving average closed (by -4.43 points) below the 200-day moving average for the 145th straight session, but the gap continues to narrow.  The 100-day moving average closed (by -5.14 points) below the 200-day moving average for the 123rd straight session, but the gap is narrowing.  The BKX closed (by +6.50%) above its 20-day moving average for the 14th time in the last 15 sessions.  The index closed (by +7.42%) above its 50-day moving average for the 10th straight session.  The index closed (by +9.43%) above the 100-day moving average for the 11th straight session.  The index closed (by -3.59%) below its 200-day moving average for the 152nd consecutive session.  The index closed below 50.0 for the 152nd straight session but above 40.0 for the fourth straight session.  The directional movement indicator was positive for the 9th consecutive session, and the trend is moderate.  Relative strength fell to 63.50 from 64.31, towards the higher end of a neutral range.  Next resistance is 41.89; next support at 41.21.
    Stocks: FHN, MTB
Back To Gary Townsend's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.