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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 Moderately Lower Following Equity Weakness In Asia, Europe 0 comments
    Mar 6, 2012 8:53 AM | about stocks: AIG
    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, but the NYSE composite closed below its 20-day moving average yesterday, its first such close since late December. All major indexes are above their respective 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 Friday up +26.9% above the 1074.77 October 4th intraday low.

    In Asia, equity markets closed much lower on mixed volume, with greater weakness in Hong Kong. Commentary focused China's economic growth prospects and AIG's sale of its majority ownership of its Hong Kong-based AIA subsidiary. In Europe, stock exchanges are also significantly lower, where commentary focuses on Greek private debt and European economic growth. The dollar is stronger against the euro and pound, but weaker compared to the yen. U.S. options markets suggest a neutral short-term outlook. Commodities prices are lower. U.S. Treasury yields are lower, with the 10-year at 1.972%, down from 2.010% the prior day. U.S. repo rates are at 14 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 -1.12 points, March SPX equity futures are at 1353.00, down -10.28 points. The SPX opens at 1364.33, -0.99% below its February 29, 2012, multi-year 1370.50 intraday high, and +0.45% and +3.41% above its respective 20- and 50-day moving averages and +7.00% and +8.39% above its respective 100- and 200-day moving averages. Next resistance is at 1369.57. First support is at 1359.11.

    Monday. On mixed volume, U.S. equity indexes closed lower with greater weakness in the Nasdaq, which closed off -0.86% on lower volume. The NYSE composite, SPX, and DJI lost -0.42%, -0.36%, and -0.11%, respectively. Indexes sold off early, and traded to their worst levels in early afternoon, then rallied modestly. Volume rose +0.40% to 0.91x the NYSE composite's 50-day moving average, unchanged from the prior session. Market breadth was negative.

    Technical factors are generally positive, but the past two sessions' weakness have brought some deterioration as the NYSE composite closed below its 20-day moving average. All major indexes remain above their respective 50-, 100-, and 200-day moving averages. Volatility rose +4.40%, with the VIX closing at 18.05 from 17.29 the prior day. The CBOE put/call skew remains elevated at 126.23, above a neutral range. DJ transports continue to perform poorly, closing at 5,125.74, down -0.67% on the day and below both its 20- and 50-day moving averages. The index has yet to confirm recent DJI new highs. The TRAN reached its recent peak of 5,368.93 on February 3rd.

    From its prior 1369.63 close, the SPX gapped lower to open near 1366, and sold off to support at 1360 after reaching an intraday low of 1359.13 in early afternoon. Market segments closed mixed. Leaders were telecommunications, consumer services, and consumer goods, which closed up at least +0.13%. Financials lost -0.39%. Laggards were industrials, technology, and basic materials, which fell at least -0.57%.

    Trading desks reported another quiet day, but with somewhat greater participation by short sellers. Markets seem somewhat stymied at present as upside momentum abates. Debates as to the market's "fatigue" or "exhaustion" remain active and unresolved.

    Immediate support is 1359 and 1358 (20-day moving average), 1341 (-23.6% Fibonacci retrace of the rally since December 19th), 1317 (a -38.2% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1370, then 1378 (the February 29th intraday high), then 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 distribution day feel to count now stands at 2 on the DJI, 3 on the SPX and Nasdaq, and 4 on the NYSE composite. The BKX count rose to 5.

    In Asia, equity markets closed lower for a 2nd consecutive day. Volume rose in Tokyo and Hong Kong, but fell in Shanghai. Commentary focused on China's economic growth prospects, a stronger yen, target, and AIG's sale of its majority stake in Hong Kong-based AIA Group Ltd, the 3rd largest Asia-based insurer by market value. In Japan, the NKY closed down -0.63% on a +29.6% increase in volume. In China, the HSI closed down -2.16% on a +214.0% increase in volume. The SHCOMP closed down -1.41% on a -8.04% decrease in volume.

    In Japan, the NKY closed at 9,637.63, down from 9,698.59 the prior day. The index opened modestly higher, but turned lower after the session's first hour, trending lower through mid-afternoon to a 9,602.84 intraday low. The index rallied modestly into the close. The index closed +2.62% and +8.03% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities, health care, and consumer services, which rose at least +0.03%. Financials closed off -0.70%. Laggards were technology, industrials, and oil and gas, which closed off at least -0.86%.

    In China, the Hang Seng closed at 20,806.25, down from 21,265.31 at the prior close. The index gapped lower to open at 21,170, sold off immediately to 21,050 and finally found support after mid-day at 20,900, when the index rallied back to 21,000. There, the selling resumed, taking the index to a late session intraday low of 20,789.36. For the first time since late December, the index closed -2.17% below its 20-day moving average. It remains +3.51% above its 50-day moving average. All market segments closed at least -0.37%lower. Leaders were telecommunications, consumer goods, and utilities. Laggards were industrials, financials, and basic materials, which closed off at least -2.54%. In Shanghai, the SHCOMP closed at 2,410.45, down from 2,445.00 at the prior close. The SHCOMP gapped lower to open at 2,440, finally finding support in late morning at 2,410. In the afternoon, the index twice test support at 2,405 and ended the session with a mild rally. All market segments closed at least -0.76% lower. Leaders were utilities, consumer goods, and technology. Financials closed down -1.23%. Laggards were health care, basic materials, and telecommunications, which closed off at least -1.80%..

    In Europe, equities are lower and at their worst levels of the day. Commentary focuses on private investors in Greek sovereign debt and Eurozone recession fears. The Euro Stoxx 50, FTSE 100, and DAX are down -1.68%, -1.07%, and -1.59%, respectively. Their 20-day moving averages have fallen below their respective 50-day moving averages, but remain above their respective 200-day moving averages. Compared to the prior day's 2,529.86 close, the Euro Stoxx 50 trades at 2,487.18, compared to the 2,485.18 intraday low. The index is 1.16% below and +2.05% above its respective 20- and 50-day moving averages. All market segments are at least -0.25% lower. Leaders are technology, health care, and oil and gas. Laggards are consumer services, industrials, and financials, which are off at least -2.07%.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.14150%, up from 0.14050% the prior day, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.47455%, unchanged from 0.47455% the prior day and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread rose to 36.33 bps, from 36.26 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 57.35 bps from 58.90 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 improved to -70.750 from -72.500 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 14 bps, down from an August 2nd high of 33 bps.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.290% and 1.967%, respectively, compared to 0.294% and 2.010% Monday. The yield curve narrowed to +1.677%, from +1.717% 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 and British pound, but weaker against the Japanese yen. The dollar trades at US$79.721, compared to a US$79.739 intraday high and US$79.300 at the prior day's close, and mixed against its US$79.676 50-day, US$78.945 100-day, and US$77.211 200-day averages. The euro trades at US$1.3135, compared to an intraday high of US$1.3226 and compares to a close of US$1.3217 the prior day. The euro trades better than its US$1.3075 50-day and but worse than its US$1.3277 100-day averages. In Japan, the dollar trades at ¥81.08, compared to ¥81.16 the day prior. The yen trades worse than its 50-day moving average ¥78.02.
    • Commodities prices are lower, with lower energy, lower precious metals, aluminum, and copper, and lower agriculture prices.

    Volatility, Skew:
    • The VIX ended at 18.05, up +4.40% from 17.29 at the prior close. The VIX is -1.74% below its 18.37 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up +8.42% to 25.80, compared to 23.80 at the prior day's close. The V2X index trades +4.22% above its 24.76 20-day moving average, -10.3% below the 28.76 30-day high, and +16.7% above the 22.11 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 23.61, up +5.35% from 22.41 the prior day. The VHSI index trades +5.30% above its 22.42 20-day moving average.
    • CBOE skew rose +0.82% to 126.23 from 125.20 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:

    · There are no scheduled economic reports.

    · Reporting picks up tomorrow with the release of February ADP employment change, which survey has adding 213K jobs, compared to 170K prior.

    · Final 4Q2012 nonfarm productivity and unit labor costs, with surveys of +0.8% and +1.2% and priors of +0.7% and +1.2%, respectively.

    Overseas news: Today, press reports speculate that private sector participation in the Greek debt swap deal, due to be finalized Thursday, will be sufficient to ensure the swap's success but may still end up triggering "Collective Action Clauses" and credit default swap payments. Today, the People's Bank of China guided the yuan to an unusually weak level, which may anticipate a widening of the currency's trading band.

    Company news/ratings changes:

    · None.

    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 13.1x estimated 2012 earnings ($104.19) and 11.6x 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 1.32x tangible book value, and 10.7x and 9.5x 2012and 2013 consensus earnings, respectively, compared to 1.34x tangible book value and 10.8x/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 to bullish. The composite put/call ratio closed at 0.93, compared to 0.91 the prior day and below its 5- and 10-period moving averages of 0.94 and 0.94 respectively. The index put/call ratio closed at 1.20, compared to 1.35 the prior day, and below the 5- and 10-period moving averages of 1.36 and 1.34, respectively. The equity put/call ratio closed the day at 0.73, compared to 0.63 the prior day, above its 5- and 10-period moving averages of 0.65 and 0.65, respectively.

    Price Exhaustion/Trend Reversal. On a daily timeframe, technical price exhaustion metrics show the SPX and S&P futures began reaching potential upward price exhaustion levels as early as January 18th, the first such signals since April, and repeatedly through February with the most recent reading on February 21st. 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 March 1st. Yesterday's close was below the lowest close in the previous four days and recorded a new four-day, intra-session low, which may signal a reversal's initiation. A reversal might extend as low as 1170 on the SPX.

    NYSE Indicators. Volume rose +0.40% to 702.72 million shares, +0.91x the 50-day moving average, from 699.91 billion shares Friday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -586 (compared to -1,013 the prior day), or 0.68:1. Up volume lagged down volume by 0.50:1.

    SPX. On higher volume, the SPX fell -5.30 points, or -0.39%, to 1369.63, the 33rd straight close above 1300 but the first back-to-back decline since December 13th and 14th. Volume rose +12.39% to 529.73 million shares, up from 471.38 million shares Friday but below the 601.00 million share 50-day moving average. For the 50th consecutive day, the SPX closed above its 50-day moving average (1319.36) and remained above its 200-day moving average (1258.78) for the 47th time in the past 48 sessions. The SPX closed above its 200-week moving average (1133.12) for the 102nd straight session.

    From its prior close at 1369.63, the SPX opened at 1367 and reached the intra-day high of 1367.98 at 10:05. A 10:00 sell-off dropped the index to its intra-day low of 1359.13 at 11:15. Through 2:30, the index fluctuated between 1360 and 1362 when a rally took the index back to 1366 at 3:30. Momentum faded into the close and the index finished in the middle of the day's negative range.

    The SPX closed above all major moving averages, above 1200 for the 64th straight session and above 1300 for the 33rd 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 51st straight session, the SPX closed (by +0.45%) above its 20-day moving average (1358.16). The index closed (by +3.41%)above its 50-day moving average for the 51st straight session. The index closed (by +7.00%) above its 100-day moving average (1275.03) for the 65th straight session. The SPX closed +8.39% above its 200-day moving average for the 46th time in the past 45 sessions. All moving averages rose. The directional momentum indicator was positive for the 51st straight session, and the trend is strong. Relative strength fell to 61.58 from 66.05, a neutral range. Next resistance is at 1369.57; next support is at 1359.11.

    BKX. On higher volume, the KBW bank index fell -0.58 points, or -1.27%, to 45.01, its 42nd straight close above 40. Volume rose +27.23% to 58.95 million shares, up from 44.34 million shares Friday but below the 74.78 million share 50-day average. The BKX closed +4.72% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, and -22.33% and -19.09% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

    Financials performed in-line with the market, and large-cap banks' losses underperformed regional banks' gains. From its prior close of 45.59, the BKX gapped lower at the open to 45.45, immediately setting the intra-day high. The index sold-off through 1:50, setting the intra-day low of 44.79. A 2pm rally lifted the index back above 45 by 3:00 and the BKX held that level into the close.

    Technical indicators are turning positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +38.24% from the 32.56 October 4th intra-day low compared to a +27.03% rebound in the SPX. However, the BKX is still -19.1% below its 2011 high, compared to the SPX which is now +0.1% 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 (40.79) is still below the 200-day moving average (41.75), though the 20-day (45.05) is above all moving averages and the 50-day (43.25) is above the 100- and 200-day moving averages. For the 46th time in the past 47 sessions, the 20-day closed (by +1.79 points) above the 50-day, but the gap contracted. The 50-day moving average closed (by +1.50 points) above the 200-day moving average for the 10th straight session, and the gap widened. The 100-day moving average closed (by -0.96 points) below the 200-day moving average for the 162nd straight session, but the gap is narrowing. The BKX closed -0.08% below its 20-day moving average for the first time in 25 sessions. The index closed (by +4.06%) above its 50-day moving average for the 49th straight session. The index closed (by +10.34%) above the 100-day moving average for the 50th straight session. The index closed (by +7.81%) above its 200-day moving average for the 32nd time in 33 sessions. The index closed below 50.0 for the 191st straight session but above 40.0 for the 43rd straight session. The directional movement indicator was positive for the 48th consecutive session, and the trend is moderate. Relative strength fell to 54.41 from 59.96, a neutral range. Next resistance is 45.39; next support at 44.71.

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