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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 Down Small As Catalysts Fade 0 comments
    Mar 2, 2012 9:20 AM | about stocks: BLK, SNV, GS
    This morning. U.S. equity markets are in a confirmed uptrend. The uptrend began on November 28th, when the SPX opened at 1158.67, but the SPX 50-day moving average has trended higher since October 13th. Technical indicators are generally positive. All major indexes are above their respective 20-, 50-, 100-, and 200-day moving averages. Notably, on January 31st, the SPX 50-day moving average crossed above the 200-day moving average. Also on January 31st, the SPX 200-day moving average recaptured an upward trend, ending a 5-month long decline. The SPX is now well into bull market territory, closing Wednesday up +27.9% above the 1074.77 October 4th intraday low.

    In Asia, equity markets closed higher on mixed volume with better strength in Shanghai. Commentary focused on U.S. economic and Eurozone sovereign assistance developments. In Europe, stock exchanges gave up early gains and are modestly lower. The dollar is modestly weaker against other major currencies. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mixed. U.S. Treasury yields are higher, with the 10-year at 2.012%, down from 2.026% the prior day. U.S. repo rates are at 16 bps.

    The ECB's bank lending facilities are credited with easing interbank lending and associated liquidity problems. Overnight and 3-month LIBO and Euribor-OIS spreads are trending lower. The 3-month Euro basis swap remains near its best levels since early August and less than half its worst level of late December.

    After a fair value adjustment of -1.56 points, March SPX equity futures are at 1371.00, down -1.94 points. The SPX opens at 1374.09, +0.26% below its May 2, 2011, multi-year 1370.50 intraday high, and +1.41% and +4.60% above its respective 20- and 50-day moving averages and +8.09% and +9.19% above its respective 100- and 200-day moving averages. Next resistance is at 1378.21. First support is at 1367.94.

    Thursday. U.S. equity indexes rebounded from Wednesday's sell-off, but couldn't hold their best levels of the day and ended with moderate gains. The NYSE composite gained +0.76%, followed by the Nasdaq and SPX, which rose +0.74%, and +0.62%, respectively. The DJI again traded above 13,000, but closed at 12,980.30, up +0.22%. Indexes traded to their best levels in early afternoon, but news of an Saudi oil pipeline explosion, later denied as false, sent petroleum prices briefly higher and equities lower until the report's denial reversed the downward trend. Volume fell to rose to 1.05x the NYSE composite's 50-day moving average, from 1.44x the prior session.

    Technical factors are generally positive. For a 25th consecutive day, all indexes closed above their respective 20-, 50-, 100-, and 200-day moving averages. Market breadth was positive. Volatility fell, with the VIX closing at 17.26, down -6.35% from 18.43 the prior day. The CBOE put/call skew remains elevated at 127.63, well above a neutral range. DJ transports performed better than in recent days, with the TRAN closing at 5,211.48, up +1.13%, but -0.52% below its 20-day moving average. The index has yet to confirm recent DJI highs with a new high of its own. The TRAN reached its recent peak of 5,368.93 on February 3rd.

    From its prior 1365.68 close, the SPX was testing resistance at 1374 by 10:00. After trading back to 1370 following a disappointing February ISM report, equities shrugged off the disappointment and reached their highs in mid-afternoon, when the SPX reached 1376.17. After the false Saudi pipeline report, the SPX traded back to support at 1370, but ended the day with a strong, late rally back to 1374. All market segments closed at least +0.16% higher. Leaders were financials, oil and gas, and basic materials, which closed up at least +0.80%. Laggards industrials, utilities, and consumer goods.

    Trading desks reported a quiet day, with share accumulation on weakness. Short sellers remain largely absent. Corporate earnings remain reasonably strong through the 4Q2011 earnings season. Guidance is more mixed. While momentum continues to the upside, debates as to the market's "fatigue" or "exhaustion" remain active and unresolved.

    Immediate support is 1371 (the May 2nd 2011 intraday high), then 1368 and 1355 (20-day moving average), 1334 (-23.6% Fibonacci retrace of the rally since December 19th), 1310 (a -38.2% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1378 and 1382. Possible macro catalysts include February U.S. economic data (jobs report on March 9th), the next ECB meeting on March 8th, the FOMC on March 13th, and U.S. bank stress tests by March 15th.


    The January 26th distribution day will grow stale after today's trade. The distribution day count stands at 4 on the NYSE composite, and 3 on the SPX, DJI, and Nasdaq. The BKX count is 5.

    In Asia, equity markets closed higher on mixed volume, with greater strength in Shanghai. Commentary focused on U.S. economic data, the weaker Japanese yen, and follow-on Eurozone LTRO. In Japan, the NKY closed up +0.72% on a -9.48% decrease in volume. In China, the HSI closed up +0.81% on a +15.5% increase in volume. The SHCOMP closed up +1.43% on a +38.1% increase in volume.

    In Japan, the NKY closed at 9,777.03, up from 9,707.37 the prior day. In early trading, the index rose to an intraday high of 9,803.75, but quickly traded by mid-morning to the 9,729.24 intraday low. Twice in early afternoon, the index traded back to test resistance unsuccessfully at 9,800. The index traded narrowly through the final two hours. The index closed +5.07% and +10.3% above its respective 20- and 50-day moving averages, near levels of last August prior to the S&P downgrade of the U.S. credit rating. Most market segments closed higher. Leaders were financials, basic materials, and health care, which closed up at least +1.03%. Laggards were consumer services and consumer goods, which closed up at least +0.26%, and telecommunications, which closed off -0.03%.

    In China, the Hang Seng closed at 21,562.26, up from 21,387.96 at the prior close. The index opened at 21,620 and after briefly trading back to 21,550, the index pressed ahead to test resistance at 21,600 with an intraday high of 21,641.14. The index traded narrowly between 21,550 and 21,600 through the close. The index closed +1.71% and +7.97% above its respective 20- and 50-day moving averages. Its 20-day moving average remains below its 20,272 200-day moving average. Most market segments closed higher. Leaders were consumer services, consumer goods, and basic materials, which rose at least +1.08%. Financials rose +1.06%. Laggards were telecommunications and technology, which rose at least +0.35%, and utilities, which fell -0.78%. In Shanghai, the SHCOMP closed at 2,460.69, up from 2,426.12 at the prior close. The SHCOMP opened at 2,430 and rallied through the session to end just short of the day's 2,461.12 high. All market segments closed at least +1.03 higher. Leaders were industrials, technology, and consumer goods, which rose at least +1.65%. Laggards were financials, utilities, and telecommunications.

    In Europe, after trading higher through most of the morning session, equity indexes are now modestly lower and near their intraday lows. Commentary focuses on declarations from today's Euro leaders' summit that payments to the permanent bailout fund will be accelerated. This is tempered by news that half Greece's financial assistance will be provided now, pending policy outcomes and elections in April. The 20-day moving averages of the Euro Stoxx 50, FTSE 100, and DAX are each above their respective 200-day moving averages. The 50-day moving average of the CAC appears poised to cross above its 200-day moving average Monday. The Euro Stoxx 50, FTSE 100, and DAX are down -0.30%, -0.36%, and -0.51%, respectively. Compared to the prior day's 2,548.66 close, the Euro Stoxx 50 trades at 2,544.51, compared to an intraday high of 2,556.96. The index is +1.23% and +4.85% above its respective 20- and 50-day moving averages. Most market segments are lower. Leaders are health care, technology, and utilities, which are up at least +0.03%. Financials are down -0.10%. Laggards are consumer services, telecommunications, and consumer services, which are off at least -1.09%.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.13950%, up from 0.13850% the prior day, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.47575%, down from 0.47970% the prior day and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread fell to 36.47 bps from 36.72 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 60.85 bps from 62.45 bps the prior day and the December 27th high of 98.80 bps. A fall in the LOIS indicates a decreased intra-bank lending risk premium.
    • The Euro 3-month basis swap worsened to -73.575 from -72.295 the prior day, still at levels of August 2011 and up from a trough of -147.00 bps on December 14th.
    • The U.S. government overnight repo rate is 12 bps, down from an August 2nd high of 33 bps.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.282% and 2.012%, respectively, compared to 0.289% and 2.026% Thursday. The yield curve narrowed to +1.731%, from +1.737% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.83% on March 8, 2011.
    • The U.S. dollar is stronger against the euro, British pound, and Japanese yen. The dollar trades at US$79.287, compared to a US$79.308 intraday low and US$78.789 at the prior day's close, and mixed against its US$79.688 50-day, US$78.897 100-day, and US$77.163 200-day averages. The euro trades at US$1.3221, compared to an intraday low of US$1.3212, and compares to a close of US$1.3311 the prior day. The euro trades worse than its US$1.3071 50-day and US$1.3289 100-day averages. In Japan, the dollar trades at ¥81.51, compared to ¥81.12 the day prior. The yen trades worse than its 50-day moving average ¥77.88.
    • Commodities prices are mostly lower, with lower energy and precious metals, higher aluminum and copper, and lower agriculture prices.

    Volatility, Skew:
    • The VIX ended at 17.26, down -6.35% from 18.43 at the prior close. The VIX is -5.97% below its 18.36 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is down -0.95% to 22.65, compared to 22.86 at the prior day's close. The V2X index trades -8.93% below its 24.87 20-day moving average, -21.3% below the 28.76 30-day high, and +1.50% above the 22.31 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 20.67, down -4.44% from 21.63 the prior day. The VHSI index trades -8.14% below its 22.50 20-day moving average.
    • CBOE skew rose +2.44% to 127.63 from 124.59 at the prior day's close, and well above a neutral (115-120) range. The index tracks 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. A spike to 130, as on January 18th, correlates well with short-term market peaks.

    U.S. news and economic reporting:

    · Total February vehicle sales were 15.03 million, compared to survey 14.0 million and prior 14.1 million. Domestic vehicle sales were 11.7 million, compared to 11.0 million survey and 11.05 million prior.

    Overseas news: Today, European Union leaders signed the region's new fiscal pact, with the U.K. and the Czech Republic abstaining. Following the European Central Bank's (ECB) "Long Term Refinancing Operation" on Wednesday, overnight deposits parked at the ECB surged to a record €776.9 billion ($1.03 trillion) last evening.

    Company news/ratings changes:

    · BLK - downgraded to neutral at Credit Suisse

    · European Banks - upgraded to overweight at Goldman Sachs

    · SNV - per company 10-k filing, anticipates sustainable profitability through 2012.

    4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 468 S&P500 companies that reported earnings to date, 68% (317 out of 468) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +3.1% (versus a historical average of +2%). EPS is up +5.1% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 57% beat revenue estimates. In the fourth quarter of 2011, analysts estimate the SPX will earn $24.34 per share, compared to $25.19 and $22.25 per share in 3Q11 and 4Q10, a -3.4% and +9.4% change, respectively.

    With all 24 BKX members reporting fourth quarter earnings, 42% beat operating EPS estimates, with aggregated results disappointing by -16.7%, while 46% beat revenue estimates, with aggregated results missing by -0.9%. EPS is down by -20.4% over the prior year while revenue has decline by -3.8%. In the fourth quarter, the BKX earned $1.25 per share, compared to $1.24 and $0.91 per share in 3Q11 and 4Q10, a +0.8% and +37.4% change, respectively.

    Valuation. The SPX trades at 13.2x estimated 2012 earnings ($104.19) and 11.7x estimated 2013 earnings ($117.94), compared to 13.1x and 11.6 respective 2011-12 earnings yesterday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -4.2%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +9.7% and +24.2%, respectively.

    Large-cap banks trade at a median 1.36x tangible book value, and 11.0x and 9.6x 2012and 2013 consensus earnings, respectively, compared to 1.34x tangible book value and 10.9x/9.6x 2012/2013 earnings yesterday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.30 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.0% and +45.4% increase, respectively.

    Options. Options markets are neutral. Composite options markets are neutral, index options markets are neutral, and equity options markets are neutral. The composite put/call ratio closed at 1.01, compared to 1.05 the prior day and above its 5- and 10-period moving averages of 0.96 and 0.92 respectively. The index put/call ratio closed at 1.47, compared to 1.57 the prior day, and above the 5- and 10-period moving averages of 1.31 and 1.37, respectively. The equity put/call ratio closed the day at 0.65, compared to 0.66 the prior day, above its 5- and 10-period moving averages of 0.64 and 0.63, respectively.

    Price Exhaustion/Trend Reversal. On a daily timeframe, technical price exhaustion metrics show the SPX reached a potential upward price exhaustion level on January 18th and 11th, the first such signals since April, and again on February 9th and 21st. S&P futures reached full upward price exhaustion on January 23rd. Alternative calculations that adjust for the current uptrend's strength shows S&P futures reached upward potential price exhaustion on February 8th, 7th, and 3rd. Intra-day timeframes of 120- and 60-minute intervals show the SPX and BKX reached multiple levels of potential price exhaustion in January and February with the most recent indicator coming on February 21st. A close below the lowest close in the previous four day period combined with a new four-day, intra-session low could signal a reversal's initiation. A reversal might extend as low as 1170 on the SPX.

    NYSE Indicators. Volume fell -26.7% to 814.48 million shares, +1.05x the 50-day moving average, from 1.111 billion shares Wednesday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,033 (compared to -949 the prior day), or 2.05:1. Up volume led down volume by 2.48:1.

    SPX. On lower volume, the SPX rose +8.41 points, or +0.62%, to 1374.09, the 31st straight close above 1300 and the highest close since June 5, 2008. Volume fell -26.48% to 617.18 million shares, down from 839.42 million shares Wednesday and above the 607.25 million share 50-day moving average. For the 48th consecutive day, the SPX closed above its 50-day moving average (1313.62) and remained above its 200-day moving average (1258.46) for the 45th time in the past 46 sessions. The SPX closed above its 200-week moving average (1133.11) for the 100th straight session.

    From its prior close at 1365.68, the SPX opened higher to 1370 and rose to 1374 by 10:00. The 10am economic data disappointed, and the index sold off to the intra-day low of 1368.31 at 10:05. Through 2:10, the SPX rallied and set the intra-day high of 1376.17. A sell-off in trading's final hour retested 1370, but a closing bell rally returned the index above 1374 to finish at the high end of the day's positive range.

    The SPX closed above all major moving averages, above 1200 for the 62nd straight session and above 1300 for the 31st session. The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th. After peaking on June 6th at 1317.97, the 100-day moving average crossed below the 200-day average on September 7th. On December 22nd, the 100-day set a low at 1202.28, and began an upward trend. The 200-day moving average has troughed and is increasing. The 50-day moving average climbed above the 200-day moving average on January 31st, having been below that average since August 11th. For the 49th straight session, the SPX closed (by +1.41%) above its 20-day moving average (1354.99). The index closed (by +4.60%)above its 50-day moving average for the 49th straight session. The index closed (by +8.09%) above its 100-day moving average (1271.19) for the 63rd straight session. The SPX closed +9.19% above its 200-day moving average for the 44th time in the past 45 sessions. All moving averages rose. The directional momentum indicator was positive for the 49th straight session, and the trend is strong. Relative strength rose to 70.03 from 66.50, an overbought range. Next resistance is at 1378.21; next support is at 1367.94.

    BKX. On lower volume, the KBW bank index rose +0.48 points, or +1.06%, to 45.79, its 40th straight close above 40 and the highest close since August 1st, 2011. Volume fell -26.42% to 69.83 million shares, down from 94.90 million shares Wednesday and below the 76.02 million share 50-day average. The BKX closed +6.54% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, and -20.98% and -17.69% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

    Financials were the market's best performing segment, and large-cap banks outperformed regional banks. From its prior close of 45.31, the BKX gapped higher to 45.52, immediately setting the intra-day low. Through 1:20, the index rallied to 46.00, the intra-day high, and unsuccessfully tested that level through 2:15. From 2:20 through 3:40, the index sold-off, falling to 46.58 at 3:40. A closing bell rally lifted the BKX back to 45.80 at the bell and the index finished in the middle of the day's positive range.

    Technical indicators are turning positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +40.63% from the 32.56 October 4th intra-day low compared to a +27.94% rebound in the SPX. However, the BKX is still -17.7% below its 2011 high, compared to the SPX which is now +0.77% above its 2011 peak. On February 22nd, the 50-day moving average crossed above the 200-day moving average for the first time in 176 sessions, or since June 15th. Moving average alignment remains mixed, as the 100-day moving average (40.62) is still below the 200-day moving average (41.80), though the 20-day (44.95) is above all moving averages and the 50-day (42.94) is above the 100- and 200-day moving averages. For the 44th time in the past 45 sessions, the 20-day closed (by +2.01 points) above the 50-day, but the gap contracted. The 50-day moving average closed (by +1.14 points) above the 200-day moving average for the 8th straight session, and the gap widened. The 100-day moving average closed (by -1.19 points) below the 200-day moving average for the 160th straight session, but the gap is narrowing. The BKX closed +1.87% above its 20-day moving average for the 23rd straight session. The index closed (by +6.64%) above its 50-day moving average for the 47th straight session. The index closed (by +12.74%) above the 100-day moving average for the 48h straight session. The index closed (by +9.54%) above its 200-day moving average for the 30th time in 31 sessions. The index closed below 50.0 for the 189th straight session but above 40.0 for the 41st straight session. The directional movement indicator was positive for the 46th consecutive session, and the trend is moderate. Relative strength rose to 61.99 from 58.89, a neutral range. Next resistance is 46.04; next support at 45.49.

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