Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

U.S. Equity Uptrend Resumes; Asia Rallies; Europe Mixed

This morning. Today, U.S. equity futures are modestly lower after fair value adjustment. In Asia, equity markets closed higher, with better strength in Japan. In Europe, indexes are modestly higher, with the Euro Stoxx 50 (SX5E) above its April 1st post-2008 high. The dollar is mixed. Commodities are mostly higher. Thursday's Nikkei 225 June 2014 (NKM4) equity futures are up +0.200%.

U.S. economic reporting focuses on March ADP employment, which was reasonably strong, though slightly below survey. Commentary focuses on interest rate, currency, and commodity price developments.

Tuesday, after a brief "in correction" that began on March 26th, the U.S. equity market outlook resumed its "confirmed uptrend" on April 1st. The SPX closed at a record high 1885.52, confirming the prior day's strong and broad advance on higher volume. The SPX and NYSE composite closed at new records, as did the DJ Transports (TRAN), though the DJ Industrials (Private:DJI) failed to confirm with a record close of its own. The DJI closed -0.27% below its December 31st record.

U.S. equity markets opened strongly, rose to mid-morning highs, then eased in mid-afternoon before strengthening again to close near intraday highs. The SPX, DJI, Nasdaq, and NYSE composite closed up +0.70%, +0.46%, +1.64%, and +0.54%, respectively. The TRAN rose +0.93%. NYSE volume fell -14.6% to 0.97x its 20-day moving average. The SPX, Nasdaq, and NYSE composite are higher on the year.

Other indexes such as the Russell 2000 (RTY) improved, and the Nasdaq Internet (QNET) and the Nasdaq Biotech (NBI) also rallied, but remain in correction.

The 4Q2013 quarter's earnings reports are complete, with U.S. materials reports particularly strong, followed by financials. The 1Q2014 earnings reports began on March 15th, though only 17 of 500 SPX companies have now reported.

Trading desks report quiet overseas markets overnight, without much in the way of economic reporting. Traders note the SPX, NYSE composite, and TRAN record closes, but conviction levels are low. Sentiment has improved with the rebound of internet and biotech stocks, but the expectations for the "breakout" remain subdued.

P/E multiples are elevated. With SPX equities trading at a 17.1x 2013 earnings multiple, attention focuses on 2014 earnings and valuations (17.1x times survey $117.34 2014 SPX operating earnings suggests a 2,008.57 SPX level next year, a +6.53% rise).

Technicals improved, as the Nasdaq recaptured its 10- and 20-day moving averages. All major indexes closed above their respective 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. Most SPX 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 +3.45 bps to 2.7525%, compared to 2.7180% at the prior close.

This morning, 10-year U.S. Treasury yields are up +2.73 bps at 2.7798%, compared to the prior close. Spanish and Italian 10-year debt yields are near their lowest levels since 2005, at 3.26% and 3.31%, respectively, compared to 3.25% and 3.29% the prior day. The U.S. dollar is modestly stronger compared to the euro and Japanese yen.

U.S. options markets worsened to bearish to neutral, compared to bearish to bullish the prior day. The CBOE SKEW rose +3.92% to 128.08, compared to 123.25 the prior day, above a neutral range (115-120), but below 130, a level that correlates well with short-term market tops.

In pre-market futures trading, June SPX equity futures (SPM4) price near the bottom of a 1877-1882 trading range. After a fair value adjustment of +0.32 points, the SPM4 future prices at 1877.75, down -0.32 points. The SPX opens +1.10%, +2.72%, +3.51%, and +7.66% above its respective 20-, 50-, 100-, and 200-day moving averages. Initial resistance is 1889.59. Initial support is 1877.71, then 1869.89.

In Asia, equity markets closed higher, with better strength in Japan. Economic reporting focused on U.S. economic reports, particularly yesterday's manufacturing. On the day, the Nikkei 225 (NYSEARCA:NKY) rose +1.04%, the Hang Sang index (HSI) rose +0.34%, and the Shanghai SE composite (SHCOMP) index rose +0.56%. Today's volumes are unavailable.

This week, the NKY, HSI, and SHCOMP are up +1.70%, +2.08%, and +0.85%, respectively. Last week, the NKY and HSI closed up +3.32% and +2.93%, respectively, while the SHCOMP closed off -0.29%. In April, the NKY, HSI, and SHCOMP are up +0.80%, +1.68%, and +1.26%, respectively, compared to March, when the NKY, HSI, and SHCOMP lost -0.09%, -3.00%, and -1.12%, respectively.

In 2014, the NKY, HSI, and SHCOMP are down -8.26%, -3.36%, and -2.69%, respectively. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.

In China, short-term interbank lending rates are steady, with 7-day Shibo rate at 4.21%, unchanged from 4.20% the prior day, up from a 2.26% low on March 11th, but 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 rose to 55.83, compared to 52.28 the prior day, up from an oversold 27.92 on February 4th. The HSI RSI rose to 59.82, compared to 58.56 the prior day. The SHCOMP's RSI rose to 53.19, compared to 50.38 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.

In Japan, the NKY closed at 14,946.32, compared to 14,791.99 the prior day, -8.26% below its recent year-end 16,291.31 high and -61.6% below its late-1989 38,915.87 high close. The index gapped higher to open at 14,900, where it traded through the first hour, then rallied to a mid-session 15,069.61 intraday high. The NKY weakened in the final hour, narrowing the day's gain. The index closed +1.66%, +0.98%, and +2.76% above its respective 20-, 50-, and 200-day moving averages, but -0.92% below its 100-day moving averages. Most market segments closed lower. Leaders were financials, technology, and consumer services, which rose at least +1.49%. Laggards were basic materials, which rose +0.62%, and health care and utilities, which fell at least -0.18%.

In China, the HSI closed at 22,523.94, compared to 22,448.54 at the prior close. The index gapped higher to open at its 22,598.40 intraday high, but dropped to a mid-morning 22,436.28 intraday low by mid-morning. The index improved to 22,560 by mid-session, then again tested support at 22,435 in early afternoon. The index traded narrowly around 22,500 through the close. Market segments closed mixed. Leaders were industrials, financials, and consumer goods, which rose at least +0.58%. Laggards were utilities, consumer services, and basic materials, which fell at least -0.63%. The index closed -5.80% below its recent December 3rd 23,910.47 high, but +23.9% above its 18,185.59 June 4, 2012 low.

In Shanghai, the SHCOMP closed at 2,058.99, compared to 2,047.46 at the prior close, +5.59% above the 1,950.01 June 27th close, last year's low. The index traded narrowly around 2,054 through the session, with a 2,046.74 mid-morning intraday low and 2,060.57 late morning intraday high. Most market segments closed higher. Leaders were financials, basic materials, and utilities, which rose at least +0.64%. Laggards were consumer services, technology, and health care, which fell at least -0.34%.

In Europe, major equity indexes are modestly higher, but well off their intraday highs. The Euro Stoxx50 opened at a post-2008 intraday high. The CAC 40 opened at record high. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.05%, +0.09%, +0.07%, and +0.26%, respectively. The Spanish IBEX 35 is down -0.51%, and the Italian FTSE MIB is down -0.47%. Economic reporting is light. Commentary focuses on currency developments, with particular attention on the weaker Russian ruble.

European bourses have recently outperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 63.17, compared to 63.62 at the prior close, in a neutral (30-70) range, but better than its recent February 5th 33.57 low, which coincided with 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 3,187.35, +0.01% above its 3,186.34 April 1st post-2008 high close, and -39.3% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,186.34 close, the index rose to a mid-morning 3,195.14 intraday high, but reversed lower in early afternoon to the 3,182.40 intraday low. Most market segments are lower. Leaders are industrials, consumer goods, and consumer goods, which are up at least +0.17%. Financials are up +0.07%. Laggards are telecommunications, utilities, and basic materials, which is down at least -0.21%.

This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +0.45%, +0.64%, +0.39%, and +0.40%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.45%, +0.89%, +1.75%, and +2.61%, respectively. In April, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +.79%, +0.91%, +0.84%, and +0.73%, respectively. In March, Euro Stoxx50 closed up +0.39%, while the FTSE 100, CAC 40, and DAX closed down -3.10%, -0.38%, and -1.40%, respectively.

In 2014, the indexes are mixed. The Euro Stoxx50, CAC 40, and DAX are up +2.50%, +3.08%, and +0.77%, respectively. The FTSE 100 is down -1.35%. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.

1Q2014 SPX Earnings. Of 17 (of 500) reporting companies, 9 or 52.9% surprised positively on earnings, with an average -0.94% surprise average. Of reporting companies, 8 or 47.0% reported sales or revenues above estimates. The average sales/revenue surprise is -0.30%. Consumer discretionary leads with respective +15.9% and +1.98% earnings and revenue surprises. Industrials lag with respective -13.4% and -1.08% revenues surprises.

Valuation. The SPX trades at 17.1x estimated 2013 earnings ($110.15), 16.1x estimated 2014 earnings ($117.34), 14.4x estimated 2015 earnings ($130.69), and 13.0x estimated 2016 earnings ($145.13). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, 2015, and 2016 earnings to grow +6.52%, +6.53%, +11.4%, and 11.1%, respectively.

The BKX trades at 14.1x 2013 adjusted EPS ($5.16), 13.2x estimated 2014 earnings ($5.51), 11.9x estimated 2015 earnings ($6.12), and 10.6x 2016 earnings ($6.85). Analysts expect 2013, 2014, 2015, 2016 EPS will grow +19.4%, +6.85%, +11.0%, and +11.9%, respectively.

Composite, index, and equity options. Options markets worsened to bearish to neutral, compared to bearish to bullish the prior session. Composite options are neutral, index options are bearish, and equity options are neutral. The composite put/call ratio is 1.00, compared to 0.96 the prior day, and worse than 5- and 10-period moving averages of 0.96 and 0.90, respectively. The index put/call ratio is 1.61 compared to 0.97 the prior day, and worse than its 5- and 10-period moving averages of 1.17 and 1.13, respectively. The equity put/call ratio closed the day at 0.73, compared to 0.96 the prior day, and better than its 5- and 10-period moving averages of 0.87 and 0.82, respectively.

NYSE Volume, Breadth Indicators. Volume fell -14.6% to 723.56 million shares, compared to 846.96 million shares the prior day, 0.97x the 746.64 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +1,347 (compared to +1,601 the prior day), or 2.55:1. Up volume was 2.28:1 down volume.

Market Outlook and Distribution Day Count. After a brief "in correction" that began on March 26th, the U.S. equity market outlook resumed its "confirmed uptrend" on April 1st. The SPX closed at a record high 1885.52, confirming the prior day's strong and broad advance on higher volume.

Libor, LOIS, Currencies, Treasuries, Commodities:

· USD LIBOR is 0.08740%, compared to 0.08840% the prior day. USD 3-month LIBOR is 0.23010%, up from 0.22810% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

· The US Libor-OIS (LOIS) spread is 15.310 bps, compared to 14.710 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 13.700 bps, down from 14.910 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 -3.498 bps, compared to -2.520 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 1.60%, compared to 1.57% the prior day. Japanese 10-year debt yields are 0.63%, compared to 0.62% the prior day.

· Spanish and Italian 10-year debt yields are near their best levels since 2005. Spanish 10-year debt yields are 3.27%, compared to 3.25% the prior day. Italian 10-year debt yields are at 3.32%, compared to 3.29% the prior day.

· U.S. Treasury yields are slightly higher, with 2- and 10-year maturities yielding 0.438% and 2.772%, respectively, compared to 0.430% and 2.753% Tuesday. The yield curve widened +1.110 bps, with the 2- to 10-year spread at +2.334%, compared to 2.322% 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 stronger compared to the euro and Japanese yen, but slightly weaker compared to the British pound. The dollar trades at US$80.102, compared to a US$80.119 intraday low and US$80.094 the prior day, and worse compared to its $80.222 50-day, US$80.414 100-day, and US$80.875 200-day averages. The euro trades at US$1.3790, compared to a US$1.3785 intraday low and US$1.3792 the prior day. The euro trades better compared to its US$1.3735 50-day and US$1.3685 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥103.71, compared to ¥103.65 the prior day. The yen trades worse than its 50-day moving average ¥102.35, but better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

· Citigroup Economic Surprise Index worsened to -34.1, compared to -32.60 the prior day, continuing its string of consecutive negative readings since February 18th. The index is worse compared to its respective -31.70 5-day and -32.40 10-day moving averages. Last June 10th, the index fell to a then 52-week low of -33.26. 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 and fell to a -34.80 52-week low on March 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 agriculture prices.

Volatility, Skew:

· The CBOE SPX Volatility Index (VIX) fell -5.62% to 13.10, compared to 13.88 at the prior close. The VIX is -11.1% below the 14.73 20-day moving average. Its 30-day high is 18.22. Its 30-day low is 13.06. 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 17.06, up +0.88% compared to 16.91 at the prior day's close. The V2X index trades -11.0% below its 19.15 20-day moving average, -30.0% below the 24.35 30-day high, and +6.65% above the 15.99 30-day low.

· The Hang Seng volatility index (VHSI) closed at 15.27, down -3.35% compared to 15.80 at the prior close. The VHSI index trades -12.6% below its 17.47 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

· CBOE SKEW (SKEW) rose +3.92% to 128.08, compared to 123.25 the prior session, above a neutral reading (115-120), but below 130, a level that correlates well with short-term market tops. The recent record high was 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 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:
 

  • March domestic vehicle sales were 12.78 million, compared to 12.30 million survey and 11.98 million prior.
  • Total march vehicle sales were 16.33 million, compared to 15.80 million survey and 15.27 million prior.
  • At 8:15, March ADP employment change rose 191K, compared to 195K survey and 178K revised prior.
  • At 9:45, March ISM New York, with 57.0 prior.
  • At 10:00, February factory orders, with +1.2% survey and -0.7% prior.


Overseas Economic Reporting and News:
 

  • Australia - February MoM building approvals fell -5.0% actual -2.0% survey and +6.9% revised prior.
  • Japan - March YoY monetary base rose 54.8%, compared to 55.7% prior.
  • Eurozone - February MoM PPI fell -0.2%, compared to +0.0% survey and -0.4% revised prior.
  • Italy - March YoY new car registrations rose +4.96%, compared to +8.398% revised prior.
  • United Kingdom - March Markit/CIPS construction PMI was 62.5, compared to 63.0 survey and 62.6 revised prior.


Company Ratings/News:
 

  • None.


Tuesday's Trade. On lower and below average NYSE volume, U.S. equity indexes rallied strongly in early trading, eased in mid-session, then rallied to close near their late session intraday highs. The SPX, DJI, Nasdaq, and NYSE composite gained +0.70%, +0.46%, +1.64%, and +0.54%, respectively. The SPX and NYSE closed at record highs. The SPX, Nasdaq, and NYSE composite are higher this year.

The session's rally was broad based. The Russell 2000 (RTY) rose +1.34% and is now -1.65% below its March 4th record close. The Nasdaq Internet Index (QNET) rose +2.68% and is in correction, -8.68% below its March 6th closing high. The Nasdaq Biotech Index rallied +2.15%, down -11.7% from its recent February 25th record high.

On March 26th, the market outlook worsened to "in correction", ending the uptrend which began on February 7th, with a net +3.09% gain.

Market breadth was positive, with gainers 2.55x losing stocks. Most SPX market segments closed higher. Leaders were technology, consumer services, and health care, which rose at least +0.73%. Laggards were financials and telecommunications, which rose at least +0.32%, and utilities, which fell -0.52%.

NYSE volume fell -14.6% to 723.56 million shares, compared to 846.96 million shares the prior day, 0.97x the 746.64 million share 20-day moving average volume. On the day, bond markets weakened. The U.S. 10-year yield opened at 2.7262%, and trended higher through the session to a mid-afternoon 2.7643% intraday high. The yield closed at 2.7525%, up +3.45 bps compared to the 2.7180% prior close.

From its prior day 1872.34 SPX close, June 2014 SPX futures (SPM4) suggested a moderately higher open. The SPX index gapped higher to open near 1878 and rallied to 1884 in early trading before easing to 1878 by late morning. The index traded narrowly through mid-afternoon, then rallied to a late 1885.84 intraday high. The SPX ended at 1885.52, +0.40% above its March 7th prior record close. The index closed +75.4% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

The DJ Transportation index (TRAN) rose +0.93%, compared to DJI's +0.46% gain, and also closed at a new record high, though without DJI confirmation. From its prior 7,574.96 close, the TRAN traded narrowly higher through early afternoon, then rallied through the final two hours and closed near the 7,645.47 intraday high. The index closed at 7,645.11, +0.69% above its recent prior 7,592.36 March 7th record close. Volume fell -17.5% to 11.889 million shares, compared to 14.412 million shares the prior session, and 0.85x the 15-day moving average volume. The TRAN closed +1.51% below and +3.60% above its respective 20- and 50-day moving averages, and +4.66% and +10.5% above its respective 100- and 200-day moving averages.

Market volatility fell -5.62%, as the CBOE SPX volatility index (VIX) closed at 13.10, compared to 13.88 at the prior close. The VIX opened traded narrowly round 13.40 through late afternoon, then weakened through the final hour to a late 13.06 intraday low. 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 improved. All indexes closed above their 5-, 10-, 20-, 50-, 100-, and 200-day moving averages. SPX relative strength (RSI) improved to 61.22, compared to 57.13 the prior day, in a neutral range, and 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 +3.92% to 128.08, compared to 123.25 the prior session, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops.

This week, the SPX, DJI, Nasdaq, and NYSE composite are up +1.50%, +1.28%, +2.70%, and +1.43%, respectively. Last week, the DJI rose +0.12%, while the SPX, Nasdaq, and NYSE composite closed down -0.48%, -2.83%, and -1.73%, respectively. In March, the DJI and NYSE composite are up +0.01% and +0.09%, respectively, while the SPX and Nasdaq are down -0.10% and -3.54%, respectively. In February, the SPX, DJI, Nasdaq, and NYSE composite closed up +4.31%, +3.97%, +4.98%, and +4.60%, respectively.

In 2014, the SPX, Nasdaq, and NYSE composite are up +2.01%, +2.19%, and +1.77%, respectively, while the DJI is down -0.27%. 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 rose +0.551% to 72.66, compared to 72.29 at the prior day's close, its 12th consecutive close above 70.00, but -0.34% below its 72.91 March 20th post-2008 closing high. The index traded narrowly higher around 72.50 through mid-afternoon, then rallied through the final two hours to a late 72.77 intraday high. Volume fell -16.0% to 38.727 million shares, compared to 49.756 million shares the prior day, and 0.78x the 46.495 million share 15-day moving average.

Monday, large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +2.05%.

This week, the BKX is up +1.71%, compared to a decline of -1.73% the prior week. In April, the BKX is up +0.51%, compared to March, when the BKX closed up +4.74%. In 2014, the BKX is up +4.91%, compared to the SPX's +2.01% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

The BKX is now +22.8% 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, which persisted until March 6th. The BKX closed +123.2% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +75.4% in the same period.

The BKX index closed -40.0% below its February 20, 2007, record 121.06 high. The BKX is up +290.2% from its 18.62 March 6, 2009, closing low.

Technical indicators were little changed. The index closed +1.84%, +4.53%, +5.77%, and +9.25% above its respective 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average rose +15 bps to 71.35. The 69.51 50-day moving average rose +5 bps. Its 100-day moving average rose +9 bps to 68.70, and the 200-day moving average rose +6 bps to 66.27. The 20-day closed (by +1.84 points) above the 50-day, and the gap widened +11 bps. The 50-day moving average closed (by +3.24 points) above the 200-day moving average, and the gap narrowed -1 bp. The 100-day moving average closed (by +2.43 points) above the 200-day moving average, and the gap widened +1 bp.

The directional movement indicator widened to +12.795, compared to +10.321 the prior day, its 22nd consecutive positive reading. Relative strength rose to 62.55, compared to 60.62 the prior day, in a neutral range, up from the recent 32.95 low on February 3rd, but down 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 72.85; next support is 72.39.