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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 Improve After Middling U.S. Employment Report; Europe Off Early Lows; Asia Lower 0 comments
    Aug 1, 2014 9:36 AM

    This morning. It's the first trading day of August, and U.S. futures have improved markedly following a middling set of U.S. economic reports, which were neither too hot, nor too cold. U.S. equity futures are currently mixed, whereas September S&P 500 futures (SPU4) were down nearly -15.0 points earlier in the pre-market session. In Asia, equities closed lower, with greater weakness in China, where the Shanghai Composite (SHCOMP) closed lower and near its late intraday low after closing yesterday in an acutely overbought condition. In Europe, equities are moderately lower, improving from their early afternoon intraday lows. The dollar is stronger. The U.S. Treasury 10-year yields are lower, falling after the employment report. Commodities are mostly lower. Monday's Nikkei 225 September 2014 (NKU4) equity futures are modestly lower. Since July 8th, the market outlook is "uptrend under pressure", after 8 distributions in the past 19 sessions.

    Thursday, on increased and above average volume, U.S. equity indexes closed sharply lower. The S&P 500 Index (SPX), DJ Industrials (DJI), Nasdaq, and NYSE composite fell -2.00%, -1.88%, -2.09%, and -1.86%, respectively. All are now lower on the week. Last week, major indexes closed mixed. In July, indexes closed off at least -0.87% higher. In 2014, the SPX, Nasdaq, and NYSE composite are up +4.45%, +4.63%, and +3.14% higher, respectively, while the DJI is down -0.08%.

    NYSE volume rose +36.2% to 1.45x its 20-day moving average.

    Other notable indexes also distributed. The DJ Transports (TRAN) fell -1.63%. The Russell 2000 (RTY) fell -2.31%. The Nasdaq Internet (QNET) index fell -2.11%, and the Nasdaq Biotech (NBI) index fell -2.57%. The TRAN, RTY, QNET, and NBI are down -3.86%, -7.33%, -8.53% and -8.08%, respectively, from their recent record highs.

    Trading desks describe yesterday's distributions (the worst since early April) as relatively "relaxed and orderly", with high volumes, but neither "panicked" nor "rushed". Equities opened poorly, but yesterday's shockingly poor July Chicago PMI (at 52.6, down from 62.6) propelled markets markedly lower. The SPX is now -20 points below the lower end of a 1950-1985 trading range that had characterize the index this year. Despite the decline, little material has changed: 1) economic data improves; 2) the Fed may start hiking rates somewhat earlier, but policy expectations are little changed; 3) earnings season was strong, and estimates continue to rise; 4) the valuation framework is largely unchanged; and 5) geopolitics may be unsettled, but are little changed.

    30 am EDT on extremely light volume, but with selling motivating additional selling. There appears no especial focus for the sell-off, as Argentina is not so alarming to the broader market and Chinese markets moved forward, even if European markets sold-off. Economic impact from the Russian sanctions are blamed for poorer integrated petroleum earnings. Futures are now at the lower end of the recent 1950-1985 trading range. Conviction remains weak and unenthusiastic, with higher anxiety levels at month-end and ahead of tomorrow's employment report. Markets continue to consolidate.

    The 2Q2014 earnings season began June 18th, and now 379 of 500 SPX companies have reported with respective +5.60% and +1.21% adjusted EPS and revenues surprises. Financials (74 of 84 reporting) lead with respective +9.63% and +2.19% EPS and revenue surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises.

    Forward estimates have moved up. Respective estimates for 2014, 2015 and 2016 are now $119.38, $132.81, and $147.26, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.13%, +1.11% and +1.07%. Price earnings multiples remain elevated. With SPX equities trading at a 16.9x (compared to 17.2x the prior day) average 2014-15 earnings ($126.09), attention focuses on prospective 2014-15 earnings and valuations (16.9x times survey 2014-15 SPX average operating earnings suggests a 2124.72 SPX level in the next year, a +10.1% rise from yesterday's close).

    Technicals worsened as the Nasdaq surrendered its 20- and 50-day moving averages, and the SPX, DJI, and NYSE composite indexes surrendered their 50-day moving averages. Led by energy and telecommunications, all SPX market segments closed at least -1.67% lower. SPX market breadth was decisively negative, and up volume lagged down volume. Volatility surged to its highest level since early April. Treasury bond markets weakened slightly. On the day, the U.S. Treasury 10-year bond yield rose +0.09 bps to end at 2.5578%, compared to 2.5569% at the prior close.

    This morning, 10-year U.S. Treasury yields are down -2.08 bps at 2.5270%, compared to the prior close. World sovereign bond markets are mixed. Spanish and Italian 10-year debt yields are somewhat higher at 2.559% and +2.777%, respectively, compared to 2.505% and +2.695% the prior day. Notably, the Spanish sovereign 10-year yield is below the U.S. 10-year bond yield.

    U.S. options markets worsened to bearish to bullish, compared to neutral the prior day. The CBOE SKEW fell -1.40% to 128.71, compared to 130.34 the prior day, below 130 for the first time since mid-June, a level that correlates well with short-term market tops. The SKEW closed at a record 143.60 on June 20th.

    In pre-market futures trading, September SPX equity futures (SPM4) price near the middle of their 1910-1930 trading range. After a fair value adjustment of -0.78 points, the SPU4 future prices at 1951.00, down -13.22 points. The SPX opens -2.15% and -1.14% below its respective 20- and 50-day moving averages, and +1.06% and +3.97% above its 200-day moving averages. Initial resistance is 1953.65. Initial support is 1919.18, then 1907.69.

    "Uptrend Under Pressure" Market Outlook and Distribution Day Count. Since July 9th, the market outlook is "uptrend under pressure". Thursday, indexes started poorly and fell through the session to end at or near their late intraday lows. Volume rose. Market breadth was negative. 2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors.

    Indexes distributed. Since May 27th, distribution days number 8 for the SPX and NYSE composite, and 7 for the Nasdaq and DJI.

    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 July 24th at a record 1987.01, +8.99% above the 1815.69 close on April 11th, the recent low. On February 3rd, the Nasdaq closed at its 3,996.96 year-to-date low, but then recovered +11.6% to the July 3rd 4,458.65 multi-year record close.

    In Asia, equity markets closed lower, with China selling off from an acutely overbought condition at the prior close. After a late session negative reversal, the Nikkei 225 (NYSEARCA:NKY) closed down -0.63%. The Hang Seng (HSI) Index fell -0.91%, and the Shanghai SE composite (SHCOMP) fell -0.74%. The NKY and HSI 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focuses on stronger economic reports, 2Q2014 earnings, and the direction of monetary policy, currency, and commodity price developments.

    This week, the NKY, HSI, and SHCOMP are up +0.42%, +1.31%, and +2.76%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +1.59%, +3.25%, and +3.28%, respectively. In July, the NKY is up +2.38%, the HSI is up +5.79%, and the SHCOMP is up +6.69%. In June, the NKY gained +3.62%, the HSI gained +0.47%, and the SHCOMP gained +0.58%.

    In 2014, the NKY is down -4.72%, the HSI is up +5.26%, and the SHCOMP is up +3.28%. 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, but the SHIBO 7-day held steady at 4.00%, compared to 4.00% 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 that Tokyo is in a neutral range, while Hong Kong, and Shanghai remain in overbought ranges. The NKY RSI fell to 58.57, compared to 64.42 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 70.91, compared to an overbought 81.00 the prior day. The SHCOMP's RSI fell to 74.49 from the prior day record 81.72. 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 15,523.11, compared to 15,620.77 the prior day, -4.72% below its year-end 16,291.31 high and -60.1% below its late-1989 38,915.87 high close. The index gapped lower to open at 15,520, but rallied to the 15,602.13 intraday high by late morning. The index found support at 15,560 through mid-afternoon, but weakened again into the close. Most market segments closed lower. Leaders were utilities, which rose +0.87%, and consumer staples and materials, which were at least unchanged. Financials fell -0.66%. Laggards were consumer discretionary, health care, and technology, which fell at least -0.81%.

    In China, in Shanghai, the SHCOMP closed at 2,185.30, compared to 2,201.56 at the prior close, +12.1% above the 1,950.01 June 27, 2013 close, last year's low. The index traded narrowly around breakeven through early afternoon, then improved to the 2,218.76 intraday high before reversing lower in late afternoon. The index closed just better than its late 2,185.03 intraday low. Most market segments closed lower. Leaders were health care and consumer staples, which closed up +0.27%, and utilities, which fell -0.11%. Financials fell -0.85%. Laggards included materials, technology, and telecommunications, which fell at least -1.22%.

    In Europe, equity indexes are again sharply lower, but slightly better than their intraday lows. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are down -0.96%, -0.20%, -0.88%, and -1.11%, respectively. The Spanish IBEX 35 is down -1.88%. The Italian FTSE MIB is down -1.29%.

    Economic reporting focuses on revised July manufacturing PMIs and the U.S. July employment report and other monthly economic reports. The euro continues to weaken compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 34.79, compared to 38.58 at the prior close, in a neutral (30-70) range, better than its recent February 5th 33.57 closing low, which coincided with its 2014 low. The index's 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 -7.14% below its recent June 18th multi-year high and -41.4% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,115.51 close, the index set an early 3,118.83 intraday high, then reversed immediately lower to a mid-session 3,066.01 intraday low. The index currently traded at 3,078.36 following a middling U.S. employment report. Most market segments are lower. Leaders are energy, which is up +0.27%, and financials and health care, which are down at least -0.72%. Laggards are technology, utilities, and industrials, which are down at least -1.81%.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -3.05%, -2.17%, -2.98%, and -4.97%, respectively. Last week, the Euro Stoxx50, FTSE 100, and DAX rose +0.34%, +0.62%, and +0.0%, respectively, while the CAC 40 closed down -0.11%. In July, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -4.65%, -1.48%, -5.00%, and -6.06%, respectively. In June, the Euro Stoxx50 closed up +0.03%, while the FTSE 100, CAC 40, and DAX closed down -0.88%, -1.53%, and -0.84%, respectively.

    In 2014, the indexes are lower. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.99%, -1.56%, -2.20%, -3.30%, 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 376 of 500 SPX reporting firms have reported, with respective +5.43% EPS and +1.43% revenue surprises. Financials (74 of 84 reporting) lead with a 9.63% EPS surprise and +2.19% revenue surprise.

    In 1Q2014, of 499 (of 499) reporting companies, 370 or 74.5% surprised positively 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 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 17.5x estimated 2013 earnings ($110.15), 16.2x estimated 2014 earnings ($119.38), 14.5x estimated 2015 earnings ($132.81), and 13.1x estimated 2016 earnings ($147.26). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.38%, +11.3%, and 10.9%, respectively.

    The KBW Bank Index (BKX) trades at 13.6x 2013 adjusted EPS ($5.16), 12.8x estimated 2014 earnings ($5.48), 11.3x estimated 2015 earnings ($5.95), and 10.6x 2016 earnings ($6.63). Analysts expect 2014, 2015, 2016 EPS will grow +6.22%, +8.51%, and +11.4%, respectively.

    Composite, index, and equity options. Options markets worsened to bearish to bullish, compared to neutral to bullish the prior session. Composite options are neutral, index options are bullish, and equity options are bearish. The composite put/call ratio is 0.98, compared to 0.97 the prior day, and worse than 5- and 10-period moving averages of 0.93 and 0.90, respectively. The index put/call ratio is 0.74, compared to 0.81 the prior day, and better than its 5- and 10-period moving averages of 1.05 and 1.11, respectively. The equity put/call ratio closed the day at 1.18, compared to 1.02 the prior day, and worse than its 5- and 10-period moving averages of 0.92 and 0.86, respectively.

    NYSE Volume, Breadth Indicators. Volume rose +36.2% to 926.77 million shares, compared to 680.44 million shares the prior day, 1.45x the 640.91 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by a decisive -2,569 (compared to -714 the prior day) or 0.10:1. Up volume was 0.17:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09150%, compared to 0.09130% the prior day. USD 3-month LIBOR is 0.23410%, unchanged from 0.23510% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.910 bps, compared to 14.060 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 14.300 bps, compared to 14.500 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 curve is -9.756 bps, compared to -9.250 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and below the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 1.179%, compared to 1.155% the prior day.

    · French 10-year debt yields 1.436%, compared to 1.465% the prior day.

    · Japanese 10-year debt yields are 0.539%, compared to 0.538% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.560%, compared to 2.505% the prior day, notably below the U.S. 10-year yield. Italian 10-year debt yields are at 2.765%, compared to 2.695% the prior day. Spanish and Italian 10-year debt yields peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.

    · U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.532% and 2.578%, respectively, compared to 0.528% and 2.558% Thursday. The yield curve widened -1.610 bps, with the 2- to 10-year spread at +2.046%, compared to 2.030% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.921% on July 29, 2014, to a high of +2.648% on December 31, 2013.

    · The U.S. dollar is mixed, slightly weaker compared to the euro, but stronger compared to the Japanese yen and British pound. The dollar trades at US$81.468, compared to US$81.535 intraday high and US$81.456 the prior day, and worse compared to its $80.505 50-day, US$80.184 100-day, and US$80.335 200-day averages. The euro trades at US$1.3397, compared to a US$1.3402 intraday high and US$1.3390 the prior day. The euro trades worse compared to its US$1.3570 50-day and US$1.3683 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.94, compared to ¥102.80 the prior day. The yen trades worse than its 50-day moving average ¥101.92, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.

    · Citigroup Economic Surprise Index worsened to -12.50, compared to -5.20 the prior day. The index is mixed compared to its respective -16.18 5-day and -18.77 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 mostly lower, with lower energy, lower precious metals, lower aluminum and copper, and mostly lower agriculture prices.

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) soared +27.2% to 16.95, compared to 13.33 at the prior close. The VIX is +36.4% above the 12.43 20-day moving average. Its 30-day high is 17.11. Its 30-day low is 10.28. 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 20.35, up +6.41% compared to 18.22 at the prior day's close. The V2X index trades +26.3% above its 16.11 20-day moving average, -1.38% below the 20.63 30-day high, and +59.5% above the 12.32 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 16.53, up +1.04% compared to 16.36 at the prior close. The VHSI index trades +21.4% above its 13.62 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -1.40% to 128.71, compared to 130.54 the prior session, above a neutral reading (115-120) and its first reading under 130 since June 19th, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. 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 8:30, the July change in nonfarm payrolls was 209K, compared to 230K survey and 298K prior.

    · July change in household employment was 131, compared to 407 prior.

    · July change in private payrolls was 198K, compared to 227K survey and 270K prior.

    · July change in manufacturing payrolls was 28K, compared to 15K survey and 23K prior.

    · July unemployment rate is 6.2%, compared to 6.1% survey and prior.

    · July underemployment rate is 12.2%, compared to 12.1% prior.

    · July MoM average hourly earnings rose 0.0%, compared to +0.2% survey and prior. YoY average hourly earnings rose 2.0%, compared to +2.2% survey and +1.90% revised prior.

    · July average weekly hours is 34.5, compared to 34.5 survey and prior.

    · July labor force participation rate was 62.9%, compared to 62.8% prior.

    · June personal income rose +0.4%, compared to +0.4% survey and prior. Personal spending rose 0.4%, compared to +0.4% survey and +0.2% prior.

    · June MoM core PCE deflator rose 0.2%, compared to +0.2% survey and prior. YoY core PCE deflator rose 1.6%, compared to +1.7% survey and revised prior.

    · At 9:45, July final Markit manufacturing PMI, with 56.5 survey and 56.3 prior.

    · At 9:55, July final University of Michigan confidence, with 81.8 survey and 81.3 prior.

    · At 10:00, July ISM manufacturing with 56.5 survey and 556.3 prior.

    Overseas Economic Reporting and News:

    · Japan - July YoY vehicle sales rose +0.6%, compared to -0.7% prior.

    · Eurozone - July final Markit manufacturing PMI was 51.8, compared to 51.9 survey and prior.

    · France - July final Markit manufacturing PMI was 47.8, compared to 47.6 survey and prior.

    · Germany - July final Markit/BME manufacturing PMI was 52.4, compared to 52.9 survey and prior.

    · Italy - July Markit/ACACI manufacturing PMI was 51.9, compared to 52.5 survey and 52.6 prior.

    · Spain - July Markit manufacturing PMI was 53.9, compared to 54.5 survey and 54.6 prior.

    · United Kingdom - July Markit manufacturing PMI was 55.4, compared to 57.2 survey and prior.

    Notable Company Ratings/News:

    · None.

    Thursday's Trade. On greater and above average NYSE volume, major U.S. equity indexes closed sharply lower. The SPX, DJI, Nasdaq, and NYSE composite fell -2.00%, -1.88%, -2.09%, and -1.86%, respectively, their worst losses since early April. This week, indexes are at least -1.41% lower. Last week, indexes closed mixed. In July, indexes are down at least -0.87%. In 2014, the DJI is now lower. Market breadth was decisively negative, with gainers 0.10x losing stocks. All SPX market segments closed at least -1.67% lower. Leaders were utilities, consumer staples and consumer discretionary. Laggards were financials, telecommunications, and energy, which fell at least -2.04%.

    Other notable indexes closed markedly lower. The Russell 2000 (RTY) fell -2.31%% and closed -7.33% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -2.11% and is down -8.53% below its March 6th closing high. The Nasdaq Biotech Index (NBI) fell -2.57% and ended -8.08% below its February 25th record high.

    NYSE volume rose +36.2% to 926.77 million shares, compared to 680.44 million shares the prior day, 1.45x the 640.91 million share 20-day moving average volume. Bond markets weakened slightly. The U.S. 10-year yield set an early 2.5369% intraday low, then spiked to 2.6117% after economic reports at 8:30, then eased back to 2.56%, where it traded narrowly through the session's remainder. The index ended at 2.5578%, up +0.07 bps from the 2.5569% prior close.

    From its prior day 1970.07 SPX close, September 2014 SPX futures (SPM4) suggested a sharply lower open. The index gapped lower to open at 1955, then trended steadily lower to 1940 by mid-session, where it found support through mid-afternoon before weakening again through the final hour to end at the intraday low. The index closed at 1930.67, +88.8% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.

    From its prior day 8,276.54 close, the DJ Transportation index (TRAN) fell -1.63%, compared to the DJI's -1.88% loss, closing -3.86% off its July 24th record close. The index gapped lower to open at 8,240 and trended lower to 8,142 by early afternoon. The index improved to 8,185 in mid-afternoon, but weakened again through the final hour to end at 8,141.75, just better than the late 8,141.12 intraday low. Volume rose +17.6% to 14.133 million shares, compared to 12.023 million shares the prior session, and 1.16x the 15-day moving average volume. The TRAN closed -2.08% and -0.65% below its respective 20- and 50-day moving averages, and +2.97% and +7.71% above its respective 100- and 200-day moving averages.

    Market volatility soared, as the CBOE SPX volatility index (VIX) rose 27.2% to 16.95, compared to 13.33 at the prior close. The index opened at 14.50 and trended higher through the session to a late 17.11 intraday high. 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. The CBOE put/call SKEW fell -1.40%, to 128.71, compared to 130.54 the prior session, above a neutral 115-120 range, but below 130 for the first time since June 18th, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.

    The market's technical factors worsened, as the SPX, DJI, Nasdaq, and NYSE composite surrendered their respective 20-day moving averages, and the DJI surrendered its 100-day moving average as well. The SPX relative strength (RSI) fell to 35.85, compared to 51.26 the prior day, suddenly in the lower end of a neutral range, down from an overbought 73.73 on June 9th and up from 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.

    This week, the SPX, DJI, Nasdaq, and NYSE composite are down -2.40%, -3.14%, -1.41%, and -2.36%, respectively. Last week, the SPX, Nasdaq, and NYSE composite closed up +0.01%, +0.39%, and +0.00%, respectively, while the DJI closed down -0.82%. In July, the SPX, DJI, Nasdaq, and NYSE composite are down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively, while the NYSE composite is down -0.45%. In June, the SPX, DJI, Nasdaq, and NYSE composite rose +1.91%, +0.65%, +3.90%, and +2.07%, respectively.

    In 2014, the SPX, Nasdaq, and NYSE composite are up +4.45%, +4.63%, and +3.14%, respectively, while the DJI is now -0.08% lower. 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 fell -1.77% to 70.14, compared to 71.40 at the prior day's close, -3.80% below its 72.91 March 20th post-2008 closing high. The index gapped lower to open at 71.00 and fell steadily to 70.40 by mid-session. The index improved to 70.60 by mid-afternoon, then fell through the final hour to close at the 70.14 intraday low. Volume rose +30.1% to 54.313 million shares, compared to 41.743 million shares the prior day, and 1.17x the 46.410 million share 15-day moving average.

    Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) fell -1.73%.

    This week, the BKX is down -0.88%, compared to last week, when the BKX closed up +1.19%. In July, the BKX is down -1.64%, compared to June, when the BKX rose +3.48%. In 2014, the BKX is up +1.27%, compared to the SPX's +4.45% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +28.5% 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 +115.4% 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 +79.6% in the same period.

    The BKX index closed -42.1% below its February 20, 2007, record 121.06 high. The BKX is up +276.7% from its 18.62 March 6, 2009, closing low, its low during the 2008-09 financial panic.

    Technical indicators worsened as the index surrendered its 20-, 50-, and 100-day moving averages. The average closed -1.40%, -0.76%, and -0.08% below its 20-, 50-, and 100-day moving averages, though +1.79% above its 200-day moving averages. The 20-day moving average fell -7 bps to 71.14. The 70.67 50-day moving average rose +6 bps. Its 70.20 100-day moving average fell 1 bp, and the 200-day moving average rose +3 bps to 68.91. The 20-day closed (by +0.46 points) above the 50-day, and the gap narrowed -14 bps. The 50-day moving average closed (by +1.77 points) above the 200-day moving average, and the gap widened +4 bps. The 100-day moving average closed (by +1.29 points) above the 200-day moving average, and the gap narrowed -4 bps.

    The directional movement indicator worsened to -4.828, compared to +1.967, its 34rd negative reading in the past 4 sessions. Relative strength fell to 43.88, compared to 53.17 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 recent RSI level was 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 70.84; next support is 69.79.

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

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