Seeking Alpha

Gary Townsend's  Instablog

Gary Townsend
Send Message
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
My company:
GBT Capital Management LLC
My blog:
Listening to Markets
  • U.S. Futures Rise Into Quarter-End, Uptrend Now Under Pressure 0 comments
    Mar 30, 2012 9:03 AM | about stocks: USB
    This morning. For the first time since late November, the U.S. equity markets' uptrend is under pressure. 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. Most technical indicators remain positive, but recent market distributions suggest growing resistance and probability of a near-term correction. All major indices are above their respective 20-, 50-, 100-, and 200-day moving averages. All moving averages are trending higher. Shorter-term averages are above longer term averages. The SPX is in bull market territory, closing Thursday up +30.6% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, up +52.3% in the same period.

    In Asia, equities closed mixed, though Shanghai advanced +0.47% on better than expected bank earnings. Hong Kong stocks were dragged lower with the arrest of two large property developers. In Europe, stock exchanges are ending the quarter higher, with moderate gains through mid-session, following reports that finance ministers had agreed to expand emergency sovereign debt support funding. Greek parliamentary elections are on May 6th. The dollar is mixed. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mostly higher. U.S. Treasury yields are higher, with the 10-year at 2.164%, up from 2.159% 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 -0.02 points, June SPX equity futures are at 1404.80, up +6.78 points. The SPX opens at 1405.54, +1.03% and +3.10% above its respective 20- and 50-day moving averages, and +7.64% and +10.8% above its respective 100- and 200-day moving averages. Next resistance is at 1408.59. First support is at 1394.76.

    Thursday. At the open, equity markets sold off hard, with the SPX down more than a percent at mid-day, but then reversed and rallied through the afternoon, narrowing losses and closing mixed. The DJI was off as many as -96 points, but closed up +0.15%. The SPX lost -0.16%, followed by the NYSE composite and Nasdaq, which closed down -0.27% and -0.31%, respectively. Volumes rose slightly., NYSE volume rose +0.04% to 1.01x the 50-day moving average. Distributions were recorded on the NYSE composite, Nasdaq, and BKX. Market breadth was negative, though most market segments closed higher. Leaders were utilities, health care, and basic materials, which closed up at least +0.18%. Laggards were technology, telecommunications, and financials, which closed off at least -0.22%. Market breadth was negative. Treasuries strengthened modestly. Leaders were financials, which gained +0.29%, and technology and health care, which closed down at least -0.14%. The laggards closed off at least -1.06%.

    DJ transports underperformed the industrials, falling -0.04% to close at 5256.21, down from 5258.13 the prior day, and -2.10% off its 5,368.93 February 3rd closing high. The index closed +0.60% and +0.23% above its respective 20- and 50-day moving averages. The TRAN has not confirmed multiple DJI new highs subsequent to February 3rd. The DJI closed -0.81% below its recent high.

    Technical indicators are generally positive. All major exchanges closed above their respective 20-, 50-, 100-, and 200-day moving averages. Volatility rose slightly, as the VIX closed at 15.48, up +0.06% from 15.47 the prior day. The CBOE put/call skew rose +0.07% to 121.69, from 121.61 the prior session, and above a 115-120 neutral range.

    The early weakness came without significant catalysts, apparently driven by soft U.S. economic reports, renewed Eurozone concerns regarding Greece (with its May parliamentary elections) and Portugal. Asian markets had continued to sell off from their early March highs, and European equities were lower, too. From its prior 1403.28 close, the SPX gapped lower to own at 1398, but slipped by mid-day to the 1391.56 intraday low. The European close at 11:30 seemed to relieve part of the selling pressure, and markets began to signal a rally, which strengthened through the afternoon until just before the close, with the SPX trading back to 1404.62 before settling into the close.

    Trading desks noted the narrowing of market breadth over the past two weeks, but with weakness in the large cap tech and financial names that have led the rally over the past two weeks. Sentiment remains skeptical. Some expect clearer direction next Monday, with the beginning of 2Q2012.

    Immediate support is 1395, then 1389 (the 20-day moving average), 1372 (the February high), 1370 (a -23.6% Fibonacci retracement from December 19th), 1361 (50-day moving average), 1341 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1409, followed by 1414 and 1428.


    The NYSE composite and BKX recorded distributions. Counts are 3 on the Nasdaq, 4 on the DJI and SPX, and 7 on the NYSE composite. The BKX count rose to 5.

    In Asia, equity indexes closed mixed, with the modest weakness in Tokyo and Hong Kong, and a moderate gain in Shanghai. Volumes rose in Hong Kong, but declined in Tokyo and Shanghai. Commentary focused on the arrest of Hong Kong's biggest property developers for corruption, sending equities lower in that market, but in China proper, financial stocks rallied when the Industrial and Commercial Bank of China reported better than expected earnings. In Japan, the NKY closed down -0.31%. Volume fell -7.97%. In China, the HSI closed down -0.26% on a +13.9% increase in volume. The SHCOMP closed up +0.47% on a -15.3% decrease in volume. On the week, the NKY rose +0.72%, while the HSI and SHCOMP fell -0.55% and -3.39%, respectively. In 2012, the indexes are up +19.3%, +11.5%, and +2.88%, respectively.

    In Japan, the NKY closed at 10,083.56, down from 10,114.79 at the prior close. The index gapped lower to 10,090 and traded within the first hour to the 10,033.49 intraday low. The index reversed quickly and before noon rallied back to 10,110, but could not sustain the momentum and drifted sideways to lower through the close. The index closed +1.28% and +6.74% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were consumer services, utilities, and basic materials, which rose at least +0.08%. Laggards were oil and gas, industrials, and financials, which lost at least -0.62%.

    In China, the Hang Seng closed at 20,555.58, down from 20,609.39 at the prior close. The index closed -5.19% below its February 29th high. The 20,374.03 intraday low was set at the open. The index rallied through the rest of the session to a 20,566.09 intraday high in the final minutes. Volatility rose +0.25%, but remains under the 20-day moving average. The HSI closed -2.20% and -1.77% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were telecommunications, oil and gas, and consumer goods, which rose at least +0.43%. Laggards were consumer services, financials, and industrials, which closed off at least -0.22%.

    In Shanghai, the SHCOMP closed at 2,262.79, up from 2,252.16 at the prior close. The SHCOMP closed -8.54% below its recent March 14th high. The SHCOMP opened above 2,255 and traded to a mid-morning 2,266.21 intraday high before selling off and trading lower an hour later. The index rallied back to 2,260 by mid-day, sold off again in mid-afternoon to set a 2,246.65 intraday low, but reversed and rallied again into the close. The index closed -5.24% and -4.18% below its 20- and 50-day moving averages. Most market segments closed higher. Leaders were financials, telecommunications, and industrials, which rose at least +0.37%. Laggards were consumer goods, health care, and technology, which closed off at least -0.28%.

    In Europe, equities are rallying moderately and are trading near their intraday highs, on news that European finance ministers agreed to increase the size of emergency stabilization funding. The Euro Stoxx 50, FTSE 100, and DAX are up +1.08%, +0.62%, and +1.16%, respectively. All trade below their respective 20-day moving averages. The Euro Stoxx 50 and FTSE 100 also trade below their 50-day moving averages. Compared to the prior day's 2,452.74 close, the Euro Stoxx 50 trades at 2,479.25, compared to the 2,461.03 intraday low. The index is -2.17% and -1.11% below its respective 20- and 50-day moving averages. All market segments are at least +0.15% higher. Leaders are consumer goods, industrials, and health care, which are up at least +1.23%. Financials are up +1.04%. Laggards are utilities, oil and gas, and telecommunications, which are up at least +0.454%.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.15250%, down 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 0.46815%, down from 0.46815% the prior day, and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 33.06 bps, down from 33.76 bps the prior day, but compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 41.90 bps from 41.90 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 is -50.50, up from -51.00 bps the prior day, near its 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 higher, with 2- and 10-year maturities yielding 0.341% and 2.159%, respectively, compared to 0.337% and 2.159% Thursday. The yield curve narrowed to +1.818%, from +1.822% 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 weaker against the euro and British pound, but stronger compared to the Japanese yen. The dollar trades at US$78.881, compared to a US$78.727 intraday low and US$79.186 the prior day, and mixed compared to its US$79.283 50-day, US$79.484 100-day, and US$77.656 200-day averages. The euro trades at US$1.3339, compared to an intraday high of US$1.3377 and compares to a close of US$1.3302 the prior day. The euro trades better than its US$1.3208 50-day and $1.3166 100-day averages. In Japan, the dollar trades at ¥82.06, compared to ¥82.46 the day prior. The yen trades worse than its 50-day moving average ¥80.10.
    • Commodities prices are generally higher, with higher energy, precious metals, mixed aluminum and copper, and mixed agriculture prices.

    Volatility, Skew:
    • The VIX ended at 15.48, up +0.06% from 15.47 at the prior close. The VIX is -4.12% below its 16.15 20-day moving average. The Euro Stoxx 50 volatility index (V2X) is down -9.39% to 24.38, compared to 25.36 at the prior day's close. The V2X index trades +2.56% above its 22.41 20-day moving average, -21.0% below the 29.07 30-day high, and +33.1% above the 17.26 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 20.24, up +0.25% from 20.19 the prior day. The VHSI index trades -3.86% below its 21.05 20-day moving average.
    • CBOE skew rose +0.07% to 121.69 from 121.61 at the prior day's close, 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:

    · February personal income rose 0.2%, compared to survey +0.4% and +0.2% revised prior.

    · At 9:45, March Chicago purchasing managers, with survey of 63.0 and prior 64.0.

    · At 9:55, the final March University of Michigan confidence report, with survey of 63 and prior 64.

    · At 10:00, March NAPM-Milwaukee, with survey of 58.0 and prior 58.6.

    Overseas News. Today, Eurozone Finance Ministers increased the region's emergency funding program's total potential size to €700 billion, up from €500 billion prior. Today, France announced its 2011 budget deficit of -5.2% beat its target of -5.7% and its prior estimate of -5.3%, and the government also shrank its deficit estimate for 2012 to -4.4% from -4.5%. In February, German retail sales fell -1.1% over the prior month, missing estimates of a +1.1% gain. In February, Japan's industrial production unexpectedly fell by -1.2% over the prior month, missing the prior survey's manufacturing sector projection for a +1.7% gain.

    Company News.

    · USB - downgraded to neutral at BMO Capital

    4Q2011 Earnings. The fourth quarter's earnings reports exceeded expectations. Of the 496 S&P500 companies that reported earnings to date, 68% (336 out of 496) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +3.4% (versus a historical average of +2%). EPS is up +4.8% 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, the SPX earned $24.68 per share, compared to $25.19 and $22.25 per share in 3Q11 and 4Q10, a -3.4% and +9.4% change, respectively. In the first quarter, analysts estimate the SPX will earn $23.88 per share, compared to $24.68 and $23.03 per share in 4Q11 and 1Q11, a -3.2% and +3.7% 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. In the first quarter, analysts estimate the BKX will earn $0.97 per share, compared to $1.20 and $0.96 per share in 4Q11 and 1Q11, a -19.2% and +1.0% change, respectively.

    Valuation. The SPX trades at 13.5x estimated 2012 earnings ($104.34) 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 +9.9% and +24.2%, respectively.

    Large-cap banks trade at a median 1.44x tangible book value, and 11.7x and 9.9x 2012and 2013 consensus earnings, respectively, compared to 1.46x tangible book value and 11.8x/10.0x 2012/2013 earnings yesterday. These compare to the 10-year average median multiples of 2.90x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.31 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.2% and +45.5% 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 1.03, compared to 1.02 the prior day and above its 5- and 10-period moving averages of 1.02 and 0.96 respectively. The index put/call ratio closed at 1.49, compared to 1.37 the prior day, above the 5- and 10-period moving averages of 1.48 and 1.44, respectively. The equity put/call ratio closed the day at 0.67, compared to 0.72 the prior day, above its 5- and 10-period moving averages of 0.65 and 0.60, 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, March 26st on the SPX and March 21st and 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 indicators coming on March 26th, 15th and 14th.

    NYSE Indicators. Volume rose +0.04% to 817.38 million shares, 1.01x the 50-day moving average, from 817.02 million shares Wednesday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -662 (compared to -900 the prior day), or 0.64:1. Up volume lagged down volume by 0.71:1.

    SPX. On lower volume, the SPX fell -2.26 points, or -0.16%, to 1403.28, the 51st straight close above 1300 and the ninth close above 1400 in the last 11 sessions. Volume fell -1.92% to 620.65 million shares, down from 632.78 million shares Wednesday and below the 625.29 million share 50-day moving average. For the 68th consecutive day, the SPX closed above its 50-day moving average (1361.03) and remained above its 200-day moving average (1266.36) for the 64th time in the past 65 sessions. The SPX closed above its 200-week moving average (1133.09) for the 119th straight session.

    From its prior close at 1405.54, the SPX opened lower to 1398 and fell to 1392 by 10:40. The index traded mostly flat through 12:30 and set the intra-day low of 1391.56 at noon. From 12:35 through the close, the index rallied, retaking 1400 at 3:14 and setting the intra-day high of 1404.76 at 3:56. The SPX closed at the top end of the day's negative range and with a marginal loss.

    Technical indicators are positive. The SPX closed above 1200 for the 83rd straight session, above 1300 for the 51st session, and above 1400 for the ninth time in the past 11 sessions. 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 16th straight session, the SPX closed (by +1.03%) above its 20-day moving average (1389.04). The index closed (by +3.10%)above its 50-day moving average for the 69th straight session. The index closed (by +7.64%) above its 100-day moving average (1303.63) for the 83rd straight session. The SPX closed +10.81% above its 200-day moving average for the 64th time in the past 65 sessions. The directional momentum indicator is positive for the 16th straight session, and the trend is strong and declining. Relative strength fell to 60.66 from 62.12, a neutral range. Next resistance is at 1408.59; next support is at 1394.76.

    BKX. On higher volume, the KBW bank index fell -0.54 points, or -1.08%, to 49.58, its 57th straight close above 40 but its second close below 50 in the past four sessions. Volume rose +3.37% to 72.75 million shares, up from 70.38 million shares Wednesday but below the 81.93 million share 50-day average. The BKX closed +15.36% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -14.44% and -10.88% 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 worst performing segment, and large-cap banks underperformed regional banks. From its prior close of 50.12, the BKX opened lower to 49.89, immediately setting the intra-day high. The index fell through 11:30 to the intra-day low of 49.04 but reversed then and rallied through the close. The index finished in the middle of the day's negative range.

    Technical indicators are positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +52.27% from the 32.56 October 4th intra-day low compared to a +30.66% rebound in the SPX. However, the BKX is still -10.9% below its 2011 high, compared to the SPX which is +2.9% 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 64rd time in the past 65 sessions, the 20-day closed (by +2.15 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +4.02 points) above the 200-day moving average for the 27th straight session, and the gap widened. The 100-day moving average closed (by +0.70 points) above the 200-day moving average for the ninth straight session, and the gap widened. The BKX closed +3.46% above its 20-day moving average for the 16th straight session. The index closed (by +8.33%) above its 50-day moving average for the 67th straight session. The index closed (by +16.81%) above the 100-day moving average for the 68th straight session. The index closed (by +18.75%) above its 200-day moving average for the 50th time in 51 sessions. The directional movement indicator is positive for the 15th straight session, and the trend is moderate and stable. Relative strength fell to 62.42 from 66.85, a neutral range. Next resistance is 50.00; next support at 49.10.

Back To Gary Townsend's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.