In Asia, Japanese reopened, but closed moderately lower. In China, equity markets closed mixed. Commentary focused on Chinese economic growth concerns. In Europe, after a reasonably strong open, stock exchanges are modestly higher, but near their intraday lows. The dollar is mixed against the euro, pound, and Japanese yen. U.S. options markets suggest a neutral to bearish short-term outlook. Commodities prices are mixed. U.S. Treasury yields are mixed, with the 10-year at 2.363%, down from 2.359% the prior day. U.S. repo rates are at 17 bps.
The ECB's bank LTRO lending facilities are credited with easing interbank lending and associated liquidity problems. Overnight and 3-month LIBO and Euribor-OIS spreads have stabilized in recent weeks lower levels than in December, when Eurozone solvency concerns were at their peak. The 3-month Euro basis swap is at its best level since early August and less than half its worst level of late December.
After a fair value adjustment of -0.03 points, June SPX equity futures are at 1402.70, up +2.73 points. The SPX opens at 1405.52, +2.16% and +4.47% above its respective 20- and 50-day moving averages, and +8.69% and +11.4% above its respective 100- and 200-day moving averages. Next resistance is at 1415.02. First support is at 1403.45.
Tuesday. Equity markets closed moderately lower. The Nasdaq fell -0.14%, followed by the SPX, DJI, and NNYSE composite, which fell -0.30%, -0.52%, and -0.68%, respectively. Volume fell, so there was no change in the distribution day counts of the major indexes. NYSE volume fell -1.42% to 0.88x the 50-day moving average. Market breadth was negative. Treasuries weakened mid-session, but firmed in late in the session. Segments ended mixed. Leaders were financials, consumer services, and utilities, which closed up at least +0.05%. Laggards were basic materials, industrials, and oil and gas, which closed at least -0.65% lower.
DJ transports underperformed the industrials, falling -1.34% to close at 5288.48, down from 5360.04 the prior day, and -1.50% off the 5,368.93 February 3rd closing high. The index closed +2.05% and +1.16% above its 20- and 50-day moving averages. The TRAN has not confirmed multiple DJI new highs subsequent to February 3rd.
Technical factors are generally positive. All major exchanges closed above their respective 20-, 50-, 100-, and 200-day moving averages. Volatility rose +3.59%, and the VIX closed at 15.58, up from 15.04 the prior day. The CBOE put/call skew fell to 128.02, down modestly from 128.85 the prior session. Spikes above 130 correlate well with short-term market tops, though the March 12th spike to 139.25 produced no pullback.
From its prior 1409.75 close, the SPX moved sharply lower at the open, falling in the first quarter hour to the 1397.68 intraday low. The remainder of the session saw a gradual recovery, paring losses substantially into the close. Financials were the strongest group, as JEF (with its 1Q2012 ending February 29th) reported substantial improvement in capital markets through the end of February, which has carried on through March. The report lifted estimates for BAC, C, GS, JPM, and MS. The SPX closed at 1405.52.
Trading desks focused on the strength of the Russell 2000 and Nasdaq, which outperformed other major indices. Traders report a persistent bid as investors continue to accumulate shares, especially on weakness. The shift to financial stocks strikes some as tactical and temporary rather than secular and permanent. Performance anxiety is a factor close to quarter-end, motivating some trading and share accumulation, especially in the best performing market segments. Treasuries and currencies are noteworthy, too, for a lack of direction.
Immediate support is 11398, then 1375 (the 20-day moving average), 1372 (the February high), 1362 (a -23.6% Fibonacci retracement from December 19th), 1345 (50-day moving average), 1333 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1410, followed by 1416 and 1428.
The distribution day count remains at 3 on the DJI, 4 on the SPX and Nasdaq, and 5 on the NYSE composite. The BKX count fell to 5.
In Asia, indexes closed mixed. Japan markets reopened after yesterday's cherry blossom holiday. Volumes rose in Japan, but fell in China. Commentary focused on China's slowing growth prospects, specifically, whether growth will fall below the current +7.5% estimate. In Japan, the NKY closed down -0.55%. Volume rose +10.9%. In China, the HSI closed down -0.15% on a -11.5% decrease in volume. The SHCOMP closed up +0.06% on a -3.82% decrease in volume. In 2012, the indexes are up +19.3%, and +13.4%, and +8.13%, respectively.
In Japan, the NKY closed at 10,086.49, down from 10,141.99 at the prior close. The index gapped lower to open at 10,085, but rallied back to 10,130 by mid-morning. Finding resistance, the index sold off to 10,075 in early afternoon and retested that level with an intraday low of 10,073.90 late in the session. A late rally unsuccessfully retested resistance at 10,100. Market segments were mixed. Leaders were consumer services, utilities and technology, which closed up at least +0.15%. Laggards were telecommunications, financials, and oil and gas, which closed off at least -1.24%.
In China, the Hang Seng closed at 20,856.63, down from 20,888.24 at the prior close. The index opened modestly higher and quickly set an intraday high of 20,993.48, then trended lower to an early afternoon intraday low of 20,756.03. The index rallied back to 20,928 by mid-afternoon, but eased again into the close. The HSI closed -1.83% below its 20-day moving average, but remains +0.90% above its 50-day moving average. Market segments closed mixed. Leaders were telecommunications, consumer services, and consumer goods, which closed up at least +1.33%. Laggards were financials, industrials, and basic materials, which closed down at least -0.63%.
In Shanghai, the SHCOMP closed at 2,378.20, down from 2,376.84 at the prior close. The SHCOMP moved higher in early trading to a mid-morning intraday high of 2,396.61, then sold off through mid-afternoon to its intraday 2,361.22 low. The index then reversed and rallied into the close to end modestly higher. The index closed -1.78% below its 20-day moving average, but +1.39% above its 50-day moving average. All market segments closed mixed. Leaders were basic materials, industrials, and consumer services, which closed up at least +0.23%. Financials closed off -0.19%. Laggards were utilities, consumer goods, and oil and gas, which lost at least -0.24%.
In Europe, equities initially rallied strongly, but have given up those gains and trade modestly higher, but near their intraday lows. Commentary is light, without much focus. The Euro Stoxx 50, FTSE 100, and DAX are up +0.05%, +0.12%, and +0.24%, respectively. All remain above their respective 20-, 50-, 100-, and 200-day moving averages. Compared to the prior day's 2,576.61 close, the Euro Stoxx 50 trades at 2,577.49, compared to the 2,575.27 intraday low. The index is up +1.63% and +3.60% above its respective 20- and 50-day moving averages. Most market segments are higher. Leaders are basic materials, health care, and industrials, which are up +0.31%. Laggards are telecommunications, technology, and financials, which are down at least -0.04%.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR rose to 0.15150%, up from 0.14900% the prior day, near levels of early January, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.47415%, up from 0.47375% the prior day, but down from the January 4th peak of 0.58250%.
- The US Libor-OIS (LOIS) spread fell to 32.52 bps, from 32.72 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 46.10 bps from 47.50 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 -53.750 bps, up from -54.875 bps the prior day, at their best levels since August 1st, and up from a trough of -147.00 bps on December 14th.
- The U.S. government overnight repo rate is 17 bps, compared to an August 2nd high of 33 bps.
- U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.384% and 2.363%, respectively, compared to 0.391% and 2.359% Monday. The yield curve widened to +1.979%, from +1.968% 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 +2.77% on April 8, 2011.
- The U.S. dollar is mixed against the euro, British pound, and Japanese yen. The dollar trades at US$79.496, compared to a US$79.315 intraday low and US$79.593 at the prior day's close, and mixed compared to its US$79.515 50-day, US$79.338 100-day, and US$77.515 200-day averages. The euro trades at US$1.3243, compared to an intraday low of US$1.3221 and compares to a close of US$1.3225 the prior day. The euro trades better than its US$1.3139 50-day and US$1.3197 100-day averages. In Japan, the dollar trades at ¥84.08, compared to ¥83.70 the day prior. The yen trades worse than its 50-day moving average ¥79.31.
- Commodities prices are mostly higher, with higher energy, higher precious metals, lower aluminum and copper, and mixed agriculture prices.
- The VIX ended at 15.58, up +3.59% from 15.04 at the prior close. The VIX is -8.55% below its 17.04 20-day moving average.
- The Euro Stoxx 50 volatility index (V2X) is up +1.54% to 20.22, compared to 19.91 at the prior day's close. The V2X index trades -11.6% below its 22.87 20-day moving average, -30.5% below the 29.07 30-day high, and +17.1% above the 17.26 30-day low.
- The Hang Seng volatility index (VHSI) closed at 20.86, down -3.07% from 21.52 the prior day. The VHSI index trades -4.02% below its 21.73 20-day moving average.
- CBOE skew fell -0.64% to 128.02 from 128.85 at the prior day's close, well above a neutral (115-120) range. Spikes in excess of 130 correlate well with short-term market tops. 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.
U.S. news and economic reporting:
· MBA mortgage applications fell -7.4% in the latest week, from prior -2.4%.
· At 10:00, February existing home sales are expected to rise +0.9%, with survey at 4.61 million and prior 4.57 million.
Overseas News. Today, Iceland raised its benchmark interest rate by +25 basis points to +5.0%, the third increase in seven months. Today, the European Financial Stability Fund issued €4 billion of 5-year bonds yielding +38 basis points above swaps. Today, China eased the reserve rate requirement for some AgBank branches in an effort to bolster new lending.
· NLY - announced quarterly dividend of $0.55, compared to $0.57 in 4Q11.
· BLK - downgraded to neutral at Morgan Stanley, $224 price target
4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 480 S&P500 companies that reported earnings to date, 68% (323 out of 480) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +3.3% (versus a historical average of +2%). EPS is up +5.0% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 56% 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 13.5x estimated 2012 earnings ($104.29) and 11.9x estimated 2013 earnings ($117.94), compared to 13.5x and 11.9 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 -4.0%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +9.8% and +24.2%, respectively.
Large-cap banks trade at a median 1.43x tangible book value, and 11.8x and 10.0x 2012and 2013 consensus earnings, respectively, compared to 1.43x tangible book value and 11.8x/10.0x 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 +0.1% and +45.4% increase, respectively.
Options. Options markets are mixed to bearish. Composite options markets are neutral, index options markets are neutral, and equity options markets are bearish. The composite put/call ratio closed at 0.86, compared to 0.86 the prior day and in between its 5- and 10-period moving averages of 0.79 and 0.87 respectively. The index put/call ratio closed at 1.31, compared to 0.89 the prior day, and above the 5- and 10-period moving averages of 1.19 and 1.23, respectively. The equity put/call ratio closed the day at 0.54, compared to 0.52 the prior day, in between its 5- and 10-period moving averages of 0.53 and 0.59, 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 on both indices and March 16th on the BKX. 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 14th and 15th.
NYSE Indicators. Volume fell -1.42% to 711.14 million shares 0.88x the 50-day moving average, from 721.4 million shares Monday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,018 (compared to +776 the prior day), or 0.49:1. Up volume lagged down volume by 0.52:1.
SPX. On nearly flat volume, the SPX fell -4.23 points, or -0.30%, to 1405.52, the 44th straight close above 1300 and the fourth straight close above 1400. Volume fell -0.18% to 544.78 million shares, down from 545.74 million shares Monday and below the 631.11 million share 50-day moving average. For the 61st consecutive day, the SPX closed above its 50-day moving average (1345.45) and remained above its 200-day moving average (1262.06) for the 57th time in the past 58 sessions. The SPX closed above its 200-week moving average (1132.84) for the 112th straight session.
From its prior close at 1409.752.60, the SPX opened lower to 1403 and fell quickly to the intra-day low of 1397.68 at 9:45. Through 3:05, the index rallied gradually and reached 1407 by 3:05, setting the intra-day high. A small sell-off into the close left the index just shy of the intra-day high but towards the upper end of the day's negative range.
Technical indicators are positive. The SPX closed above 1200 for the 76th straight session, above 1300 for the 44th session, and above 1400 for the fourth straight 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 ninth straight session, the SPX closed (by +2.16%) above its 20-day moving average. The index closed (by +4.47%)above its 50-day moving average for the 62nd straight session. The index closed (by +8.69%) above its 100-day moving average (1293.15) for the 76th straight session. The SPX closed +11.37% above its 200-day moving average for the 57th time in the past 58 sessions. All moving averages increased. The directional momentum indicator is positive for the ninth straight session, and the trend is strong and increasing. Relative strength fell to 69.92 from 73.15, the high end of an neutral range. Next resistance is at 1410.85; next support is at 1398.94.
BKX. On lower volume, the KBW bank index rose +0.21 points, or +0.42%, to 50.18, its 52nd straight close above 40, its first close above 50 since May 31st, 2011, and its highest close since May 19th, 2011. Volume fell -28.42% to 88.07 million shares, down from 123.03 million shares Monday but above the 83.00 million share 50-day average. The BKX closed +16.75% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -13.41% and -9.80% 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 sector, and large-cap banks' gains outperformed regional banks' losses. From its prior close of 49.97, the BKX opened lower at 49.80, fell to the intra-day low of 49.44 at 9:45, but rallied to break-even by 10:15 and to 50.25 by 10:55. By noon, gains retraced slightly into negative territory before a slow rally took hold at 1:00 and took the index to the intra-day high of 50.30 at 3:25. A sell-off at 3:45 took the index back below 50 briefly, but the BKX recovered most of its gains into the close to finish at the higher end of the day's mixed range.
Technical indicators are positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +54.12% from the 32.56 October 4th intra-day low compared to a +30.11% rebound in the SPX. However, the BKX is still -9.8% below its 2011 high, compared to the SPX which is +3.1% above its 2011 peak. Moving average alignment is fully bullish, as shorter term moving averages are above longer term moving averages. 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. On March 20th, the 100-day moving average crossed above the 200-day moving average for the first time in 172 sessions, since July 18th, 2011. For the 57th time in the past 58 sessions, the 20-day closed (by +1.50 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +3.19 points) above the 200-day moving average for the 20th straight session, and the gap widened. The 100-day moving average closed (by +0.13 points) above the 200-day moving average for the second straight session, and the gap widened. The BKX closed +8.30% above its 20-day moving average for the ninth straight session. The index closed (by +11.92%) above its 50-day moving average for the 60th straight session. The index closed (by +20.12%) above the 100-day moving average for the 61st straight session. The index closed (by +20.48%) above its 200-day moving average for the 43rd time in 44 sessions. The index closed above 50.0 for the first time in 201 sessions and above 40.0 for the 54th straight session. The directional movement indicator is positive for the eighth straight session, and the trend is moderate and increasing. Relative strength rose to 75.26 from 74.61, an overbought range and the highest level since April 14th, 2010. Next resistance is 50.51; next support at 49.65.