In Asia, equities closed modestly higher. Chinese equity markets now approaching corrections of about -5% from recent highs. In Europe, stock exchanges are modestly higher. The dollar is stronger against the euro and Japanese yen, but weaker against the British pound. U.S. options markets suggest a neutral short-term outlook. Commodities prices are higher. U.S. Treasury yields are higher, with the 10-year at 2.280%, up from 2.232% 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. The 3-month Euro basis swap is at its best level since early August and a third of its worst level of late December.
After a fair value adjustment of -2.64 points, June SPX equity futures are at 1401.90, up +10.44 points. Futures improved after 8:00, when Fed Chairman Bernanke's speech before the NABE suggested that the Fed will remain accommodative. The SPX opens at 1397.11, +1.16% and +3.34% above its respective 20- and 50-day moving averages, and +7.72% and +10.6% above its respective 100- and 200-day moving averages. Next resistance is at 1401.90. First support is at 1389.59.
Friday. Equity markets opened lower, but reversed moderate early losses to end the week with moderate gains. Volumes were mixed, lower only on the NYSE. The NYSE composite rose +0.48%, followed by the SPX, DJI, and Nasdaq, which rose +0.31%, +0.27% and +0.15%, respectively. NYSE volume fell -2.79% to 0.92x the 50-day moving average. Market breadth was positive. Treasuries weakened through the afternoon session. Segments ended mostly higher. Leaders were basic materials, oil and gas, and financials, which closed up at least +0.90%. Laggards were consumer goods, technology, and telecommunications, which fell at least -0.07%.
DJ transports again underperformed the industrials, falling -0.06% to close at 5217.82, down from 5220.81 the prior day, and -2.81% off the 5,368.93 February 3rd closing high. The index closed +0.23% above and -0.39% below its respective 20- and 50-day moving averages. The TRAN has not confirmed multiple DJI new highs subsequent to February 3rd.
Technical indicators are generally positive. All major exchanges closed above their respective 20-, 50-, 100-, and 200-day moving averages. Volatility fell -4.82%, and the VIX closed at 14.82, down from 15.57 the prior day. The CBOE put/call skew fell to 122.98, up from 121.17 the prior session, but still well in excess of a neutral range.
From its prior 1392.78 close, the SPX opened weakly and traded to an intraday low of 1386.87 in early session. A bad AAPL trade briefly stopped trading in that stock. Markets may also have noted problems with the BATS IPO, which never traded and was ultimately cancelled. New home sales for February disappointed at 10:00, but equities rallied regardless and traded back through breakeven by mid-morning, rising to a 1399.18 mid-afternoon intraday high.
Trading desks reported a quiet day, with a somewhat stronger feel based on the day's reversal, but without much greater conviction. Volumes remained short of 50-day moving averages.
Immediate support is 1389, then 1381 (the 20-day moving average), 1372 (the February high), 1364 (a -23.6% Fibonacci retracement from December 19th), 1352 (50-day moving average), 1337 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1402, followed by 1407 and 1419.
In Asia, indexes closed modestly higher, ending their worst week since December. Volumes rose in Tokyo, but declined in Hong Kong and Shanghai. Commentary focused on softening export earnings, the risk of bank loans to local Chinese governments, and Honk Kong elections. In Japan, the NKY closed up +0.07%. Volume rose +4.11%. In China, the HSI closed up +0.01% on a -8.78% decrease in volume. The SHCOMP closed up +0.05% on a -27.4% decrease in volume. In 2012, the indexes are up +18.5%, +12.1%, and +6.87%, respectively, but Chinese equities closed about -5% below their recent highs.
In Japan, the NKY closed at 10,018.24, down from 10,011.47 at the prior close. The NKY closed -1.22% below its recent March 19th high. The index gapped lower to open near 10,015 and traded within a ±15 point range through the day, testing resistance at 10,030 multiple times and then 10,000 late in the session. The index opened at 10,040, but traded narrowly between 10,020 and 10,050 through most of the session, but ended near its 10,016.05 intraday low. The index closed +1.56% and +7.57% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were technology, industrials, and basic materials, which closed up at least +0.34%. Laggards were telecommunications, financials, and utilities, which closed down at least -0.61%.
In China, the Hang Seng closed at 20,668.86, up from 20,668.80 at the prior close. The index closed -4.66% below its recent February 29th high. The index traded within a moderately wide range, to a mid-morning intraday low of 20,580.72 and a mid-afternoon 20,776.36 intraday high. Volatility declined on the day. The HSI closed -2.27% below its 20-day moving average, and closed -0.59% below its 50-day moving average. Market segments closed mixed. Leaders were industrials, utilities, and oil and gas, which closed up at least +0.84%. Financials lost -0.19%. Laggards were technology, consumer goods, and basic materials, which declined at least -0.99%.
In Shanghai, the SHCOMP closed at 2,350.60, up from 2,349.54 at the prior close. The SHCOMP closed -4.99% below its recent March 14th high. The SHCOMP traded narrowly through most of the day, with greater weakness in late afternoon, prior to a late rally that salvaged the day. The intraday high was set late in the morning session at 2,357.96. The index sold off through most of the afternoon to test support at 2,340. The index closed -2.62% below its 20-day moving average, and closed -0.32% below its 50-day moving average. Market segments closed mixed. Leaders were health care, financials, and consumer goods, which rose at least +0.25%. Laggards were consumer services, technology, and utilities, which dropped at least -0.25%.
In Europe, equities opened higher, sold off immediately to intraday lows, but reversed and sport modest gains at mid-session. Commentary focuses on reports that German business confidence unexpected increased in March. Sovereign debt yields are largely unchanged. The Euro Stoxx 50, FTSE 100, and DAX are up +0.21%, +0.36%, and +0.50%, respectively. The FTSE 100 trades below both its 20- and 50-day moving averages. The DAX remains above its 20-, 50-, 100-, and 200-day moving averages. Compared to the prior day's 2,525.43 close, the Euro Stoxx 50 trades at 2,525.67, compared to the 2,512.90 intraday low. The index is -0.49% below and +1.10% above its respective 20- and 50-day moving averages. Market segments are mixed. Leaders are basic materials, consumer goods, and oil and gas, which are up at least +0.15%. Laggards are utilities, telecommunications, and financials, which are down at least -0.47%.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR rose to 0.15300%, unchanged from 0.15300% the prior day, up from a low of 0.13850% on March 1st, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.47265%, down from 0.47315% the prior day, but down from the January 4th peak of 0.58250%.
- The US Libor-OIS (LOIS) spread rose to 33.52 bps, from 32.69 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 43.90 bps from 44.70 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 is -50.250 bps, up from -52.000 bps the prior day, at their best levels since August 1st, and up from a trough of -147.00 bps on December 14th. A normal range is between 25 bps and 50 bps.
- The U.S. government overnight repo rate is 17 bps, compared to an August 2nd high of 33 bps.
- U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.364% and 2.277%, respectively, compared to 0.352% and 2.232% Friday. The yield curve widened to +1.913%, from +1.880% 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, slightly stronger against the euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$79.487, compared to a US$79.264 intraday low and US$79.345 the prior day, and mixed compared to its US$79.413 50-day, US$79.419 100-day, and US$77.580 200-day averages. The euro trades at US$1.3243, compared to an intraday low of US$1.3192 and compares to a close of US$1.3270 the prior day. The euro trades better than its US$1.3170 50-day and $1.3180 100-day averages. In Japan, the dollar trades at ¥82.98, compared to ¥82.35 the day prior. The yen trades worse than its 50-day moving average ¥79.65.
- Commodities prices are mostly higher, with mixed energy, higher precious metals, aluminum and copper, and agriculture prices.
- The VIX ended at 14.82, down -4.82% from 15.57 at the prior close. The VIX is -11.3% below its 16.70 20-day moving average.
- The Euro Stoxx 50 volatility index (V2X) is up +2.27% to 22.15, compared to 21.66 at the prior day's close. The V2X index trades -1.70% below its 22.53 20-day moving average, -23.8% below the 29.07 30-day high, and +28.3% above the 17.26 30-day low.
- The Hang Seng volatility index (VHSI) closed at 20.72, down -1.43% from 21.02 the prior day. The VHSI index trades -3.71% below its 21.52 20-day moving average.
- CBOE skew rose +1.49% to 122.98 from 121.17 at the prior day's close, well above a neutral (115-120) range. Spikes in excess of 130 (as on March 12, 15, and 16) 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:
· At 8:30, the Chicago Fed National Activity Index for February disappointed at -0.09, compared to 0.00 survey and +0.33 revised prior.
· At 10:00, February pending home sales are expected to rise 1.0%, compared to 2.0% in January.
· At 10:30 the Dallas Fed manufacturing activity report for March is expected at 17.0, down from 17.8 in February.
Overseas News. In March, Germany's Ifo survey reveal higher than consensus assessments for current conditions, business climate, and expectations. This weekend, Spain's ruling Popular Party won the Andalusia elections, but failed to secure an absolute majority.
4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 489 S&P500 companies that reported earnings to date, 67% (330 out of 489) 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 +5.1% 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 13.4x estimated 2012 earnings ($104.36) and 11.8x estimated 2013 earnings ($117.94), compared to 13.3x and 11.8 respective 2011-12 earnings Friday. 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 +9.9% and +24.2%, respectively.
Large-cap banks trade at a median 1.43x tangible book value, and 11.7x and 10.0x 2012and 2013 consensus earnings, respectively, compared to 1.41x tangible book value and 11.6x/9.9x 2012/2013 earnings Friday. 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 $4.32 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.6% and +46.1% 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 1.04, compared to 1.09 the prior day and above its 5- and 10-period moving averages of 0.96 and 0.90 respectively. The index put/call ratio closed at 1.55, compared to 1.70 the prior day, and above the 5- and 10-period moving averages of 1.45 and 1.32, respectively. The equity put/call ratio closed the day at 0.62, compared to 0.69 the prior day, above its 5- and 10-period moving averages of 0.59 and 0.58, 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 and 21st 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 -2.79% to 741.64 million shares, 0.92x the 50-day moving average, from 762.96 million Thursday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,262 (compared to -1,511 the prior day), or 2.46:1. Up volume led down volume by 2.66:1.
SPX. On nearly flat volume, the SPX rose +4.33 points, or +0.29%, to 1397.11, the 47th straight close above 1300 but second straight close below 1400. Volume rose +0.29% to 570.28 million shares, up from 568.65 million shares Thursday but below the 629.16 million share 50-day moving average. For the 64th consecutive day, the SPX closed above its 50-day moving average (1352.00) and remained above its 200-day moving average (1263.77) for the 60th time in the past 61 sessions. The SPX closed above its 200-week moving average (1133.08) for the 115th straight session.
From its prior close at 1392.78, the SPX opened flat, fell to the intra-day low of 1386.87 at 10:10, then rallied back to break-even by 11:00 and through the afternoon. The index reached its intra-day high of 1399.18 at 2:55 but consolidated at 1398 into the close to finish at the high end of the day's mixed range.
Technical indicators are positive. The SPX closed above 1200 for the 79th straight session, above 1300 for the 47th session, but below 1400 for the second 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, and climbed above the 200-day moving average on January 31st, having been below that average since August 11th. The 100-day moving average crossed above the 200-day moving average February 23rd, having been below that average since September 7, 2011. All moving averages are increasing. For the 12th straight session, the SPX closed (by +1.16%) above its 20-day moving average (1381.12). The index closed (by +3.34%)above its 50-day moving average for the 65th straight session. The index closed (by +7.72%) above its 100-day moving average (1296.96) for the 79th straight session. The SPX closed +10.55% above its 200-day moving average for the 60th time in the past 61 sessions. The directional momentum indicator is positive for the 12th straight session, and the trend is strong and stable. Relative strength rose to 62.52 from 60.68, a neutral range. Next resistance is at 1401.90; next support is at 1389.59.
BKX. On higher volume, the KBW bank index rose +0.44 points, or +0.90%, to 49.53, its 54th straight close above 40. Volume rose +2.52% to 83.06 million shares, up from 81.02 million shares Thursday but below the 83.42 million share 50-day average. The BKX closed +15.24% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -14.53% and -10.97% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.
Financials outperformed the market, and large-cap banks outperformed regional banks. From its prior close of 49.09, the BKX opened lower, bounced higher to 49.40 by 9:55, then sank through 10:15 to reach 48.77, the intra-day low. Through the session's remained, the index rallied, retaking the break-even line at 10:50 and reaching the intra-day high of 49.57 at 3:58.
Technical indicators are positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +52.12% from the 32.56 October 4th intra-day low compared to a +30.08% rebound in the SPX. However, the BKX is still -11.0% below its 2011 high, compared to the SPX which is +2.5% above its 2011 peak. Moving average alignment is fully bullish, as shorter term moving averages are above longer term moving averages and are increasing more rapidly. On February 22nd, the 50-day moving average crossed above the 200-day moving average for the first time since June 15th. On March 20th, the 100-day moving average crossed above the 200-day moving average for the first time since July 18th, 2011. For the 60th time in the past 61 sessions, the 20-day closed (by +1.80 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +3.55 points) above the 200-day moving average for the 23rd straight session, and the gap widened. The 100-day moving average closed (by +0.33 points) above the 200-day moving average for the fifth straight session, and the gap widened. The BKX closed +5.29% above its 20-day moving average for the 12th straight session. The index closed (by +9.48%) above its 50-day moving average for the 63rd straight session. The index closed (by +17.85%) above the 100-day moving average for the 64th straight session. The index closed (by +18.79%) above its 200-day moving average for the 46th time in 47 sessions. The index closed above 40.0 for the 57th straight session. The directional movement indicator is positive for the 11th straight session, and the trend is moderate and increasing. Relative strength rose to 67.30 from 65.41, the high end of a neutral range. Next resistance is 49.81; next support at 49.01.