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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, Europe Rally After Employment Report; Asia Ends Mixed 0 comments
    Mar 7, 2014 9:03 AM

    This morning. Today, U.S. equity futures are higher after fair value adjustment, rallying following a better than expected February employment report. In Asia, equity markets closed mixed, with modest weakness in China on credit issues related to its first corporate bond default. The dollar is weaker. Monday's Nikkei 225 March 2014 (NKH4) equity futures are +0.392% higher.

    Commentary focuses on the February U.S. jobs report, which surprised positively on payrolls, but with a lower weekly hours and a higher unemployment rate.

    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 S&P 500 Index (SPX) rose +4.45% subsequently. The quarter's earnings reports are nearly complete, with U.S. materials reports particularly strong, followed by financials.

    Thursday, world equity and bond markets continued their consolidation after the Tuesday's strong rally. U.S. equity markets closed mixed. The SPX, DJ Industrials (DJI) and NYSE composite rose +0.17%, +0.38%, and +0.41%, respectively, while the Nasdaq fell -0.13%. The DJ Transports (TRAN) rose +0.75% to a record close, though the DJI remains lower on the year. NYSE volume rose +1.34% to 0.94x its 20-day moving average.

    Trading desks report quiet markets overnight, despite the Chinese corporate default. Yesterday, U.S. equity markets initially rallied, then eased toward the session's end in anticipation of today's employment report. Traders describe the trade as quiet and uneventful, another day of consolidation following Tuesday's exceptional gains. Financials outperformed again as the yield curve steepened.

    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. The TRAN's record close was unaccompanied by a similar DJI record (which remains -0.93% below its December 31, 2013 record close). The U.S. 10-year yield arguably continues to signal equity weakness. With SPX equities trading at a 17.0x 2013 earnings multiple, attention focuses on 2014 earnings and valuations (17.0x times survey $117.63 2014 SPX operating earnings suggests a 2004.51 SPX level next year, a +6.79% rise).

    Technicals were little changed. All indexes closed above their respective 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Market breadth was positive, and up volume led down volume. Volatility rose. Treasury bond markets weakened. The U.S. Treasury 10-year bond yield rose +3.25 bps to 2.7373%, compared to 2.7048% at the prior close.

    This morning, 10-year U.S. Treasury yields are up +1.36 bps at 2.7237%, compared to the prior close. Spanish and Italian 10-year debt yields are 3.37% and 3.42%, respectively, compared to 3.40% and 3.44% the prior day. The U.S. dollar is mixed.

    U.S. options markets are neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +5.40%% to 133.46, compared to 126.62 the prior day, above a neutral range (115-120) and again above 130, which generally correlates well with short-term market tops.

    In pre-market futures trading, March SPX equity futures (SPH4) price near the middle of a 1876-1891 trading range. After a fair value adjustment of -0.32 points, SPX equity futures price at 1887.00, up +10.05 points. The SPX opens +2.16%, +2.80%, +4.27%, and +8.42% above its respective 20-, 50-, 100-, and 200-day moving averages. Initial resistance is 1881.25. Initial support is 1873.49, then 1869.96.

    In Asia, equity markets closed mixed, with modest weakness in China, which recorded its first corporate bond default. In Japan, the Nikkei 225 index (NYSEARCA:NKY) rose +0.92%. The Hang Sang index (HSI) fell -0.19%. The Shanghai composite (SHCOMP) fell -0.08%. Today's volumes are unavailable.

    Commentary focused on currency developments, as the yen strengthened slightly. In China, short-term interbank lending rates remain surprisingly volatile, with 7-day Shibo rates falling to 2.46%, compared to 2.48% the prior day, at levels last seen in March 2013 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 57.62, compared to 55.16 the prior day, up from an oversold 27.92 on February 4th. The HSI RSI ended at 53.76, compared to 54.78 the prior day and an oversold 24.02 on February 5th. The SHCOMP's RSI closed at 46.08, compared to 46.46 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 +2.92%, the HSI is down -0.77%, and SHCOMP is up +0.08%. 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, HSI, and SHCOMP are down -6.24%, -2.77%, and -2.74%, 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 15,274.07, compared to 15,134.75 the prior day and -60.8% below its late-1989 38,915.87 high close. The index opened at 15,280 and rose to an early 15,312.60 intraday high, then eased through mid-session to an early afternoon 15,145.59 intraday low. The index improved nearly to 15,300 by the close. The index closed +3.79%, +0.36%, +1.61%, and +5.22% above its respective 20-, 50-, 100-, and 200-day moving averages. All market segments closed at least +0.42% higher. Leaders were consumer services, oil and gas, and financials, which rose at least +1.06%. Laggards were technology, consumer goods, and telecommunications.

    In China, the HSI closed at 22,660.49, compared to 22,702.97 at the prior close. The index opened slightly higher, then rallied to an early 22,820.41 intraday high, then reversed lower by late morning to the 22,604.02 intraday low. The index improved to breakeven by mid-session, then traded narrowly to the close. Most market segments closed lower. Leaders were oil and gas, financials, and basic materials, which rose at least +0.01%. Laggards were technology industrials, and consumer services, which fell at least -0.69%. The index closed -5.23% below its recent December 3rd 23,910.47 high, but +24.6% above its 18,185.59 June 4, 2012 low.

    In Shanghai, the SHCOMP closed at 2,057.91, compared to 2,059.58 at the prior close, +5.53% above the 1,950.01 June 27th close, last year's low. The index rose to a mid-morning 2,079.23 intraday high, but fell back to breakeven by late morning, then traded narrowly to the close. Most market segments closed lower. Leaders were oil and gas, telecommunications, and health care, which rose at least +0.32%. Financials fell -0.45%. Laggards were consumer services, utilities, and technology, which fell at least -0.60%.

    In Europe, most major equity indexes reversed higher following the U.S. employment report. The Euro Stoxx50, FTSE 100, and CAC 40 are up +0.04%, +0.12%, and +0.23%, respectively, while the DAX is down -0.27%. The Spanish IBEX 35 is down -0.23% and the Italian FTSE MIB is up +0.13%. Commentary focuses on this morning's U.S. jobs report, which was released at 8:30 am EST.

    European bourses have recently outperformed U.S. equity indexes. Euro Stoxx50 relative strength (RSI) is 57.36, compared to 56.82 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 3,148.69, -0.62% below its 3,168.76 January 15th post-2008 high close, and -40.0% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,129.79 close, the index weakened to a mid-morning 3,124.61 intraday low, but reversed higher after the positive U.S. jobs report. Market segments are mixed. Leaders are telecommunications, consumer services, and health care, which are up at least +0.46%. Financials are up +0.12%. Laggards are technology and utilities, which are up at least +0.02%, and industrials, which is down -0.20%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.71%, -0.56%, -0.17%, and -2.37%, 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 mixed. The Euro Stoxx50, FTSE 100, and CAC 40 are up +0.58%, +0.33%, and +2.44%, respectively, while the DAX is down -0.94%. 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 494 (of 499) reporting companies, 362 or 73.7% surprised positively on earnings, with an average +4.58% surprise average. Of reporting companies, 303 or 61.7% reported sales or revenues above estimates. The average sales/revenue surprise is +0.85%. 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), 16.0x estimated 2014 earnings ($117.63), 14.3x estimated 2015 earnings ($130.83), and 13.0x estimated 2016 earnings ($144.61). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, 2015, and 2016 earnings to grow +6.52%, +6.79%, +11.2%, and 10.5%, respectively.

    The BKX trades at 13.7x 2013 adjusted EPS ($5.16), 12.7x estimated 2014 earnings ($5.55), 11.5x estimated 2015 earnings ($6.14), and 10.2x 2016 earnings ($6.91). Analysts expect 2013, 2014, 2015, 2016 EPS will grow +19.4%, +7.65%, +10.5%, and +12.5%, respectively.

    Composite, index, and equity options. Options markets improved to neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.81, compared to 0.76 the prior day, and better than 5- and 10-period moving averages of 0.82 and 0.81, respectively. The index put/call ratio is 1.23, compared to 1.31 the prior day, and worse than its 5- and 10-period moving averages of 1.05 and 0.98, respectively. The equity put/call ratio closed the day at 0.70, compared to 0.71 the prior day, and better than its 5- and 10-period moving averages of 0.75 and 0.76, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +1.34% to 675.37 million shares, compared to 666.47 million shares the prior day, 0.94x the 718.85 million share 20-day moving average. Market breadth was slightly positive, though up volume led down volume. Advancing stocks led by +395 (compared to -90 the prior day), or 1.30:1. Up volume was 1.76:1 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 +4.45%.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.08760%, compared to 0.08790% the prior day. USD 3-month LIBOR is 0.23510%, unchanged from 0.23440% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US Libor-OIS (LOIS) spread is 15.710 bps, compared to 15.640 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 16.800 bps, unchanged from 16.800 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 -2.3930 bps, compared to -3.2378 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 1.64%, compared to 1.65% the prior day. Japanese 10-year debt yields are 0.63%, compared to 0.62% the prior day. Spanish 10-year debt yields are 3.37%, compared to 3.40% the prior day. Italian 10-year debt yields are at 3.42%, compared to 3.44% the prior day.

    · U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.342% and 2.728%, respectively, compared to 0.341% and 2.737% Thursday. The yield curve narrowed -0.900 bps, with the 2- to 10-year spread at +2.387%, compared to 2.396% 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 weaker compared to the euro, Japanese yen, and British pound. The dollar trades at US$79.486, compared to a US$79.471 intraday low and US$79.663 the prior day, and worse compared to its $80.534 50-day, US$80.467 100-day, and US$81.042 200-day averages. The euro trades at US$1.3913, compared to a US$1.3912 intraday high and US$1.3861 the prior day. The euro trades better compared to its US$1.3665 50-day and US$1.3643 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.92, compared to ¥103.07 the prior day. The yen trades better than its 50-day moving average ¥103.08, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index worsened to -28.00, compared to -27.90 the prior day, its 12th consecutive negative reading. The index is worse compared to its respective -20.66 5-day and -16.20 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 mixed energy, lower precious metals, higher aluminum and copper, and higher agriculture prices.

    Volatility, Skew:

    · The CBOE SPX Volatility Index (VIX) rose +2.30% to 14.21, compared to 13.89 at the prior close. The VIX is -2.55% below the 14.58 20-day moving average. Its 30-day high is 21.48. Its 30-day low is 13.44. 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 +5.58% from 17.82 at the prior day's close. The V2X index trades +6.00% above its 17.75 20-day moving average, -23.5% below the 24.60 30-day high, and +17.6% above the 15.99 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 16.93, down -1.46% from 17.18 at the prior close. The VHSI index trades -4.23% below its 17.68 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) rose +5.40% to 133.46, compared to 126.62 the prior day, above a neutral (115-120) range, but 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:
     

    • At 8:30, February change in nonfarm payrolls was 175K, compared to 149K survey and 129K revised prior.
    • February change in private payrolls was 162K, compared to 145K survey and 145K revised prior.
    • February change in manufacturing payrolls was 6K, compared to 5K survey and 6K revised prior.
    • February unemployment rate rose to 6.7%, compared to 6.6% survey and prior.
    • February average MoM hourly earnings rose 0.4%, compared to +0.2% survey and revised prior.
    • February underemployment rate is 12.6%, compared to 12.7% prior.
    • February labor force participation rate is 63.0%, compared to 63.0% prior.


    Overseas Economic Reporting and News:
     

    • Australia - February AiG performance of construction index was 44.2, compared to 48.2 prior.
    • Japan - January preliminary leading index was 112.2, compared to 112.4 survey and 111.7 prior. The coincident index was 114.8, compared to 114.6 survey and 112.3 revised prior.
    • Germany - January wholesale price index fell -0.1%, compared to +0.3% revised prior. January MoM industrial production rose +0.8%, compared to +0.8% survey and +0.1% revised prior.
    • Italy - January MoM PPI fell -0.2%, compared to -0.1% prior.
    • Spain - 4Q2013 QoQ price index fell -1.3%, compared to +0.7% prior.
    • United Kingdom - BOE/GfK next 12 month inflation is +2.8%, compared to +3.6% prior.


    Company Ratings/News:
     

    • None.


    Thursday's Trade. On greater but below average NYSE volume, U.S. equity indexes closed mixed. Equities traded narrowly through the session. The SPX and NYSE composite closed at record highs. The Nasdaq and Russell 2000 (RTY) closed slightly off their prior day record highs. The SPX, DJI, and NYSE composite +0.17%, +0.38%, and +0.41%, while the Nasdaq and RTY fell -0.13% and -0.11%, respectively. The SPX, Nasdaq, NYSE composite, and RTY are all higher this year. The DJI remains -0.93% in 2014.

    Since February 7th, the U.S. equity market outlook is "confirmed uptrend". There have been no subsequent distributions. The SPX closed +4.45% above the February 7th 1797.02 close.

    Market breadth was positive, with gainers 0.94:1 losing stocks. Led by financials, SPX market segments closed mixed. Leaders were financials, oil and gas, and industrials, which rose at least +0.52%. Laggards were technology, utilities, and health care, which fell at least -0.04%.

    NYSE volume rose +1.34% to 675.37 million shares, compared to 666.47 million shares the prior day, 0.94x the 718.85 million share 20-day moving average volume. On the day, bond markets weakened. The U.S. 10-year yield opened at 2.6986%, rose to an early afternoon 2.7463% intraday high, then fell back to 2.6959% during the afternoon. The yield ended at 2.7373%, up +3.25 bps compared to the 2.7048% prior close.

    From its prior day 1873.03 close, SPX futures suggested a moderately higher open. The index surprised with a stronger than expected rally, and the index rose nearly to 1882, which proved resistance through the session. In early afternoon, the index set its 1881.94 intraday high, then dropped back to 1875 by mid-afternoon and then traded narrowly higher to the close. The index ended at 1877.03, a record. The index closed +79.5% above the 1074.77 October 4, 2011, intraday low.

    The DJ Transportation index (TRAN) rose +0.75%, compared to the DJI's +0.38% gain, and closed at a record, +0.75% above its prior January 23, 2013 record close. From its prior 7,489.65 close, the TRAN opened higher and trended higher through the session to a late 7,572.53 intraday high. Volume rose +8.78% to 11.178 million shares, compared to 10.276 million shares the prior session, and 0.91x the 15-day moving average volume. The TRAN closed +3.54% and +3.27% above its respective 20- and 50-day moving averages, and +5.11% and +11.1% above its respective 100- and 200-day moving averages.

    Market volatility rose +2.30%, as the CBOE SPX volatility index (VIX) closed at 14.21, compared to 13.89 at the prior close. The VIX initially moved lower and set a mid-morning 13.73 intraday low before rising by mid-afternoon to the 14.42 intraday high. 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) rose to 66.14, compared to 65.31 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 +5.40% to 133.46, compared to 126.62 the prior day, well above a neutral 115-120 range but again below 130, a level that correlates well with short-term market tops.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are up +0.95%, +0.61%, +1.02%, and +0.96%, 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 +1.55, +4.20%, and 2.05%, respectively, while the DJI is down -0.93%. 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 lower and below average volume, the BKX closed at 70.68, up +0.77% compared to 70.14 at the prior day's close, its 2nd consecutive close above 70.00. The index rallied quickly to 70.80 in early trading, then traded narrowly higher to a late 70.89 intraday high. Volume fell -23.2% to 57.335 million shares, compared to 74.635 million shares the prior day, and 1.05x the 54.375 million shares 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) rose +0.64%.

    This week, the BKX is up +2.41%, compared to a gain of +0.70% the prior week. In February, the BKX closed up +2.41%, compared to January, when the BKX closed down -1.07%. In 2014, the BKX is up +2.05%. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +19.4% 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 +117.1% 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 +74.6% in the same period.

    The BKX index closed -41.6% below its February 20, 2007, record 121.06 high. The BKX is up +279.6% from its 18.62 March 6, 2009, closing low.

    Technical indicators were little changed. The index closed +3.14%, +2.54%, +4.76%, and +8.16% above its respective 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average rose +23 bps to 68.53. The 68.93 50-day moving average rose +5 bps. Its 100-day moving average rose +7 bps to 67.47, and the 200-day moving average rose +5 bps to 65.35. The 20-day closed (by -0.40 points) above the 50-day, and the gap narrowed -8 bps. The 50-day moving average closed (by +3.58 points) above the 200-day moving average, and the gap was unchanged. The 100-day moving average closed (by +2.12 points) above the 200-day moving average, and the gap rose +2 bps.

    The directional movement indicator widened to +15.202, compared to +10.954 the prior day, its 3rd consecutive positive reading and best since mid-January. Relative strength rose to 63.41, compared to 60.73 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 71.85; next support is 70.34 at 69.72.

    Price and Selling Exhaustion/Trend Reversal (based on TD sequential):

    S&P 500 Index (SPX) - On a monthly basis, the SPX initiated a buy setup in June 2008, with the month's 1404.05 high setting the resistance level. The setup perfected at 735.09 in February 2009. A sell setup ensued in May 2009. In September 2010, a follow-on setup began. The May 2009 setup perfected in January 2010. Its countdown completed in January 2012, closing at 1312.41 and setting a 1429.36 risk level. The follow-on setup perfected in May 2011. In March 2012, the index closed at 1408.47, above resistance, suggesting further upside. In September 2012, the index closed at 1440.67, above the 1429.36 risk level and suggesting the likelihood of further upside. In October and November, the index closed below the risk level, but above support. Also, the follow-on countdown rose to 8 in September 2012, but hasn't subsequently progressed. In August 2012, the index initiated a new sell setup, which perfected in April 2013. In May, the sell countdown stemming with the May 2011 perfection completed, setting a risk level of 1793.08, based on May's 105.90 range and 1687.18 high. In December, the index closed up +2.36% at 1848.36, compared to 1805.81 the prior month and 1632.97 four months prior. The May 2013 sell countdown progressed to 6. The index closed +3.08% above the risk level.

    On a weekly basis, on January 4th, a bullish price flip initiated a sell setup, which perfected the week ending March 1. On August 2nd, the March 1st sell countdown completed and set a 1737.48 risk level, based on the week's 27.81 point range and 1709.67 high. The week ending August 16th, a bearish price flip initiated a buy setup. On September 13th, a bullish price flip initiated a sell countdown which completed on November 8th and initiated a sell countdown. In the week ending January 17th, the index fell -0.20% to 1838.70, compared to 1842.37 the prior week and its 1818.32 close four weeks prior. The December 20th sell setup progressed to 5. The November 8th 8 sell countdown is unchanged since January 3rd. The index closed +5.83% above the 1737.48 risk level.

    On a daily basis, on October 22nd, the SPX completed the September 16th sell countdown and set a 1774.00 risk level, based on the day's 12.85 high/low range and 1759.33 intraday high. Also, the October 10th sell setup perfected, initiating a sell countdown, which completed on November 29th. The completion set a 1,823.12 risk level, based on the day's 9.57 point range and 1803.98 intraday high. On December 11, 2013, a bearish price flip initiated a buy setup. December 31st, the December 18th sell setup perfected and initiated a sell countdown. On January 14th, a bullish price flip initiated a sell setup. On Wednesday, the SPX rose +0.06% to 1844.86, compared to 1843.80 the prior day and 1848.38 4 days prior. The bearish price flip canceled the January 14th 5 sell setup and initiated a buy setup. The December 31st 5 sell countdown is unchanged since January 16th. The index closed +1.19% above the 1823.12 risk level.

    KBW Bank Index (BKX) - On a monthly basis, the BKX perfected a buy setup in December 2007, but has yet to complete its associated buy countdown, which is has been a deferred 13 since April 2011. That same month, the BKX initiated a buy setup, but the setup has remained unperfected since December 2011, when the index closed at 39.38. The buy countdown would complete with a close below 28.72, the February 2009 close with an 8 buy countdown. In September 2012, the index initiated a sell setup, which perfected in May 2013. In December, the index closed up +2.18% at 69.26, compared to 67.78 November-end and 62.21 four months prior. The May 2013 sell countdown progressed to 6.

    On a weekly basis, a bullish price flip occurred on July 27, 2012, and the sell setup perfected the following September 21st. Subsequent trends were weak until December 7, when the index initiated a new sell setup, which perfected on February 1, 2013. On February 22nd, the September 21st sell countdown completed and set a 56.93 risk level. On July 19th, the February 1st sell countdown completed and set a 68.29 risk level, based on the day's 2.24 point range and 66.05 intraday high. On October 18th, a bullish price flip initiated a sell setup, which perfected on December 20th. For the week ending January 17th, the BKX closed down -0.65% at 70.31, compared to 70.77 the prior week and 68.35 four weeks prior. The December 20th sell countdown progressed to 4. The index closed +2.96% above the 68.29 risk level.

    On a daily basis, on August 8th, a bearish price flip initiated a buy setup, which completed on August 19th and initiated a buy countdown. On September 16th, the September 4th sell setup perfected and initiated a sell countdown. The October 22nd, the October 10th sell setup perfected and initiated a sell countdown. On November 8th, a bullish price flip initiated a sell setup, which perfected on November 21st, initiating a sell countdown with completed on December 16th. The completion set a 69.11 risk level. On December 31st, the December 17th sell setup perfected and initiated a sell countdown. On January 2nd, the October 22nd sell countdown completed and set a 69.69 risk level. On January 17th, a bullish price flip initiated a sell setup. Wednesday, the index rose +0.44% to 71.40, compared to 71.09 the prior day and 71.19 four days prior. The January 17th sell setup progressed to 3. The December 31st sell countdown progressed to 10. The index closed +2.59% above the 69.69 risk level.

    CBOE SPX Volatility Index (VIX) - On a monthly basis, the VIX perfected a sell setup in October 2007. The associated sell countdown progressed to a deferred 13 in June 2012, but is subsequently unchanged. In May a bullish flip initiated a sell countdown. The VIX ended December down -0.15% at 13.72, compared to 13.70 at the end of November and 17.01 at the end of August. The bearish index flip canceled a 1 sell setup and initiated a buy setup.

    On a weekly basis, the VIX perfected a buy setup on January 27, 2012, and a sell setup on June 8th, followed by another perfected buy setup on August 10th. On April 12th, the VIX completed the buy countdown associated with the August 10th, setup, which also established a 9.17 risk level. The week ending January 17th, the VIX rose +2.47% to 12.44, compared to 12.14 the prior week, and 13.79 4 weeks prior. The December 27th buy setup progressed to 4. The index closed +35.7% above the 9.17 risk level.

    On a daily basis, on May 20th a bullish flip initiated a sell setup, which perfected on May 31st and initiated a sell countdown. On June 26th, a bearish flip initiated a buy countdown, which perfected on July 9th, when a sell countdown was initiated. On September 13th, the September 4th buy setup perfected. On September 18th, a bearish flip initiated a buy setup. On September 20th, the July 9th buy countdown completed. On October 10th, a bearish index flip initiated a buy setup, which perfected on October 22nd. The associated sell countdown commenced on October 23rd, which completed on December 26th and set a 10.88 risk level. On January 16th, the bullish index flip initiated a sell setup. Wednesday, the VIX fell -0.23% to 12.84, compared to 12.87 the prior day and 12.28 at the 4 days' prior close. The January 21st sell setup progressed to 2. The VIX closed +18.0% above the 10.88 risk level.

    U.S. 10-year Bond Index (USGG10YR) - On a monthly basis, the USGG10YR began a downward trend from 5.0506% in May 2006, perfecting a sell setup in April 2008 (at 3.7295%) and completing the associated buy countdown in June 2011 (at 3.1600%), when it produced a 1.1121% risk factor. A subsequent 9 buy setup perfected in May 2012, with the rate at 1.5578%. In September 2012, a bullish price flip initiated a sell setup. The rate ended December 2013 up +28.37 bps at 3.0282%, compared to 2.7445% the prior month and 2.7839% 4 months prior. The May 2013 sell setup perfected and initiated a sell setup.

    On a weekly basis, Trends were weak until a May 3rd bullish rate flip (at 1.7382%) initiated a sell setup, which perfected on June 28th, when the rate ended at 2.4857%. On October 18th, the February 1st sell countdown completed, setting a 3.2260% risk level, based on the September 6th weekly 22.110 bps range and 3.0050% intraweek high. On November 8th, a bullish rate flip initiated a sell setup, which perfected on January 3rd. The week of January 10th, a bearish rate flip initiated a buy setup. For the week ended January 17th, the rate fell -3.85 bps to 2.8194%, compared to 2.8579% the prior Friday and 2.8886% four weeks prior. The January 10th buy setup progressed to 2. The June 28th 11 sell countdown is unchanged since January 3rd. The rate closed -40.60 bps below the 3.2260% risk level.

    On a daily basis, on June 24th, the May 20th sell countdown completed, setting a 2.8150% risk level, based on the June 24th 15.03 bps trading range and 2.6647% intraday high. On September 24th, the September 11th buy setup perfected. On December 31st, the December 18th sell setup perfected and initiated a sell countdown. On January 9th, a bearish rate flip initiated a buy setup. On Wednesday, the rate rose +3.70 bps to 2.8656%, compared to 2.8286% the prior day and 2.8912% four days prior. The January 9th buy setup progressed to an unperfected 9. The December 31st 3 sell countdown is unchanged since January 15th. The rate closed +5.06 bps above the 2.8150% risk level.

    EURUSD Spot Exchange Rate (EURUSD Cross) - On a monthly basis, Euro Dollar cross perfected a buy setup on May 30, 2008, at 1.554. Subsequent monthly trends were weak until December 31, 2009, when a monthly decline of -4.56% brought the index to 1.4321. The downward move continued until July 2010, when from 1.2238, the index rose +7.10%, with an unperfected buy setup in August 2010. The index failed to establish much strong upward momentum, however, peaking at the end of April 2011 at 1.4807, but then trending lower to retest the July 2010 lows. In March, a bearish price initiated a buy setup. The cross ended December up +1.12% at 1.3743, compared to 1.3591 the prior month and 1.3222 4 months prior. The July 2013 sell setup progressed to 6. The 9 buy countdown progressed is unchanged since March 2013.

    On a weekly basis, on September 27th, the April 12th sell countdown completed, setting a 1.4008 risk level. On December 27th, a bearish rate flip initiated a buy setup. The week of January 17th, the index fell -0.94% to end at 1.3541, compared to 1.3670 the prior week and 1.3673 4 weeks prior. The December 27th buy setup progressed to 3. The cross closed -3.42% below the 1.4008 risk level.

    On a daily basis, on July 10th, a bullish price flip initiated a sell setup, which perfected on July 22nd. On September 16th, the July 2nd sell countdown completed. On September 19th, the September 9th sell setup perfected and initiated a sell countdown. On October 28th, the October 16th sell setup perfected. On November 8th, the October 29th buy setup perfected and initiated a buy countdown. On January 15th, a bullish price flip initiated a buy setup. With Wednesday's -0.10% lower close, the EURUSD cross ended at 1.3547, compared to 1.3561 the prior day and 1.3541 four days prior. The January 15th buy setup progressed to 6. The November 8th buy countdown remains an uncompleted 13. The cross closed -0.24% above the 1.3580 risk level.

    Euro Stoxx 50 (SX5E) - On a monthly basis, the Euro Stoxx50 perfected a sell setup on May 31, 2007. It perfected a buy setup on September 30, 2008. The buy countdown completed in May 2012. A bullish price flip in August 2012 initiated a sell setup, which perfected in May 2013 and initiated a sell countdown. In December, the index closed up +0.60% at 3,105.22, compared to 3,086.64 the prior month and 2,721.37 four months prior. The July 31st sell setup progressed to 6. The May 2013 sell countdown progressed to 5.

    On a weekly basis, a November 23, 2012, bullish price flip initiated a sell setup that perfected January 18, 2013. On August 16th, the January 19th sell countdown completed and set a 2,909.37 risk level, based on the August 16th week's 53.48 range and 2,855.89 intraweek high. The week of September 13th, a bullish price flip initiated a sell setup which perfected on November 11th, which initiated a sell countdown. The week of December 6th, a bearish price flip initiated a buy setup. In the week ended January 17th, the index rose +1.61% to 3,154.10, compared to 3,104.15 the prior week and 3,049.35 at the 4 weeks' prior close. The December 27th sell setup progressed to 4. The November 11th sell countdown progressed to 4. The index closed +8.41% above the 2,909.37 risk level.

    On a daily basis, on September 17th, the September 5th sell setup perfected and initiated a sell countdown, which completed on October 21st. On October 21st, the October 9th sell setup perfected and initiated a sell countdown, which established a 3,056.96 risk level. On December 3rd, a bearish price flip initiated a buy setup, which perfected on December 13th. On January 7th, a bullish price flip initiated a sell setup, which perfected on January 17th. On January 21st, a bearish price flip initiated a buy setup. Wednesday, the index fell -0.06% to 3,151.27, compared to 3,153.08 the prior day and 3,154.10 at the prior 4 days' close. The index closed +3.09% above the 3,056.96 risk level.

    Nikkei 225 (NKY) - On a monthly basis, the NKY perfected a buy setup on April 30, 2009 (at 8,828.26), but subsequently traded narrowly until November, 2012, when the index rose +5.80%, following an increase of +1.50% in October, and initiated a sell setup. In July 2013, the November 2012 sell setup perfected. In September, a bullish price flip initiated a sell setup. In December, the index rose +4.02% to 16,291.31, compared to 15,661.87 the prior month and 13,388.86 four months prior. The September 30th sell setup progressed to 4. The sell countdown associated with the July 2013 perfection progressed to 2.

    On a weekly basis, the NKY perfected a sell setup on March 9th, and a subsequent buy setup on June 1st with a countdown of 8. The index initiated a sell setup on October 26th, and on December 21st, the sell setup perfected. Notably, on December 28th, the index closed at 10,395.18, +2.01% above 10,190.35 resistance (its April 4th weekly high), suggesting further upside. The sell countdown associated with the December 21st perfection completed April 5th and set a 14,645.46 risk level, based on the 1,419.84 point range on that day and 13,225.62 intraday high. On January 10th, the November 15th sell setup perfected. For the week ending January 17th, the index closed down -1.12% at 15,734.46, compared to 15,912.06 the prior week and 15,870.42 four weeks prior. The bearish price flip initiated a buy setup. The index closed +8.65% above the 14,645.46 risk level.

    On a daily basis, on September 2nd a bullish price flip initiated a sell setup, which perfected on September 12th. The associated sell countdown initiated on September 18th. On October 10th, a bullish price flip initiated a sell setup. On October 22nd, the September 18th sell countdown completed and set a risk level of 14,935.79. On November 21st, the November 11th sell setup perfected and initiated a sell countdown. On December 26th, the November 21st sell countdown completed and set a 16,362.09 risk level. On January 14th, a bearish price flip initiated a buy setup. Thursday, the index fell -0.79% to 15,695.89, compared to 15,820.96 the prior day and 15,734.46 four days prior. The bearish price flip canceled the January 22nd 1 sell setup and initiated a buy setup. The index closed -4.07% below the 16,362.09 risk level.

    Hang Sang Index (HSI) - On a monthly basis, the HSI perfected a buy countdown on March 31, 2009, and two subsequent perfected upward setups on December 31, 2009 and May 31, 2011. In February, the index closed at 23,020.27, completing the sell countdown stemming from the May 2011 perfection. The completed countdown set a 27,194.16 risk level. A bullish price flip in September 2012 initiated a sell setup. A bearish price flip in May 2013 initiated a buy setup. In December, the index fell -2.41% to 23,306.39, compared to 23,881.29 the prior month and 21,743.10 four months prior. The September 2013 sell setup progressed to 4. The index closed -14.3% below the risk level.

    On a weekly basis, the HSI perfected a sell setup on March 2, 2012, and the associated sell countdown completed on September 21, 2012, and set a 22,357.00 risk level, based on the September 14, 2012, when it set a 22,357.00 risk level. The index perfected two sell setups on November 9th and February 1st. A buy setup initiated the following week and perfected on April 5th, initiating a sell countdown. On December 20th, a bearish price flip initiated a buy setup. For the week ended January 17th, the index closed up +1.26% to 23,133.35, compared to 22,846.25 the prior week and 22,812.18 four weeks prior. The bullish price flip canceled the December 20th 4 buy setup and initiated a sell setup. The April 5th 11 buy countdown was unchanged. The index closed +3.47% above the 22,357.00 risk level.

    On a daily basis, on April 19th, a bullish price flip initiated a sell setup, which perfected on May 2nd and initiated a sell countdown. On June 4th, the May 23rd buy setup perfected and initiated a buy countdown. On June 20th, a bearish price flip initiated a buy setup. On June 25th, the June 4th buy countdown completed and set a 18,860.42 risk level, which is based on the day's 565.94 trading range and 19,426.36 intraday low. On September 12th, the September 2nd sell setup perfected and on September 16th, a sell countdown initiated. On November 4th, the September 16th sell countdown completed and set a 23,991.23 risk level. On December 11th, a bearish price flip initiated a buy setup, which perfected on December 23rd. On Thursday, the index fell -1.51% to 22,733.90, compared to 23,082.25 the prior day and 23,133.35 four days prior. The bearish price flip canceled the January 15th 5 sell setup and initiated a buy setup. The December 23rd buy countdown progressed to 5. The index closed -5.24% below the 23,991.23 risk level.

    Shanghai Composite Index (SHCOMP) - On a monthly basis, the SHCOMP perfected a buy setup on September 30, 2008, and subsequently rallied to an August 31, 2009, high, but without perfecting a subsequent sell setup. In May 2011, the SHCOMP assumed a downward trend and perfected a buy setup on January 31, 2012. The perfection initiated a buy setup. In April 2013, a bearish price flip initiated a buy setup. In December, the index closed down -4.71% to 2,115.98, compared to 2,220.50 the prior month and 2,098.38 four months prior. The October 2013 sell setup progressed to 3. The January 2012 9 buy countdown is unchanged since July 2013.

    On a weekly basis, on December 14th, a bullish price flip initiated a sell setup at 2,059.47. That setup perfected on February 8th, with a 2,432.40 close, up +18.1%. On September 20th, the July 26th sell setup perfected and initiated a sell countdown. On December 20th, a bearish price flip initiated a buy setup. On January 17th, the index closed the week down -0.41% to 2,004.95, compared to 2,013.30 the prior week and 2,084.79 four weeks prior. The December 20th buy setup progressed to 5. The September 20th 6 sell countdown is unchanged since December 6th.

    On a daily basis, On August 13th, the August 1st sell setup perfected and initiated a sell countdown, which perfected on October 10th. On September 3rd a bullish price flip initiated a sell setup and initiated a sell countdown. On November 28th, the October 10th sell countdown completed, setting a 2,259.57 risk level. On December 10th, a bearish price flip initiated a buy setup, which perfected on December 20th and initiated a buy countdown. On January 20th, the January 3rd buy setup perfected and initiated a buy countdown. On January 22nd, a bullish price flip initiated a sell setup. Thursday, the index fell -0.47% to 2,042.18, compared to 2,051.75 at the prior close and 2,004.95 4 days prior. The January 22nd sell setup progressed to 2. The December 20th 11 buy countdown is unchanged since January 20th. The index closed -9.62% below the 2,259.57 risk level.

    SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR

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