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Gary Townsend - Founding member and Chairman, GBT Capital Management, LLC, a macro long/short fund based in Chevy Chase, Maryland. Also, 2007-2013, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund. Mr. Townsend has 35 years... More
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  • U.S. Futures Move Lower As Greek Resolution Eludes 0 comments
    Jan 30, 2012 8:49 AM | about stocks: GS, C, MS, BAC, JPM
    This morning. U.S. equity markets are in a confirmed uptrend. The uptrend began on November 28th, when the SPX opened at 1158.67, but the SPX 50-day moving average has trended higher since October 13th. All major indexes are above their respective 20-, 50-, 100-, and 200-day moving averages. Notably, their respective 200-day moving averages are at upward inflection points. For example, the SPX's 200-day moving average rose 1 bps Friday, its 1st upward move since August 5th, and reversing a 5-month decline. The Nasdaq's 200-day moving average rose also rose on the day.

    In Asia, equity markets closed moderately lower overnight, with greater weakness in China, where markets reopened after the Lunar New Year holiday. European exchanges are moderately lower, principally as the Greek sovereign debt talks remain unconcluded. The dollar is stronger, and the euro comparably weaker. U.S. equity options markets suggest a neutral short-term outlook. Commodities prices are mostly lower. U.S. Treasury yields are lower at the long end of the curve, with the 10-year at 1.846%, down from 1.891% the prior day. U.S. repo rates are at 10 bps.

    The ECB's bank lending facilities has eased interbank lending and associated liquidity problems. Overnight and 3-month LIBO remain elevated, and Euribor-OIS spreads remain near 2011 highs, but are trending lower. Also, the 3-month Euro basis swap is now at its best levels since early August and less than half its worse level of late December.

    After release of a mildly disappointing 4Q2011 U.S. GDP report, equity futures are modestly lower. After a fair value adjustment of -0.22 points, March SPX equity futures are at 1303.50, down -8.78 points. The SPX opens at 1316.33, -3.47% below its April 29, 2011, multi-year 1363.61 closing high, but +1.62% and +4.87% above its respective 20- and 50-day moving averages and +7.13% and +4.70% above its respective 100- and 200-day moving averages. Next resistance is at 1320.35. Next support is at 1312.01.

    Friday. Equity markets reversed moderate intraday losses to end mixed. The DJI had the greatest loss, down -0.58% on higher volume, followed by the SPX and NYSE composite, which closed off -0.16% and -0.09%, respectively. The Nasdaq rose +0.40%. Commentary focused on Eurozone developments, particularly with regard to Greek sovereign debt negotiations, news and commentary from Davos, and earnings season reports. News that FaceBook will file documents this week for its IPO provided support for the financials, especially the investment banks Morgan Stanley and Goldman Sachs. Trading desks report that the early selling pressure was never particularly severe, and investor bought the dip.

    From the 1318.43 prior close, the SPX opened under 1315 and stair-stepped lower through early afternoon, finally finding support at 1312 and rallying back to an intraday high of 1320.06 in the final hour. The rally lost momentum ahead of the weekend and sold off in the final minutes. Financials, market leaders in recent weeks, started lower, but rallied to lead the day's trade, ending +0.34% higher. Other leaders were basic materials and technology, which closed at least +0.15% higher. Laggards were telecommunications, consumer goods, and utilities, which closed down at least -0.55%.

    For a 6th consecutive day, all indexes closed above their respective 20-, 50-, 100-, and 200-day moving averages. Market breadth was positive. NYSE volume fell -1.89%, to 1.01x the 50-day moving average. Volatility initially rose, to an intraday high of 19.16, but trended lower through most of the day to end at 18.53. The CBOE put/call skew remains elevated, but also moved down to 121.50, just above a neutral range.

    Technically, the day was mixed, as indexes closed lower, but well above their intraday lows. Also, the SPX closed slightly above 1315.38, the prior week's close, closing higher for a 3rd consecutive week, if unimpressively so. Also notable was the positive inflection of the SPX 200-day moving average, joining the Nasdaq and DJI. Only the NYSE 200-day moving average continues to trend lower. Subsequent support at 1306 and 1293 are vital to sustain the recent uptrend. Next support is at 1267 and 1257, the 200-day moving average. Resistance is 1334 and 1345.


    Distribution days number 4 on the SPX and 3 on the Nasdaq, BKX, and NYSE composite. Distribution days rose to 3 on the DJI.

    In Asia, equity markets closed moderately lower in Japan, but with larger losses in China as markets there reopened after the past week's lunar new year holiday. In Japan, the NKY closed down -0.54% on a -26.3% decrease in volume. The HSI and SHCOMP closed off -1.66% and -1.47%, respectively, on a +18.1% increase and -16.5% decrease in volume. Commentary focused on last Friday's slower than expected U.S. GDP growth, disappointment that the PBOC did not cut bank reserve requirements, and heightened worries concerning Greek and Eurozone sovereign debt.

    In Japan, the NKY closed at 8,793.0, compared to 8,841.22 the prior day. The index closed +2.60% and +3.35% above its respective 20- and 50-day moving averages. The index opened at 8,8005, and trended lower through the day, but within a narrow range after late morning, to a mid-day intraday low of 8,774.23. Market segments closed lower. Leaders were health care and financials, which rose at least +0.25%, and technology, which declined -0.02. Laggards were telecommunications, oil and gas, and industrials, which closed off at least -1.01%.

    In China, the Hang Seng closed at 20,160.41, down from 20,501.67 at the prior close. The index gapped higher to open just below 19,850, to a mid-morning intraday high of 19,956.54. During the session, the index trended lower and closed just off its 20,144.95 intraday low. The index closed +5.10% and +7.25% above its respective 20- and 50-day moving averages. Market segments were mostly lower. Leaders were technology, utilities, and consumer services, which gained at least +0.52%. Financials closed off -2.02%. Laggards were technology, consumer goods, and basic materials, which closed off at least -2.33%. In Shanghai, the SHCOMP closed at 2,285.04, down from 2,319.12 at the prior close. The SHCOMP traded higher at the open, but quickly traded lower to test support at 2,300. After twice rallying back to 2,315 in the morning session, the index weakened and trended lower in the afternoon to close at its intraday low. The index closed +2.78% above and -0.78% below its respective 20- and 50-day moving averages. Most market segments closed lower. Technology rose +0.21%. Other leaders were consumer goods and oil and gas, but these closed at least -0.81% lower. Laggards were industrials, financials, and telecommunications, which closed off at least -1.56%.

    In Europe, equity indexes are moderately lower, but off their mid-morning lows. Commentary focuses on ongoing Greek debt talks, which were expected to see resolution over the week end. The Euro Stoxx 50, FTSE 100, and DAX are down -1.11%, -0.95%, and -0.89%, respectively. Compared to the prior day's 2,436.62 close, the Euro Stoxx 50 trades at 2,410.29, compared to a 2,426.56 intraday high and 2,404.37 intraday low. The index is +1.58% and +4.94% above its respective 20- and 50-day moving averages. Most market segments are lower. Leaders are health care, which is up +0.88%, and consumer goods and utilities, which are off at least -0.27%. Laggards are industrials, consumer services, and financials, which are off at least -1.17%.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    • Recent interbank lending rates suggest that the substantial stress, evident in the latter half of 2011 and centered on the health and liquidity of Eurozone banks, has peaked and is easing. USD LIBOR declined to 0.13950%, from 0.14100% the prior day, and down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.54685%, down from 0.55110% the prior day and from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread fell to 45.74 bps, down from 46.11 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS eased to 76.75 bps, from 78.05 bps Friday and December 27th high of 98.80 bps. A fall in the LOIS indicates a decreased intra-bank lending risk premium.
    • The Euro 3-month basis swap continues to improve, rising to -68.8750 bps, at levels of early August, from -68.6250 bps the prior day, and up from a trough of -147.00 bps on December 14th.
    • The U.S. government overnight repo rate is 10.0 bps, unchanged from 10.0 bps the prior day, but well off from the August 2nd high of 33 bps.
    • U.S. Treasury yields are lower at the long end of the curve, with 2- and 10-year maturities yielding 0.211% and 1.846%, respectively, compared to 0.211% and 1.891% Friday. The yield curve narrowed to +1.635%, compared to +1.680% 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.
    • Though off the day's high, the U.S. dollar is much stronger against the euro, British pound, and Japanese yen. The dollar trades at US$79.275, compared to the US$79.3845 intraday high and to the US$78.902 at the prior day's close, and below its US$79.860 50-day, US$78.608 100-day, and US$76.650 200-day averages. The euro trades at US$1.3115, compared to an intraday low of US$1.3110, and compares to a close of US$1.3220 Friday and US$1.3109 the day prior. The euro trades better than its US$1.3075 50-day, but worse than its US$1.3374 100-day averages. In Japan, the dollar trades at ¥76.68, compared to ¥76.70 Friday and ¥77.45 the prior day. The yen trades better than its 50-day moving average ¥77.43.
    • Commodities prices are mostly lower, with lower energy, precious metals, aluminum and copper, and mixed agriculture prices.

    Volatility, Skew:
    • The VIX ended at 18.53, down -0.22% from 18.57 at the prior close. The VIX is -10.0% below its 20.59 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up +7.99% to 26.35, compared to 24.40 the prior day. The V2X index trades -5.59% below its 27.91 20-day moving average, -21.0% below the 33.37 30-day high, and +9.95% above the 23.96 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 24.70, up +11.2% from 22.21 the prior day. The VHSI index trades +5.89% above its 23.33 20-day moving average.
    • CBOE skew fell -1.19% to 121.50 from 122.96 at the prior day's close, but remained above a neutral (115-120) range. The index tracks market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal. A spike to 130, as on January 18th close, correlates well with short-term market peaks.

    U.S. news and economic reporting:

    · December personal income was +0.5%, better than survey +0.4% and prior +0.1%.

    · At 10:00, the January Dallas Fed manufacturing index is expected at 1.5, up from -3.0 in December.

    Overseas news: Today, European Union leaders attend a summit focused on the on-going sovereign debt challenges in the Eurozone. Today, Italy auctioned of €7.5 billion in 5- and 10-year debt, with yields falling -90 and -108 basis points compared to December's auctions under solid demand, but yields on the 10-year issue were +22 basis points above the market rate and still over the 6.0% threshold. Last evening, French President Sarkozy announced a new package of tax measures including a financial transactions tax, which he said would move forward irrespective of whether other European countries adopted a similar measure. In the fourth quarter, Spain's GDP matched estimates, contracting -0.3% over the prior quarter.

    Company news/ratings changes:

    · C - upgraded to buy at Goldman Sachs

    · MS - upgraded to buy at Goldman Sachs

    · BAC - downgraded to neutral at Goldman Sachs

    · JPM - removed from conviction buy list at Goldman Sachs, remains at buy

    4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 169 S&P500 companies that reported earnings to date, 66% (112 out of 169) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +2.9% (versus a historical average of +2%). EPS is up +3.2% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 58% beat revenue estimates. In the fourth quarter of 2011, analysts estimate the SPX will earn $24.34 per share, compared to $25.19 and $22.25 per share in 3Q11 and 4Q10, a -3.4% and +9.4% change, respectively.

    With all 24 BKX members reporting fourth quarter earnings, 42% beat operating EPS estimates, with aggregated results disappointing by -16.7%, while 46% beat revenue estimates, with aggregated results missing by -0.9%. EPS is down by -20.4% over the prior year while revenue has decline by -3.8%. In the fourth quarter, the BKX earned $1.25 per share, compared to $1.24 and $0.91 per share in 3Q11 and 4Q10, a +0.8% and +37.4% change, respectively.

    Valuation. The SPX trades at 12.6x estimated 2012 earnings ($104.78) and 11.2x estimated 2013 earnings ($117.51), compared to 12.6x and 11.2 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 -3.6%, and -0.2%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.4% and +23.7%, respectively.

    Large-cap banks trade at a median 1.33x tangible book value, and 10.3x and 9.0x 2012and 2013 consensus earnings, respectively, compared to 1.33x tangible book value and 10.3x/8.8x 2012/2013 earnings Friday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.34 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.9% and +46.6% increase, respectively.

    Options. Options markets are neutral. Composite options markets are neutral, index options markets are neutral, and equity options markets are neutral to bullish. The composite put/call ratio closed at 0.88, compared to 0.97 the prior day and in between its 5- and 10-period moving averages of 0.94 and 0.88, respectively. The index put/call ratio closed at 1.32, compared to 1.48 the prior day, and in between the 5- and 10-period moving averages of 1.51 and 1.30, respectively. The equity put/call ratio closed the day at 0.60, compared to 0.65 the prior day, below its 5- and 10-period moving averages of 0.66 and 0.61, respectively.

    Price Exhaustion/Trend Reversal. On a daily timeframe, technical price exhaustion metrics show the SPX reached a potential upward price exhaustion level on January 18th and 11th, the first such signals since April, while S&P futures reached full upward price exhaustion on January 23rd. Intra-day timeframes of 120- and 60-minute intervals show the SPX and BKX reached multiple levels of potential price exhaustion most recently as January 25th and 12th, respectively.

    NYSE Indicators. Volume fell -1.89% to 850.21 million shares, 1.01x the 50-day moving average, from 866.56 million shares Thursday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +857 (compared to -61 the prior day), or 1.81:1. Up volume led down volume by 1.02:1.

    In January, we expect dividend accruals of $77.6 thousand.

    SPX. On lower volume, the SPX fell -2.10 points, or -0.16%, to 1316.33, the eighth straight close above 1300. Volume fell -3.61% to 676.68 million shares, down from 701.99 million shares Thursday but above the 657.86 million share 50-day moving average. For the 25th consecutive day, the SPX closed above its 50-day moving average (1,255.17) and remained above its 200-day moving average (1,257.20) for the 22nd time in the past 23 sessions. For the 116th 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 (1133.74) for the 77th straight session.

    From its prior close at 1318.43, the SPX opened lower to 1314.50. A series of successively lower peaks and sell-offs ended at the intra-day low of 1311.72 at 12:15. Through the afternoon, the index rallied, retaking break-even at 3:15 and reaching the intra-day high of 1320.06 at 3:30. A three point sell-off at the bell dropped the index back into negative territory for the day and in the middle of the day's mixed range.

    The SPX closed above all major moving averages, above 1200 for the 39th straight session and above 1300 for the eighth 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. The 200-day moving increased for the first time since September 16th, 2011. For the 26th straight session, the SPX closed (by +1.62%) above its 20-day moving average (1295.34). The index closed (by +4.87%)above its 50-day moving average for the 26th straight session. The index closed (by +7.13%) above its 100-day moving average (1228.75) for the 40th straight session. The SPX closed +4.70% above its 200-day moving average for the 21st time in the past 23 sessions. All moving averages rose. The directional momentum indicator was positive for the 26th straight session, and the trend is strong. Relative strength fell to 65.12 from 66.49, the high end of a neutral range. Next resistance is at 1320.35; next support is at 1312.01.

    BKX. On higher volume, the KBW bank index rose +0.31 points, or +0.73%, to end at 42.87, its 18th straight close above 40 and but closing below the 2010 low of 42.98 for the second straight session. Volume rose +20.54% to 99.19 million shares, up from 82.29 million shares Thursday and above 81.67 million share 50-day average. The BKX closed -0.26% below its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, and -26.02% and -22.94% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

    Financials were the market's best performing segment, and large-cap banks outperformed regionals. From its prior close of 42.56, the BKX opened lower to 42.40 and set the intra-day low of 42.35 at 9:31. The BKX followed an upward, but staggered, path through the day in contrast to the broader market's early choppy decline and afternoon rally. The BKX fluctuated at the break-even line through 1:00 but made higher lows on dips. From 1:00 through 3:30, the index rallied to the intra-day high of 43.01. A small sell-off at the close left the index below 43.00 but at the high end of the day's range.

    Technical indicators are mixed, but improving. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +31.66% from the 32.56 October 4th intra-day low compared to a +22.56% rebound in the SPX. However, the BKX is still -22.9% below its 2011 high, compared to the SPX which has corrected only -3.5%. Moving averages alignment is mixed, as the 20- and 50-day moving averages (42.41 and 39.67, respectively) moved above the 100-day moving average (38.76), and each average is rising. The 100-day moving average appears to have troughed, though the 200-day moving average (42.51) 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 21st time in the past 22 sessions, the 20-day closed (by +2.74 points) above the 50-day, and the gap is expanding. The 50-day moving average closed (by -2.84 points) below the 200-day moving average for the 159th straight session, but the gap continues to narrow. The 100-day moving average closed (by -3.75 points) below the 200-day moving average for the 137th straight session, but the gap is narrowing. The BKX closed (by +1.10%) above its 20-day moving average for the 28th time in the last 29 sessions. The index closed (by +8.07%) above its 50-day moving average for the 24th straight session. The index closed (by +10.62%) above the 100-day moving average for the 25th straight session. The index closed (by +0.86%) above its 200-day moving average for the 11th time in 12 sessions. The index closed below 50.0 for the 166th straight session but above 40.0 for the 18th straight session. The directional movement indicator was positive for the 23rd consecutive session, and the trend is strong. Relative strength rose to 58.91 from 56.90, a neutral range. Next resistance is 43.14; next support at 42.48.

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