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Gary Townsend - Since 2007, a founding partner, CEO and Portfolio Manager of Hill-Townsend Capital LLC, a long/short equity financial sector fund based in Chevy Chase, Maryland. Mr. Townsend has 30 years banking, regulatory, and investment experience. He started his business career in 1978, as... More
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  • Japan, Europe Rally, U.S. Futures Follow 0 comments
    Aug 21, 2014 8:39 AM

    This morning. World equities are mixed overnight, with some weakness in China following August flash PMIs, but strength in both Tokyo and Europe. U.S. futures are near the top of their pre-session ranges. The dollar is slightly weaker compared to the euro. U.S. Treasury 10-year yields are slightly higher. Commodities are mostly higher. Economic reporting focuses on preliminary PMIs in China (disappointing), Europe (meh), and the U.S., with the U.S. results after the market open. In the U.S., attention is focused on this Friday's Jackson Hole meetings. Friday's Nikkei 225 September 2014 (NKU4) equity futures are modestly higher.

    Since August 13, the U.S. equity market outlook is "confirmed uptrend". Yesterday, the S&P 500 index (SPX) closed +2.47% above the August 12th 1933.75 close. The SPX opens -0.03% below its July 23rd record high. The Nasdaq opens -1.01% below its April 11, 2001 record high.

    Wednesday, on lower and below average volume, U.S. equity indexes opened lower, but improved through 2:00 pm EDT, when the release of July FOMC minutes introduced some brief volatility. Most indexes briefly reversed lower, but then found support, steadied, and rallied into the close, though the Nasdaq ended fractionally lower. The S&P 500 Index (SPX), DJ Industrials (Private:DJI), and NYSE composite rose +0.25%, +0.35%, and +0.18%, respectively. The Nasdaq closed off -0.02%. This week, indexes are at least +1.38% higher, compared to last week, when indexes closed up at least +0.66%. In August, indexes are at least +2.08% higher. In July, indexes closed off at least -0.87%. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +7.21%, +2.07%, +8.40%, and +5.09%, respectively.

    NYSE volume fell -2.41% to 0.84x its 20-day moving average.

    Other notable indexes were mixed. The DJ Transports (TRAN) rose +0.55%. The Russell 2000 (RTY) fell -0.43%. The Nasdaq Internet (QNET) index fell -0.20%, and the Nasdaq Biotech (NBI) index fell -0.27%. The TRAN, RTY, QNET, and NBI are down -0.09%, -4.23%, -5.42% and -2.25%, respectively, from their recent record highs.

    Trading desks describe further digestion of yesterday afternoon's FOMC minutes, which is judged to support views that the Fed will likely raise interest rates about 6 months subsequent to completion of its QE in December. Indexes are mixed. In China, equities closed moderately lower, but improved from larger mid-session losses. Japan closed near its intraday high, and Europe, despite meh flash PMIs, is rallying and near intraday highs. Regarding yesterday's trade, desk flows were quiet through the session. Attention remains squarely on Yellen's Jackson Hole speech Friday morning, the text of which will be released at 10:00 am EDT. Views remain that Yellen will deliver a "dovish" speech. The meeting agenda will be released today after the close. More broadly, the SPX has moved back above the top its 1950-1985 trading range. Sentiment remains skeptical that the SPX can manage a clear upside breakout.

    The 2Q2014 earnings season began June 18th and is now largely complete as 480 of 500 SPX companies have reported with respective +5.11% and +1.54% adjusted EPS and revenues surprises. Financials (84 of 84 reporting) lead with respective +9.47% and +2.38% 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 $119.48, $132.66, and $147.20, respectively compared to $118.05, $131.36 and $145.70 at June-end, respective increases of +1.21%, +0.99% and +1.02%. Price earnings multiples remain elevated. With SPX equities trading at a 17.3x (compared to 17.3x the prior day) average 2014-15 earnings ($126.07), attention focuses on prospective 2014-15 earnings and valuations (17.3x times survey 2014-15 SPX average operating earnings suggests a 2184.88 SPX level in the next year, a +9.99% rise from yesterday's close).

    Technicals were little changed. Led by industrials, most SPX market segments closed higher. SPX market breadth was modestly positive, and up volume led down volume. Volatility fell, and the VIX now suggests a 68% probability that the 30-day change in the SPX will be less than ±4.08%. Treasury bond markets weakened, with the 10-year U.S. Treasury bond yield rising +2.67 bps to 2.4264%, compared to 2.3997% at the prior close.

    This morning, 10-year U.S. Treasury yields are +1.04 bps higher at 2.4370%, compared to the prior close. World sovereign bond markets are mixed, with the German 10-year yield at 1.005%, off its record low. Spanish and Italian 10-year debt yields are lower at 2.376% and 2.578%, respectively, compared to 2.402% and +2.599% the prior day.

    U.S. options markets are unchanged at neutral to bullish, compared to neutral to bullish the prior day. The CBOE SKEW fell -2.23% to 135.46, compared to 138.49 the prior day, above 130 for the 4th consecutive session, 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 below initial support, but near the top of their 1981-1988 trading range. After a fair value adjustment of +0.31 points, the SPU4 future prices at 1987.00, up +3.44 points. The SPX opens +1.80% above and +1.41% below its respective 20- and 50-day moving averages, and +3.35% below and +6.19% above its 200-day moving averages. Initial resistance is 1990.83. Initial support is 1979.94, then 1973.36.

    "Confirmed Uptrend" Market Outlook. Based on Nasdaq's August 13th follow-through, the U.S. equity outlook improved to "confirmed uptrend", concluding a brief "in correction" that commenced on August 6th, which followed a period of "uptrend under pressure" that began on July 8th. Since August 13th, there have been no subsequent distributions.

    2Q2014 earnings continue to surprise positively, with financials' earnings leading other sectors. Wednesday, the SPX closed at 1986.51, up +2.73% compared to its August 12th 1933.75 close.

    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 +13.3% to the August 18th 4,527.51 multi-year record close.

    In Asia, equity markets closed mixed, but with strength in Tokyo. The Nikkei 225 (NYSEARCA:NKY) rose +0.85%. In China, the Hang Seng (HSI) Index fell -0.66%, and the Shanghai SE composite (SHCOMP) fell -0.44%. The NKY, HSI, and SHCOMP 50-day moving averages are above their respective 200-day moving averages. Today's volumes are unavailable.

    Commentary focused on flash Chinese PMIs, which disappointed, even while signaling continued economic expansion.

    This week, the NKY, HSI, and SHCOMP are up +0.17%, +0.16%, and +1.75%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +3.65%, +2.56%, and +1.47%, respectively. In August, the NKY is down -0.22%, while the HSI and SHCOMP are up +0.96%, and +1.31%, respectively. In July, the NKY closed up +3.03%, the HSI rose +6.75%, and the SHCOMP rallied +7.48%.

    In 2014, the NKY is down -4.33%, the HSI is up +7.24%, and the SHCOMP is up +5.41%. 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, and the SHIBO 7-day rose +10 bps to 3.35%, compared to 3.25% 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) have Tokyo in a neutral range, while the Hong Kong and Shanghai are in the upper end of a neutral range. The NKY RSI rose to 60.30, compared to 56.07 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 66.52, compared to 73.78 the prior day and down from an overbought 81.00 on July 31st. The SHCOMP's RSI fell to 65.22, compared to 69.07 the prior day. On July 28th, the index's RSI set a 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 15,586.20, compared to 15,454.45 the prior day, -4.33% below its year-end 16,291.31 high and -60.0% below its late-1989 38,915.87 high close. The index opened at 15,530 and rose to a mdi-morning 15,601.99 intraday high, then fell back to 15,550 by mid-session. The index improved through the close. All market segments closed at least +0.40%. Leaders were financials, telecommunications, and health care, which rose at least +1.11%. Laggards were utilities, technology, and energy.

    In China, in Shanghai, the SHCOMP closed at 2,230.46, compared to 2,240.21 at the prior close, +14.4% above the 1,950.01 June 27, 2013 close, last year's low. The index traded y lower through the session, but found its 2,211.79 intraday low in early afternoon, then improved through the close to narrow the day's losses. Most market segments closed lower. Leaders were consumer discretionary and technology, which rose at least +0.60%, and utilities, which fell -0.24%. Laggards included financials, telecommunications, and energy, which fell at least -0.74%.

    In Europe, major equity indexes shrugged off initial weakness and are rallying and trade near their intraday highs. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are up +0.96%, +0.27%, +0.84%, and +0.61%, respectively. The Spanish IBEX 35 is up +1.17%. The Italian FTSE MIB is up +1.70%. Compared to their recent highs, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -6.08%, -1.76%, -7.00%, and -6.77%, respectively.

    Economic reporting focuses on preliminary August Eurozone, German, and French PMIs. Other foci are Friday's Jackson Hole meeting, and currency and commodity price developments. Notably absent is much attention to Russian/Ukrainian developments. The euro is slightly stronger compared to the dollar.

    European bourses have recently underperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 54.23, compared to 46.44 at the prior close, in a neutral (30-70) range. On August 8th, its RSI closed at 28.17, well below its prior February 5th 33.57 low, which coincided with its prior 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 -6.08% below its recent June 18th 3,314.80 multi-year high and -40.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,113.37 close, the index fell to an early 3,075.57 intraday low, but quickly reversed higher to 3,100 in early trading and subsequently improved. The index currently trades at 3,113.13. Gains are broad based. All market segments are at least +0.41% higher. Leaders are financials, industrials, and health care, which are up at least +1.00%. Laggards are utilities, consumer staples, and technology.

    This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.63%, +1.26%, +2.46%, and +3.05%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.89%, +1.85%, +0.64%, and +0.92%, respectively. In August, the FTSE 100 and CAC 40 are up +0.64% and +0.72%, respectively, while the Euro Stoxx50 and DAX are down -0.07% and -0.39%, respectively. In July, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -3.49%, -0.21%, -4.00%, and -4.33%, respectively.

    In 2014, the indexes are mixed. The Euro Stoxx50 and FTSE 100 are up +0.14% and +0.36%, respectively, while the CAC 40 and DAX are down -0.44% and -1.90%, 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 is now largely complete, with 480 of 500 SPX reporting firms having reported, with respective +5.11% EPS and +1.54% revenue surprises. Financials (84 of 84 reporting) lead with a 9.47% EPS surprise and +2.39% 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 18.0x estimated 2013 earnings ($110.15), 16.6x estimated 2014 earnings ($119.48), 15.0x estimated 2015 earnings ($132.66), and 13.5x estimated 2016 earnings ($147.20). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +8.47%, +11.0%, and 11.0%, respectively.

    The KBW Bank Index (BKX) trades at 13.6x 2013 adjusted EPS ($5.16), 12.7x estimated 2014 earnings ($5.51), 11.8x estimated 2015 earnings ($5.94), and 10.6x 2016 earnings ($6.64). Analysts expect 2014, 2015, 2016 EPS will grow +6.87%, +7.78%, and +11.7%, 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 bullish, and equity options are neutral. The composite put/call ratio is 0.87, compared to 0.90 the prior day, and better than 5- and 10-period moving averages of 0.93 and 0.95, respectively. The index put/call ratio is 0.76, compared to 0.88 the prior day, and better than its 5- and 10-period moving averages of 0.98 and 1.02, respectively. The equity put/call ratio closed the day at 0.95, compared to 0.91 the prior day, and worse than its 5- and 10-period moving averages of 0.88 and 0.90, respectively.

    NYSE Volume, Breadth Indicators. Volume fell -2.41% to 542.26 million shares, compared to 555.64 million shares the prior day, +0.84x the 643.05 million shares 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +79 (compared to +871 the prior day), or 1.05:1. Up volume was 2.12:1 down volume.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    · USD LIBOR is 0.09190%, compared to 0.09140% the prior day. USD 3-month LIBOR is 0.23440%, down from 0.23210% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

    · The US LIBOR-OIS (LOIS) spread is 13.940 bps, compared to 14.140 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 15.500 bps, compared to 15.900 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 -13.141 bps, compared to -14.000 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within the lower end of a normal -10 bps and -40 bps range.

    · German 10-year debt yields 1.005%, compared to 0.990% the prior day.

    · French 10-year debt yields 1.239%, compared to 1.246% the prior day.

    · Japanese 10-year debt yields are 0.529%, compared to 0.520% the prior day.

    · Spanish and Italian 10-year debt yields are lower and near multi-year lows. Spanish 10-year debt yields are 2.376%, compared to 2.402% the prior day. Italian 10-year debt yields are at 2.578%, compared to 2.599% 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 0.468% and 2.441%, respectively, compared to 0.472% and 2.426% Wednesday. The yield curve widened +1.830 bps, with the 2- to 10-year spread at +1.973%, compared to 1.955% 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 stronger compared to the Japanese yen and British pound, but weaker compared to the euro. The dollar trades at US$82.259, compared to US$82.364 intraday high and US$82.226 the prior day, and better compared to its $80.799 50-day, US$80.406 100-day, and US$80.408 200-day averages. The euro trades at US$1.3262, compared to a US$1.3278 intraday high and US$1.3359 the prior day. The euro trades worse compared to its US$1.3502 50-day and US$1.3621 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥103.83, compared to ¥103.76 the prior day. The yen trades worse 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 is unchanged at -1.80, compared to -1.80 the prior day, its 4th consecutive negative reading. The index is mixed compared to its respective -2.78 5-day and -0.12 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, then turned negative on May 29th and remained negative through August 5th. After a lag, the CESIUSD correlates with EPS revisions.

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

    Volatility, Skew:

    · The CBOE SPX volatility index (VIX) fell -3.52% to 11.78, compared to 12.21 at the prior close. The VIX is -16.3% below the 14.08 20-day moving average. Its 30-day high is 17.57. Its 30-day low is 10.59. 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 15.94, down -4.71% compared to 16.73 at the prior day's close. The V2X index trades -12.8% below its 18.27 20-day moving average, -28.0% below the 22.15 30-day high, and +9.94% above the 14.50 30-day low.

    · The Hang Seng volatility index (VHSI) closed at 14.76, up +1.17% compared to 14.59 at the prior close. The VHSI index trades -4.94% below its 15.53 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

    · CBOE SKEW (SKEW) fell -2.33% to 135.46, compared to 138.69 the prior session, above a neutral reading (115-120) and for a 3rd consecutive session, above 130, 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 latest weeks' respective initial and continuing jobless claims were 298K and 2500K, compared to 303K and 2520K survey and 312K and 2549K revised prior.

    · At 9:45, August preliminary Markit manufacturing PMI, with 55.7 survey and 55.8 prior.

    · At 10:00, Philadelphia Fed business outlook with 19.7 survey and 23.9 prior.

    · July MoM existing home sales, with -0.5% survey and +2.6% prior.

    · The July leading index, with +0.6% survey and +0.3% prior.

    Overseas Economic Reporting and News:

    · China - August preliminary HSBC manufacturing PMI was 50.3, compared to 51.5 survey and 51.7 prior.

    · Eurozone - August preliminary Markit manufacturing PMI was 50.8, compared to 51.3 survey and 51.8 prior. Markit services PMI was 53.5, compared to 53.7 survey and 54.2 prior. Markit composite PMI was 52.8, compared to 53.4 survey and 53.8 prior.

    · France -- August preliminary Markit manufacturing PMI was 46.5, compared to 47.8 survey and 47.8 prior. Markit services PMI was 51.1, compared to 50.2 survey and 50.4 prior. Markit composite PMI was 50.0, compared to 49.6 survey and 49.4 prior.

    · Germany - August preliminary Markit manufacturing PMI was 52.0, compared to 51.5 survey and 52.4 prior. Markit services PMI was 56.4, compared to 55.5 survey and 56.7 prior. Markit composite PMI was 54.9, compared to 54.6 survey and 55.7 prior.

    · United Kingdom - July MoM retail sales ex auto rose +0.5%, compared to +0.4% survey and -0.1% prior.

    Notable Company Ratings/News:

    · None.

    Wednesday's Trade. Though the Nasdaq closed fractionally lower, equity markets generally extended gains recent gains, though late-August volume eased further. On lower and below average NYSE volume, major U.S. equity indexes opened modestly lower, but reversed higher and generally rallied through the session to late intraday highs. The trend was interrupted at 2:00 pm EDT, with the release of July's FOMC meeting minutes, when indexes reacted briefly by selling off, but then quickly found support and improved through the close. The SPX, DJI, and NYSE composite rose +0.25%, +0.35%, and +0.18%, respectively, while the Nasdaq fell -0.02%. This week, indexes are at least +1.38% higher, compared to last week, when indexes closed up at least +0.66%. In August, indexes are at least +2.08% higher. In July, indexes closed down at least -1.51%. In 2014, indexes are up at least +2.07%. Market breadth was positive, with gainers 1.80x losing stocks. Most SPX market segments closed higher. Leaders were industrials, consumer discretionary, and financials, which rose at least +0.30%. Laggards were health care, which rose +0.01%, and technology and consumer staples, which fell at least -0.01%.

    Other notable indexes closed lower. The Russell 2000 (RTY) fell -0.43% and closed -4.23% below its March 4th record high. The Nasdaq Internet Index (QNET) fell -0.20% and is down -5.42% below its March 6th closing high. The Nasdaq Biotech Index (NBI) fell -0.27% and ended -2.25% below its February 25th record high.

    NYSE volume fell -2.41% to 542.26 million shares, compared to 555.64 million shares the prior day, 0.84x the 643.05 million share 20-day moving average volume. Bond markets weakened. From its prior day 2.3997% close, the U.S. 10-year yield trended modestly higher until 2:00, when the index spiked to its 2.4432% intraday high. The index moved lower into the close. The index ended at 2.4264%, up +2.67 bps from the 2.3997% prior close.

    From its prior day 1971.74 SPX close, September 2014 SPX futures (SPM4) suggested a slightly lower open. The index fell to an early 1977.68 intraday low, but reversed higher by mid-morning and rose to nearly 1986 before the 2:00 release of July FOMC minutes. The index immediately fell back to 1980 support, but rallied anew and climbed to a late 1988.57 intraday high. opened above 1974 and trended higher through the session to a final hour 1952.57 intraday high. The index closed at 1986.51, +84.8% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction, and -0.03% below its 1987.01 July 24th record close.

    From its prior day 8,264.12 close, the DJ Transportation index (TRAN) rose +0.55% to 8,460.97, compared to 8,414.89 at the close. The index opened lower, when it set its 8,405.08 intraday low, but immediately reversed higher and rallied to an early afternoon 8,470.20 intraday high. The index weakened into the release of the FOMC meeting minutes, but found support at 8,440, then improved through the final two hours. The index closed at 8,460.97, -0.09% off its July 24th record close. Volume rose +19.1% to 10.044 million shares, compared to 8.432 million shares the prior session, and 0.82x the 15-day moving average volume. The TRAN closed +2.80% and +2.85% above its respective 20- and 50-day moving averages, and +5.73% and +10.6% above its respective 100- and 200-day moving averages.

    Market volatility fell, as the CBOE SPX volatility index (VIX) fell -3.52% to 11.78, compared to 12.21 at the prior close, its first close below 12.0 since July 25th. Through mid-afternoon, the VIX trended lower to 11.90, then moved back to 12.20 following the release of FOMC meeting minutes, but quickly moved lower to a late session 11.60 intraday low. 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 rose +2.24% to 138.46, compared to 135.43 the prior session, above a neutral 115-120 range and above 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 improved. The SPX relative strength (RSI) rose to 62.99, compared to 61.53 the prior day, in a neutral range. The latest RSI compares to an oversold 32.85 on August 7th, an overbought 73.73 on June 9th, and an oversold 31.24 on February 3rd, its previous yearly low, when the SPX closed at 1741.89. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record 1848.36 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 up +1.61%, +1.90%, +1.38%, and +1.442%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite gained +1.22%, +0.66%, +2.15%, and +0.97%, respectively. In August, the SPX, DJI, Nasdaq, and NYSE composite are up +2.89%, +2.51%, +3.59%, and +2.08%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite closed down up -1.51%, -1.56%, -0.87%, and -2.30%, respectively.

    In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +7.47%, +2.43%, +8.38%, and +5.28%, 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 lower and below 15-day average volume, the BKX rose +0.34% to 70.12, compared to 69.88 at the prior day's close, its first close above 70 since July 31st. The index closed -3.83% below its 72.91 March 20th post-2008 closing high. The index gapped lower and set an early 69.65 intraday low, but immediately reversed higher through mid-afternoon, when it dipped again to test support at 69.70. The index rallied through the final two hours, with a late 70.22 intraday high. Volume fell -6.19% to 31.896 million shares, compared to 34.002 million shares the prior day, and 0.83x the 38.581 million share 15-day moving average.

    Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -0.35%.

    This week, the BKX is up +1.61%, compared to last week, when the BKX closed up +0.26%. In August, the BKX is down -0.03%, compared to July, when the BKX closed off -1.64%. In 2014, the BKX is up +0.90%, compared to the SPX's +7.21% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.

    The BKX is now +18.5% 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. On June 5th, the BKX rose back above 70, but then again surrendered that level on August 1st.

    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 +84.8% in the same period. The BKX index closed -42.1% below its February 20, 2007, record 121.06 high. The BKX is up +276.6% from its 18.62 March 6, 2009, closing low, its low at the end of the 2008-09 financial panic.

    Technical indicators were mixed, as the 100-day moving average joined its 20- and 50-day moving averages in downward inclination. The average closed +0.56% above and -0.68% below its respective 20- and 200-day moving averages, but +0.33% and +1.31% above its 50- and 100-day moving averages. The 20-day moving average fell -3 bps to 69.73. The 70.60 50-day moving average fell -3 bps. Its 69.89 100-day moving average fell -1 bp, and the 200-day moving average rose +3 bps to 69.21. The 20-day closed (by -0.87 points) below the 50-day, and the negative gap was unchanged. The 50-day moving average closed (by +1.39 points) above the 200-day moving average, and the gap narrowed -6 bps. The 100-day moving average closed (by +0.68 points) above the 200-day moving average, and the gap narrowed -4 bps.

    The directional movement indicator improved to -8.501, compared to -6.942 the prior day, its 15th consecutive negative reading since July 30th. Relative strength rose to 52.46, compared to 50.41 the prior day, in a neutral range, down from an overbought 73.14 on June 9th, but compares to up from the recent lows of 32.95 on February 3rd and 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 71.14; next support is 69.77.

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

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