Seeking Alpha

Gary Townsend's  Instablog

Gary Townsend
Send Message
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
My company:
GBT Capital Management LLC
My blog:
Listening to Markets
  • U.S. Futures Flat Following Yesterday's Surge; China Falls On Credit Concerns; Europe Falls Modestly 0 comments
    Mar 5, 2014 9:14 AM

    This morning. Today, U.S. equity futures are slightly lower after fair value adjustment. In Asia, equity markets closed mixed, with weakness in China, where credit issues continue to bubble up. Major European bourses are modestly lower. The dollar is mixed. Thursday's Nikkei 225 March 2014 (NKH4) equity futures are +1.200% higher.

    Since February 7th, the U.S. equity market outlook is "confirmed uptrend", following a brief, but sharp "in correction" episode that commenced on January 23rd. The SPX rose +4.28% subsequently. The quarter's earnings reports are nearly complete, with U.S. materials reports particularly strong, followed by financials.

    Tuesday, on easing Ukrainian concerns, world equity markets rallied strongly, while bonds weakened. U.S. equity markets gapped higher, and trended higher to late intraday highs. The S&P 500 (SPX), NYSE composite, and Russell 2000 (RTY) closed at record highs. The SPX, DJ Industrials (DJI), Nasdaq, and NYSE composite rose +1.53%, +1.41%, +1.75%, and +1.55%, respectively. The DJ Transports (TRAN) rose +2.23%. Notably, NYSE volume rose +24.3% to 1.17x its 20-day moving average.

    Trading desks noted a relative quiet night globally, with relatively benign Ukrainian developments. China kept its GDP growth target unchanged at 7.5%. European GDP and PMIs surprised positively. This morning's ADP employment report disappointed, suggesting the possibility of a disappointing February jobs report Friday morning. Traders describe Tuesday's impressive rally as - impressive. Despite fears of a late session fade, equities trended higher through the session on stronger volume. Despite what appears to be a higher bias to the market, with the market at or near records and with an elevated P/E multiple, traders continue to doubt a breakout and focus on this Friday's February jobs report. The DJI and TRAN closed -0.50% and -1.09% off their respective record highs. The U.S. 10-year yield rose, but arguably continues to signal equity weakness. The SKEW closed just above 130, a level often associated with market tops. With SPX equities trading at a 17.0x 2013 earnings multiple, attention focuses on 2014 earnings and valuations (17.0x times survey $117.69 2014 SPX operating earnings suggests a 2002.16 SPX level next year, a +6.84% rise).

    Technicals were little changed. All indexes closed above their respective 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. Led by financials, all market segments closed higher. Market breadth was positive, and up volume led down volume. Volatility fell. Treasury bond markets weakened. The U.S. Treasury 10-year bond yield rose +9.65 bps to 2.6977%, compared to 2.6012% at the prior close.

    This morning, 10-year U.S. Treasury yields are up +0.91 bps at 2.7066%, compared to 2.6977%, compared to the prior close. Spanish and Italian 10-year debt yields are 3.40% and 3.40%, respectively, compared to 3.44% and 3.42% the prior day. The U.S. dollar is mixed.

    U.S. options markets are neutral to bullish, compared to bearish to bullish the prior day. The CBOE SKEW rose +1.96% to 131.65, compared to 129.12 the prior day, above a neutral range (115-120) and again below 130, which generally correlates well with short-term market tops.

    In pre-market futures trading, March SPX equity futures (SPH4) price near the top of a 1867-1875 trading range. After a fair value adjustment of +0.66 points, SPX equity futures price at 1872.00, down -0.16 points. The SPX opens +2.68%, +2.76%, +4.33%, and +8.37% above its respective 20-, 50-, 100-, and 200-day moving averages. Initial resistance is 1883.68. Initial support is 1856.68, then 1839.46.

    In Asia, equity markets closed mixed, with credit-related weakness in China. In Japan, the Nikkei 225 index (NYSEARCA:NKY) rose +1.20%. The Hang Sang index (HSI) fell -0.34%. The Shanghai composite (SHCOMP) fell -0.89%. Today's volumes are unavailable.

    Commentary focused on Chinese default concerns, as Chaori Solar Energy Science & Technology Co revealed that it will likely miss a interest payment on March 7. In China, short-term interbank lending rates remain surprisingly volatile, with 7-day Shibo rates at 3.80%, compared to 3.51% the prior day, at levels last seen in June and down from the February 7th 5.41% recent high.

    Regional relative strength indexes (RSI) show Tokyo, Hong Kong, and Shanghai in neutral ranges. The NKY RSI improved to 50.62, compared to 46.92 the prior day, up from an oversold 27.92 on February 4th. The HSI RSI ended at 52.35, compared to 54.05 the prior day and an oversold 24.02 on February 5th. The SHCOMP's RSI closed at 44.83, compared to 48.73 the prior session. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.

    This week, the NKY is up +0.38%, while the HSI and SHCOMP are down -1.13% and -0.16%, respectively. Last week, the NKY ended down -0.17%, the HSI closed up +1.19%, and the SHCOMP closed off -2.72%. In February, the NKY closed down -0.49%, while the HSI and the SHCOMP gained +3.64% and +1.14%, respectively. In January, the NKY lost -8.45%, the HSI closed down -5.45%, and the SHCOMP lost -3.92%.

    In 2014, the NKY, HIS, and SHCOMP are down -8.55%, -3.12%, and -2.97%, respectively. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.

    In Japan, the NKY closed at 14,897.63, compared to 14,721.48 the prior day and -61.7% below its late-1989 38,915.87 high close. The index gapped higher to an early 14,992.19 intraday low, then traded narrowly around 14,950 before weakening in the final hour. The index closed +1.87% and +2.65% above its respective 20- and 200-day moving averages, but -2.17% and -0.78% below its respective 50- and 100-day moving averages. Most market segments closed higher. Leaders were financials, consumer services, and telecommunications, which rose at least +1.38%. Laggards were consumer goods and oil and gas, which rose at least +0.41%, and utilities, which declined -0.26%.

    In China, the HSI closed at 22,579.78, compared to 22,657.63 at the prior close. The index gapped higher to open at the 22,839.43 intraday high, but weakened to breakeven by mid-morning and reversed lower in mid-afternoon, when it fell to the 22,529.83 intraday low. Most market segments closed lower. Leaders were technology, industrials, and consumer services, which rose at least +0.79%. Financials fell -0.52%. Laggards were basic materials, consumer goods, and oil and gas, which closed down at least -1.23%. The index closed -5.57% below its recent December 3rd 23,910.47 high, but +24.2% above its 18,185.59 June 4, 2012 low.

    In Shanghai, the SHCOMP closed at 2,053.08, compared to 2,071.47 at the prior close, +5.29% above the 1,950.01 June 27th close, last year's low. The index opened modestly higher, set an immediate 2,074.31 intraday high, then revered lower. The index traded around 2,060 through mid-afternoon, then weakened to a late 2,050.35 intraday low. Most market segments closed lower. Leaders were technology and consumer goods, which rose at least +0.08%, and consumer services, which fell at least -0.17%. Financials fell -1.00%. Laggards were telecommunications, health care, and oil and gas, which fell at least -1.07%.

    In Europe, the major equity indexes are modestly lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.01%, -0.43%, -0.11%, and -0.20%, respectively. The Spanish IBEX 35 is up +0.54%, while the Italian FTSE MIB is up +0.54%.

    European bourses have recently outperformed U.S. equity indexes. Euro Stoxx50 relative strength (RSI) is 55.57, compared to 53.68 the prior day, in a neutral (30-70) range and better than its recent February 5th 33.57 low, its 2014 low. The indexes lowest recent RSI level was 25.77 on June 24th, which marked the 2013 2,494.54 closing low.

    Today, the Euro Stoxx50 trades at 3,136.01, -1.21% below its 3,168.76 January 15th post-2008 high close, and -40.4% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,136.33 close, the index fell in early trading to the 3,123.98 intraday low, but briefly reversed higher after the session's first hour. By mid-session, the index fell back to support at 3,125, then improved to breakeven in early afternoon. Most market segments are higher. Leaders are consumer services, telecommunications, and utilities, which rose at least +0.43%. Financials are up +0.35%. Laggards are industrials, oil and gas, and basic materials, which are down at least -0.40%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.60%, -0.38%, -0.54%, and -1.36%, respectively. Last week, the Euro Stoxx50, CAC 40, and DAX closed up +0.56%, +0.62%, and +0.36%, while the FTSE 100 closed off -0.41%. In February, the indexes closed at least +4.14% higher. In January, the indexes close at least -2.57% lower.

    In 2014, the indexes are again higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.69%, +0.52%, +2.05%, and +0.09%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively, compared to +13.8%, 5.84%, +15.2%, and +29.1% the prior year.

    4Q2013 SPX Earnings. Of 488 (of 499) reporting companies, 359 or 74.0% surprised positively on earnings, with an average +4.69% surprise average. Of reporting companies, 300 or 61.7% reported sales or revenues above estimates. The average sales/revenue surprise is +0.93%. Materials lead with +13.6% EPS and +0.72% revenue surprises. Financials follow with a 9.59% earnings surprise and +3.47% revenue surprise.

    Valuation. The SPX trades at 17.0x estimated 2013 earnings ($110.15), 15.9x estimated 2014 earnings ($117.69), 14.3x estimated 2015 earnings ($130.86), and 13.0x estimated 2016 earnings ($144.65). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, 2015, and 2016 earnings to grow +6.52%, +6.84%, +11.2%, and 10.5%, respectively.

    The BKX trades at 13.5x 2013 adjusted EPS ($5.16), 12.5x estimated 2014 earnings ($5.56), 11.3x estimated 2015 earnings ($6.14), and 10.1x 2016 earnings ($6.91). Analysts expect 2013, 2014, 2015, 2016 EPS will grow +19.4%, +7.73%, +10.5%, and +12.5%, respectively.

    Composite, index, and equity options. Options markets improved to neutral to bullish, compared to bearish to bullish the prior session. Composite options are bullish, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.80, compared to 0.90 the prior day, and better than 5- and 10-period moving averages of 0.85 and 0.83, respectively. The index put/call ratio is 1.00, compared to 0.82 the prior day, and worse than its 5- and 10-period moving averages of 0.95 and 0.91, respectively. The equity put/call ratio closed the day at 0.72, compared to 0.96 the prior day, and better than its 5- and 10-period moving averages of 0.82 and 0.81, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +24.3% to 852.54 million shares, compared to 685.96 million shares the prior day, 1.17x the 731.38 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +2,065 (compared to -994 the prior day), or 5..15:1. Up volume was 7.85:1 down volume.

    Distribution day count and market outlook. On February 7th, with the SPX at 1797.02, the market outlook improved to "confirmed uptrend". There have been no subsequent distribution days. The SPX's subsequent rise is +2.71%.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08790%, compared to 0.08830% the prior day. USD 3-month LIBOR is 0.23440%, unchanged from 0.23535% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US Libor-OIS (LOIS) spread is 16.800 bps, compared to 15.700 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 16.1900 bps, up from 15.735 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

    · The 3-month Euro basis swap is -6.000 bps, compared to -5.849 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, but far better than a normal -10 bps and -40 bps range.

    · German 10-year debt yields are 1.62%, compared to 1.60% the prior day. Japanese 10-year debt yields are 0.61%, compared to 0.59% the prior day. Spanish 10-year debt yields are 3.39%, compared to 3.44% the prior day. Italian 10-year debt yields are at 3.39%, compared to 3.42% the prior day.

    · U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.333% and 2.698%, respectively, compared to 0.333% and 2.698% Tuesday. The yield curve narrowed -0.010 bps, with the 2- to 10-year spread at +2.365%, compared to 2.365% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.429% on May 1, 2013, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, slightly stronger compared to the Japanese yen and euro, but weaker compared to the British pound. The dollar trades at US$80.211, compared to a US$80.272 intraday high and US$80.168 the prior day, and worse compared to its $80.570 50-day, US$80.469 100-day, and US$81.079 200-day averages. The euro trades at US$1.3730, compared to a US$1.3745 intraday high and US$1.3743 the prior day. The euro trades better compared to its US$1.3658 50-day and US$1.3639 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.41, compared to ¥101.40 the prior day. The yen trades better than its 50-day moving average ¥103.16, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index worsened to -18.70, compared to -15.30 the prior day, its 10th consecutive negative reading. The index is worse compared to its respective -14.40 5-day and -11.66 10-day moving averages. The index fell to a 52-week low of -32.90 on June 10th. The index improved and turned positive on July 30th and rose to 53.30 on October 1st, but subsequently fell on dollar weakness to -2.10 on October 31st. It subsequently strengthened to a +72.70 high on January 15th, but then subsequently trended lower and turned negative on February 19th. After a lag, the CESIUSD correlates with EPS revisions.

    · Commodities prices are mixed, with lower energy, higher precious metals, higher aluminum and copper, and mixed lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX Volatility Index (VIX) fell -11.9% to 14.10, compared to 16.00 at the prior close. The VIX is -6.80% below the 15.13 20-day moving average. Its 30-day high is 21.48. Its 30-day low is 12.04. The index's all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.14.

    · The Euro Stoxx 50 volatility index (V2X) is 18.81, up +0.90% from 18.65 at the prior day's close. The V2X index trades +3.99% above its 18.09 20-day moving average, -23.5% below the 24.60 30-day high, and +17.7% above the 15.63 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 18.00, down -0.61% from 18.11 at the prior close. The VHSI index trades -0.37% below its 18.07 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +1.96% to 131.65, compared to 129.12 the prior day, above a neutral (115-120) range and again above 130, a level which correlates well with market tops. The recent high was a record 143.20 on December 20th. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, though not in October or November. The prior record high was 139.25, on March 12, 2012. The index rarely falls below 110, last on July 31, 2009. The index correlates with 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.

    U.S. Economic Reporting and News:
     

    • The latest week's MBA mortgage applications rose +9.4%, compared to -8.5% prior.
    • February ADP employment change was 139K, compared to 155K survey and 175K prior.
    • At 10:00, February ISM non-manufacturing composite, February AiG performance of services index was 53.5, compared to 54.0 prior.


    Overseas Economic Reporting and News:
     

    • Australia - February AiG performance of services index was 55.2, compared to 49.3 prior.
    • China - February HSBC/Markit services PMI was 51.0 and 50.7 prior.
    • Hong Kong - February HSBC/Markit PMI was 53.3, compared to 52.7 prior.
    • Eurozone - February PMI services was 52.6, compared to 51.7 survey and prior. MoM January retail sales rose +1.6%, compared to +0.8% survey and -1.3% revised prior.
    • Eurozone - Preliminary 4Q2013 QoQ GDP rose +0.3%, compared to +0.3% survey and prior. YoY GDP rose +0.5%, compared to +0.5% survey and prior.
    • France - Final February PMI services was 47.2, compared to 46.9 survey and 46.9 prior.
    • Germany - Final February PMI services was 55.9, compared to 55.4 survey and prior.
    • Italy - February PMI services was 52.9, compared to 49.9 survey and 49.4 prior.
    • Spain -- February PMI services was 53.7, compared to 54.5 survey.


    · United Kingdom - February PMI services was 58.2, compared to 58.0 survey and 58.3 prior.

    Company Ratings/News:
     

    • None.


    Tuesday's Trade. On greater and above average NYSE volume, U.S. equity indexes closed sharply higher. Equities gapped higher and then generally trended higher to late session highs. The SPX, NYSE composite and Russell 2000 (RTY) all closed at record highs. The SPX, DJI, Nasdaq, and NYSE composite rose +1.53%, +1.41%, +1.75%, and +1.55%, respectively. The SPX, Nasdaq, NYSE composite, and RTY are all higher this year.

    Since February 7th, the U.S. equity market outlook is "confirmed uptrend". There have been no subsequent distributions. The SPX closed +4.28% above the February 7th 1797.02 close.

    Market breadth was positive, with gainers 5.15:1 losing stocks. Led by financials, all SPX market segments closed at least +0.85% higher. Leaders were financials, health care, and industrials, which rose at least +1.56%. Laggards were telecommunications, oil and gas, and utilities.

    NYSE volume rose +24.3% to 852.54 million shares, compared to 685.96 million shares the prior day, 1.17x the 731.38 million share 20-day moving average volume. On the day, bond markets weakened. The U.S. 10-year yield opened at 2.6012% and traded higher through the session with a late 2.7013% intraday high. The yield ended at 2.6977%, up +9.65 bps compared to the 2.6012% prior close.

    From its prior day 1845.73 close, SPX futures suggested a sharply higher open. The index gapped higher and opened at 1857, then rose to 1870 by mid-morning. The index generally trended higher through the close with a late 1876.23 intraday high. The index closed at 1873.91, a new record. The index closed +74.4% above the 1074.77 October 4, 2011, intraday low.

    The DJ Transportation index (TRAN) rose +2.23%, compared to the DJI's +1.41% gain, and closed -0.50% off its January 23, 2013 record close. From its prior 7,302.93 close, the TRAN opened above 7,305 and rose to 7,450 by mid-morning, then traded narrowly higher through the 7,466.08 close. Volume rose +25.6% to 1.26:1 average 15-day volume. The TRAN closed +2.85% and +2.15% above its respective 20- and 50-day moving averages, and +4.09% and +9.84% above its respective 100- and 200-day moving averages.

    Market volatility fell -11.9%, as the CBOE SPX volatility index (VIX) closed at 14.10, compared to 16.00 at the prior close. The VIX opened below 14.30 and trended lower to a mid-afternoon 14.00 intraday low. The index rose to 14.40 in mid-afternoon, then eased again through the final hour. The VIX's all-time closing low was 9.31, on December 22, 1993. Its lifetime average is 20.09.

    The market's technical factors were little changed. All exchanges closed above their 20-, 50-, 100-, and 200-day moving averages. SPX relative strength (RSI) spiked to 65.36, compared to 57.60 the prior day, in the upper end of a neutral range, and much better than an oversold 31.24 on February 3rd. The RSI is also down from an overbought 71.26 on December 31st, when the SPX closed an earlier record high, but above earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th. The CBOE put/call SKEW rose +1.96%, to 131.65, compared to 129.12 the prior day, well above a neutral 115-120 range and again above 130, a level that correlates well with short-term market tops.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.78%, +0.45%, +1.02%, and +0.61%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.13%, +1.04%, +1.51%, and +1.39%, respectively. In February, the SPX, DJI, Nasdaq, and NYSE composite closed up +4.31%, +3.97%, +4.98%, and +4.60%, respectively. In January, the SPX, DJI, Nasdaq, and NYSE composite closed down -3.56%, -5.30%, -1.74, and -4.16%, respectively.

    In 2014, the SPX, Nasdaq, and NYSE composite are up +1.38, +4.20%, and 0.86%, respectively, while the DJI is down -1.09%. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.

    KBW Bank Index (BKX). On greater, but below average volume, the BKX closed at 69.63, up +1.98% compared to 68.28 at the prior day's close, its 26th consecutive close below 70.00. The index opened below 68.80, then improved through the session to a late 69.40 intraday high. Volume rose +8.71% to 52.086 million shares, compared to 47.911 million shares the prior day, 0.99:1 the 52.173 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +2.55%.

    This week, the BKX is up +0.88%, compared to a gain of +0.70% the prior week. In February, the BKX closed up +2.51%, compared to January, when the BKX closed down -2.79%. In 2014, the BKX is up +0.53%. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +17.6% better than the June 24th 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th. The BKX closed +113.9% above the 32.56 intraday low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +74.4% in the same period.

    The BKX index closed -42.5% below its February 20, 2007, record 121.06 high. The BKX is up +274.0% from its 18.62 March 6, 2009, closing low.

    Technical indicators improved, as the index recovered its 50-day moving average. The index closed +2.24%, +1.15%, +3.45%, and +7.07% above its respective 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average rose +20bps to 68.10. The 68.84 50-day moving average rose +3 bps. Its 100-day moving average rose +9 bps to 67.31, and the 200-day moving average rose +5 bps to 65.25. The 20-day closed (by -0.74 points) above the 50-day, and the gap narrowed -17 bps. The 50-day moving average closed (by +3.58 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +2.05 points) above the 200-day moving average, and the gap rose +3 bps.

    The directional movement indicator widened to +6.968, compared to +0.071 the prior day. Relative strength spiked to 58.04, compared to 49.52 the prior day, in a neutral range, up from the recent 32.95 low on February 3rd, but down sharply from an overbought 75.56 and 71.88 on January 9th and 10th, respectively. The recent low RSI level 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 70.07; next support is at 68.85.

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

StockTalks

More »

Latest Comments


Posts by Themes
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.