This morning. It is the final trading day of June and 2Q2014. U.S. equity futures are modestly lower after fair value adjustment and near the middle of their premarket trading ranges. Economic reporting is light worldwide. Asia closed mixed. Europe is mixed mid-session. The market outlook is "confirmed uptrend". The dollar is modestly weaker. U.S. Treasury 10-year yields are slightly lower. Commodities are mostly lower. Tuesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly lower.
Friday, major U.S. indexes closed with modest gains. The SPX, DJI, Nasdaq, and NYSE composite rose +0.19%, +0.03%, +0.43%, and +0.23%, respectively. Last week, all gained at least +0.45%. In June, indexes are up least +0.81%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are +6.09%, +1.66%, +5.30%, and +5.52% higher, respectively. NYSE volume rose +151.9% to 2.11x its 20-day moving average.
Other notable indexes also rose. The DJ Transports (TRAN) rose +0.31% and closed -0.48% below its June 9th record. The Russell 2000 (RTY) rose +0.74% to close -1.58% below early March highs. The Nasdaq Internet (QNET) index rose +0.19%, but the Nasdaq Biotech (NBI) index rose +0.03%. The QNET is down -8.52%, from recent highs, while the NBI closed -6.02% below its recent high.
Trading desks noted a quiet weekend, during which Iraqi concerns somewhat abated, as reflected in lower energy prices. Flows and liquidity remain thin, with likely increasing focus on Friday's June employment report. Yellen speaks Wednesday, but little new is expected. The ECB decision report is Thursday, but little more is expected following June's actions. Today's news include an expected BNP Paribas settlement with the U.S. government, and GM will outline its recall compensation fund. The next FOMC meeting is July 29-30. A quiet trading day is expected as news flows and earnings reports are slow and few. The equity bias appears higher, with expectations that gains will become more difficult, compared to the recent linear move higher. Conviction is low.
The 2Q2014 earnings seasons began June 18th, and now 18 of 500 SPX companies have reported with respective +1.18% and +0.54% adjusted EPS and revenues surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises. Forward estimates moved up. Compared to February 28th, the June-end 2014 EPS estimate rose +0.26% to $118.05, from $117.74. Respective estimates for 2014, 2015 and 2016 are now $118.05, $131.36 and $145.70, respectively compared to $117.74, $130.81 and $144.98 at February-end, respective increases of +0.26%, +0.42% and +0.50%. Price earnings multiples remain elevated. With SPX equities trading at a 17.8x (compared to 17.8x the prior day) 2013 earnings multiple, attention focuses on 2014 earnings and valuations (17.8x times survey 2014 SPX operating earnings suggests a 2101.59 SPX level in the next year, a +7.17% rise from yesterday's close).
Technicals were little changed. Most SPX market segments closed higher. Market breadth was positive, and up volume led down volume. Volatility fell. Treasury bond markets weakened. On the day, the U.S. Treasury 10-year bond yield rose +0.54 bps to 2.5340%, compared to 2.5286% at the prior close.
This morning, 10-year U.S. Treasury yields are down -1.35 bps at 2.5205%, compared to the prior close. World sovereign bond markets are slightly weaker. Spanish and Italian 10-year debt yields are 2.67% and +2.84%, respectively, compared to 2.64% and +2.83% the prior day.
U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW rose +1.92%, compared to 132.81 the prior day, well above 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 1948-1954 trading range. After a fair value adjustment of +1.16 points, the SPM4 future prices at 1951.50, down -1.66 points. The SPX opens +0.75% and +2.69% above its respective 20- and 50-day moving averages, and +4.35% and +7.46% above its 200-day moving averages. Initial resistance is 1964.23. Initial support is 1954.94, then 1948.91.
"Confirmed Uptrend" Market Outlook and Distribution Day Count. On May 27th , the market outlook improved to "confirmed uptrend", ending a period of market "in correction" that began on April 4th. The SPX closed June 19th at a record 1959.48, +7.92% above the 1815.69 close on April 11th, the recent low close. On June 18, 2014, the Nasdaq reached a multi-year 4,357.97 high (compared to its 4,572.83 March 31, 2000 record close), then fell -8.22% to 3,999.73 before recovering +9.08% to the June 18th 4,362.84 close. Since May 27th, distribution days number 3 for the SPX, DJI, and NYSE composite, and 2 for the Nasdaq.
In Asia, equity markets closed mixed. The Nikkei 225 (NKY) rose +0.66%. The Hang Seng (HSI) Index fell -0.13%. The Shanghai SE (SHCOMP) rose +0.58%. The NKY, HSI, and SHCOMP 50-day moving averages are below their respective 200-day moving averages. Today's volumes are unavailable.
Economic reporting was light to nil. Commentary focused on the direction of monetary policy, currency, and commodity price developments.
Last week, the NKY closed off -1.66%, the HSI gained +0.12%, and the SHCOMP gained +0.49%. The prior week, the NKY closed up +1.67%, while the HSI and SHCOMP closed down -0.54% and -2.13%, respectively. In June, the NKY gained +3.62%, the HSI gained +0.47%, and the SHCOMP gained +0.58%. In May, the NKY closed up +2.29%, the HSI rose +4.28%, and the SHCOMP rose +0.63%.
In 2014, the NKY is down -6.93%, the HSI is down -0.50%. The SHCOMP is down -3.20%. 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 remain volatile, as the SHIBO 7-day rate rose +12bps to 3.90%, compared to 3.78% 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 are in a neutral ranges. The NKY RSI rose to 56.03, compared to 53.72 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 55.87, compared to 57.03 the prior day. The SHCOMP's RSI rose to 52.57, compared to 48.50 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 15,162.10, compared to 15,095.00 the prior day, -6.93% below its recent year-end 16,291.31 high and -61.0% below its late-1989 38,915.87 high close. The index set an early 15,177.87 intraday high, but trended lower through the morning session to its 15,052.34 intraday low. The index improved through the afternoon to breakeven late in the session. Most market segments closed higher. Leaders were utilities, materials, and consumer staples, which rose at least +0.80%. Financials rose +0.55%. Laggards were energy, which rose +0.37%, and consumer discretionary, and telecommunications, which fell at least -0.09%.
In China, in Shanghai, the SHCOMP closed at 2,048.33, compared to 2,036.51 at the prior close, +5.04% above the 1,950.01 June 27, 2013 close, last year's low. The index opened slightly higher and rose through the morning session to an early afternoon 2,052.27 intraday high. Most market segments closed higher. Leaders were industrials, technology, and utilities, which rose at least +0.85%. Laggards were financials and energy, which rose +0.31%, and telecommunications, which fell -1.60%.
In Europe, equities opened modestly mixed in early afternoon. The Euro Stoxx 50 and DAX are up +0.11% and +0.31%, respectively, while the FTSE 100 and CAC 40 are down -0.11% and -0.12%. The Spanish IBEX 35 is down -0.35%. The Italian FTSE MIB is down -0.18%.
Economic reporting is light. The euro is stronger compared to the dollar.
European bourses have recently outperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 43.89, compared to 43.01 at the prior close, in a neutral (30-70) range, 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 24, 2013, which marked the year's 2,494.54 closing low.
The Euro Stoxx50 trades -38.5% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,227.85 close, the index rose to an early 3,247.34 intraday high, but then weakened and reversed lower in early afternoon to a 3,211.50 intraday low. The index subsequently improved and trades at 3,229.33. Most market segments are higher. Leaders are materials, health care, and technology, which are up at least +0.40%. Laggards are telecommunications, energy and financials, which are down at least -0.05%.
Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.26%, -0.99%, -2.30%, and -1.72%, respectively. The prior week, the Euro Stoxx50, FTSE 100, and DAX rose +0.59%, +0.70%, and +0.75%, while the CAC 40 fell -0.04%. In June, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.43%, -1.36%, -1.96%, and -0.99%, respectively. In May, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.44%, +0.95%, +0.72%, +3.54%, respectively.
In 2014, the indexes are higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +3.91%, +0.03%, +3.15%, and +3.06%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.
2Q2014 SPX Earnings. The 2nd quarter earnings season began June 18th, and now 18 of 500 SPX reporting firms have reported, with respective +1.18% EPS and +0.54% revenue surprises.
In 1Q2014, of 499 (of 499) reporting companies, 370 or 74.5% surprised posi2tively on earnings, with an average +5.91% surprise average. Of reporting companies, 263 or 53.0% reported sales or revenues above estimates. The average sales/revenue surprise was +0.20%. Energy led with respective +10.0% and -1.01% earnings and revenue surprises. Financials had a respective +5.67% and +0.26% earnings and revenue surprises. Consumer staples lagged with respective +0.34% and -0.66% earnings and revenue surprises.
Valuation. The SPX trades at 17.8x estimated 2013 earnings ($110.15), 16.6x estimated 2014 earnings ($118.05), 14.9x estimated 2015 earnings ($131.36), and 13.5x estimated 2016 earnings ($145.70). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +7.17%, +11.3%, and 10.91.0%, respectively.
The KBW Bank Index (BKX) trades at 13.8x 2013 adjusted EPS ($5.16), 13.4x estimated 2014 earnings ($5.32), 11.9x estimated 2015 earnings ($5.98), and 10.7x 2016 earnings ($6.68). Analysts expect 2014, 2015, 2016 EPS will grow +3.15%, +12.4%, and +10.9%, respectively.
Composite, index, and equity options. Options markets are unchanged at 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 0.83, compared to 0.92 the prior day, and worse than 5- and 10-period moving averages of 0.86 and 0.80, respectively. The index put/call ratio is 1.29, compared to 1.05 the prior day, and worse than its 5- and 10-period moving averages of 1.05 and 0.96, respectively. The equity put/call ratio closed the day at 0.69, compared to 0.87 the prior day, and worse than its 5- and 10-period moving averages of 0.79 and 0.73, respectively.
NYSE Volume, Breadth Indicators. Volume rose +151.9% to 1.490 billion shares, compared to 591.70 million shares the prior day, 2.11x the 705.92 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +959 (compared to +82 the prior day) or 1.91:1. Up volume was 1.29:1 down volume.
Libor, LOIS, Currencies, Treasuries, Commodities:
· USD LIBOR is 0.09360%, compared to 0.09660% the prior day. USD 3-month LIBOR is 0.23070%, down from 0.23460% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
· The US LIBOR-OIS (LOIS) spread is 12.820 bps, compared to 12.760 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.100 bps, compared to 15.600 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 -10.385 bps, compared to -9.715 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within a normal -10 bps and -40 bps range.
· German 10-year debt yields are 1.25%, compared to 1.26% the prior day.
· Japanese 10-year debt yields are 0.57%, compared to 0.56% the prior day.
· Spanish and Italian 10-year debt yields are slightly higher. Spanish 10-year debt yields are 2.67%, compared to 2.64% the prior day, modestly above the U.S. 10-year yield and compares to its 2.575% June 9th low. Italian 10-year debt yields are at 2.84%, compared to 2.83% the prior day and their June 9th 2.704% recent low. Spanish and Italian 10-year debt years peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.
· U.S. Treasury yields are modestly lower, with 2- and 10-year maturities yielding 0.457% and 2.524%, respectively, compared to 0.461% and 2.534% Friday. The yield curve narrowed -0.590 bps, with the 2- to 10-year spread at 2.067%, compared to 2.073% 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$79.980, compared to US$79.976 intraday low and US$80.039 the prior day, and worse compared to its $80.139 50-day, US$80.061 100-day, and US$80.267 200-day averages. The euro trades at US$1.3656, compared to a US$1.3663 intraday high and US$1.3649 the prior day. The euro trades worse compared to its US$1.3690 50-day and US$1.3738 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥101.33, compared to ¥101.49 the prior day. The yen trades better than its 50-day moving average ¥102.02, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.
· Citigroup Economic Surprise Index worsened to -23.70, compared to -23.10 the prior day. The index is worse compared to its respective -15.74 5-day and -13.76 10-day moving averages. From a +72.70 high on January 15th, the index subsequently trended lower and turned negative on February 19th and fell to a -45.90 124-week low on April 7th. The index turned briefly positive in the latter half of May, but has been negative since May 29th. After a lag, the CESIUSD correlates with EPS revisions.
· Commodities prices are lower, with lower energy, lower precious metals, lower aluminum and copper, and lower agriculture prices.
Volatility, Skew:
· The CBOE SPX Volatility Index (VIX) fell -3.18 to 11.26, compared to 11.63 at the prior close. The VIX is -2.43% below the 11.54 20-day moving average. Its 30-day high is 13.66. Its 30-day low is 10.34. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.
· The Euro Stoxx 50 volatility index (V2X) is 15.74, up +2.91% compared to 15.30 at the prior day's close. The V2X index trades+10.3% above its 14.27 20-day moving average, -8.62% below the 17.23 30-day high, and +27.9% above the 12.30 30-day low.
· The Hang Seng volatility index (VHSI) closed at 12.86, up +3.46% compared to 12.43 at the prior close. The VHSI index trades -1.55% below its 13.06 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
· CBOE SKEW (SKEW) rose +1.92% to 135.36, compared to 132.81 the prior session, above a neutral reading (115-120) and since June 19th, above 130, a level that correlates well with short-term market tops. The recent record high was 143.20 on December 20, 2013. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. 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 9:00, June ISM Milwaukee, with 60.0 survey and 63.5 prior.
- At 9:45. June Chicago purchasing manager, with 63.0 survey and 65.5 prior.
- At 10:00, May Mom pending home sales, with +1.2% survey and +0.4% prior.
Overseas Economic Reporting and News:
- Japan - May YoY vehicle production rose +6.1%, compared to +3.4% prior.
- Eurozone - June YoY CPI estimate is +0.5%, compared to +0.5% survey and prior.
- Germany - May MoM retail sales fell -0.6%, compared to +0.8% survey and -1.5% revised prior.
Company Ratings/News:
- BNP Paribas (BNP) - Will pay fines of $9 billion to settle with U.S.
- General Motors (GM) - Will announce recall restitution fund of at least $500 million.
Friday's Trade. On greater and above average NYSE volume, major U.S. equity indexes closed modestly higher. The SPX, DJI, Nasdaq, and NYSE composite rose +0.19%, +0.03%, +0.43%, and +0.23%, respectively. The SPX, DJI, Nasdaq, and NYSE composite are at least +1.66% higher in 2014. All are at least +0.81% higher in June. Market breadth was positive, with gainers 1.91x losing stocks. Most SPX market segments closed higher. Leaders were technology, utilities, and industrials, which rose at least +0.29%. Financials rose +0.23%. Laggards were energy, health care, and materials, which fell at least -0.05%.
Other notable indexes closed higher. The Russell 2000 (RTY) rose +0.74%, and closed -1.58% below its March 4th record. The Nasdaq Internet Index (QNET) rose +0.19% and closed -8.52% below its March 6th closing high. The Nasdaq Biotech Index (NBI) rose +0.03%, -6.02% below its February 25th record high.
NYSE volume rose +151.9% to 1.490 billion shares, compared to 591.70 million shares the prior day, 2.11x the 705.92 million share 20-day moving average volume. Bond markets weakened. By mid-morning, the U.S. 10-year yield fell to the 2.5052% intraday low, then weakened through the session to a late 2.5349% intraday high. At the close, the yield rose +0.54 bps to 2.5340%, compared to 2.5286 % at the prior close.
From its prior day and record 1959.48 SPX close, June 2014 SPX futures (SPM4) suggested a modestly lower open. The index traded narrowly lower through early afternoon, weakened to the 1952.18 intraday low, then rallied through the final hour to a late 1961.47 intraday high. The index closed at 1960.96, +82.5% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction, but -0.10% below the record June 20th 1962.87 close.
From its prior day 8,178.03 close, the DJ Transportation index (TRAN) rose +0.31%, compared to the DJI's +0.03% gain. The TRAN traded narrowly through the morning session, weakened to the 8,124.18 intraday low in mid-afternoon, then rallied through the final two hours to end at the intraday high. The index closed at 8,175.52, -0.48% below its June 9th 8,214.99 record close. Volume rose +113.0% to 22.215 million shares, compared to 10.430 million shares the prior session, and 1.63x the 15-day moving average volume. The TRAN closed +0.54% and +3.08% above its respective 20- and 50-day moving averages, and +6.46% and +11.0% above its respective 100- and 200-day moving averages.
Market volatility fell -3.18%, as the CBOE SPX volatility index (VIX) closed at 11.26, compared to 11.63 at the prior close. The index moved narrowly through late session, with an early afternoon 12.04 intraday high, then moving lower late in the session. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. Notably, the CBOE put/call SKEW rose +1.92 to 135.36, compared to 132.81 the prior session, above a neutral 115-120 range, and above 130, a level that correlates well with short-term market tops. The record 143.26 high came on June 20th.
The market's technical factors were little changed. The SPX relative strength (RSI) rose to 64.94, compared to 63.40 the prior day, in the upper end of a neutral range, down from an overbought 73.73 on June 9th, but better than 58.90 on June 12th, and an oversold 31.24 on February 3rd. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.
Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.28%, +0.45%, +2.02%, and +1.02%, respectively, compared to the prior week, when the SPX, DJI, Nasdaq, and NYSE composite closed down -0.68%, -0.88%, -0.25%, and -0.44%, respectively. In June, the SPX, DJI, Nasdaq, and NYSE composite are up +1.94%, +0.81%, +3.66%, and +2.03%, respectively, compared to May, when the SPX, DJI, Nasdaq, and NYSE composite closed up +2.10%, +0.82%, +3.11%, and +1.22%, respectively.
In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +6.09%, +1.66%, +5.30%, and +5.52%, respectively. 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 and above 15-day average volume, the BKX rose +0.24% to 71.30, compared to 71.13 at the prior day's close, its 17th consecutive close above 70, but -2.21% below its 72.91 March 20th post-2008 closing high. The index traded narrowly through the session, with a mid-morning 71.31 intraday high and 70.91 mid-afternoon intraday low. The index rallied through the final hour to close near its intraday high. Volume rose +1.43% to 64.267 million shares, compared to 55.241 million shares the prior day, and 1.31x the 49.044 million share 15-day moving average.
Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) rose +0.31%.
Last week, the BKX closed up +0.83%. The prior week, the BKX closed off -0.16%. In June, the BKX is up +3.47%, compared to May, when the BKX closed up +0.70%. In 2014, the BKX is up +2.95%, compared to the SPX's +6.09% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.
The BKX is now +21.5% better than the June 24, 2013, 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. On April 10th, the BKX fell below 70.00 and then eased consistently to the May 15th 66.81 closing low, its lowest close since early February. The BKX closed +118.9% 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 +82.5% in the same period.
The BKX index closed -41.1% below its February 20, 2007, record 121.06 high. The BKX is up +282.9% from its 18.62 March 6, 2009, closing low, its low during the 2008-09 financial panic.
Technical indicators were little changed. The index closed +0.59% and +2.87% above its respective 20- and 50-day moving averages, and +2.42% and +4.91% above its respective 100- and 200-day moving average. The 20-day moving average rose +12 bps to 70.88. The 69.31 50-day moving average rose +4 bps. Its 69.62 100-day moving average rose +6 bps, and the 200-day moving average rose +4 bps to 67.93. The 20-day closed (by +1.57 points) above the 50-day, and the gap widened +13 bps. The 50-day moving average closed (by +1.35 points) above the 200-day moving average, and the gap widened +1 bp. The 100-day moving average closed (by +1.65 points) above the 200-day moving average, and the gap was unchanged.
The directional movement indicator widened to +7.706, compared to +7.615 the prior day, with consecutive positive readings since June 10th. Relative strength rose to 58.51, compared to 57.14 the prior day, in a neutral range, down from an overbought 73.14 on June 9th but up from the recent 32.95 low on February 3rd. The lowest RSI level was 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 71.44; next support is 71.04.
SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR