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Gary Townsend
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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 Modestly Lower, Europe Equties Lower, Asia Mixed 0 comments
    Apr 3, 2012 9:53 AM | about stocks: FITB, USB
    This morning. Despite yesterday's closes at new multi-year levels, the U.S. equity market 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 greater probability of a market pull-back or 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 +32.0% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, up +53.6% in the same period.

    In Asia, equities closed moderately mixed, with weakness in Tokyo, but gains in Hong Kong, the first in several days. Shanghai and Hong Kong are closed Wednesday. Commentary focused on generally stronger economic reports in the United States and China. In Europe, stock exchanges have given up early gains and are trading lower and near their intraday lows. Commentary focuses on renewed sovereign debt concerns in Italy and Spain. French elections are scheduled for April 22nd, with a May 6th run-off, as required. Also, Greek parliamentary elections are on May 6th. The dollar is mixed. U.S. options markets suggest a neutral o bearish short-term outlook. Commodities prices are mostly lower. U.S. Treasury yields are lower, with the 10-year at 2.159%, down from 2.182% 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 +1.39 points, June SPX equity futures are at 1404.90, down -4.09 points. The SPX opens at 1419.04, +1.82% and +3.96% above its respective 20- and 50-day moving averages, and +8.59% and +11.9% above its respective 100- and 200-day moving averages. Next resistance is at 1426.13. First support is at 1408.21.

    Monday. Markets opened weakly, but after 10:00, reversed higher on a strong March ISM manufacturing report, and rallied to post new 2012 highs on the SPX, DJI, and NYSE composite. The Nasdaq closed -0.09% off its recent March 26th closing high. Volume fell, with NYSE volume down -21.0% to 0.95x the 50-day moving average. The Nasdaq rose +0.91%, followed by the NYSE composite, SPX, and DJI, which rose +0.90%, +0.75%, and +0.40%, respectively. Market breadth was positive. All market segments closed at least +0.22% higher. Leaders were basic materials, technology, and oil and gas, which rose at least +0.92%. Financials rose +0.84%. Laggards were utilities, health care, and consumer services.

    DJ transports outperformed the industrials, rising +1.00% to close at 5305.50, up from 5253.16 the prior day, and -1.18% off its 5368.93 February 3rd closing high. The index closed +1.28% and +1.18% 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 -0.31% 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 15.60, up +0.90% from 15.50 the prior day. The CBOE put/call skew fell -1.47% to 123.13, from 124.97 the prior session, and above a 115-120 neutral range.

    Despite the new multi-year highs, trading desks reported a quiet day and slow session, especially after the European market close at 11:30. Demand for equities is middling, but there's little for sale, combining to yield yesterday's "melt-up" rally, but without much underlying conviction. Sentiment remains skeptical ahead of the start of 1Q2012 earnings next week.

    Immediate support is 1417, (the March high), then 1408, 1394 (the 20-day moving average), 1372 (the February high), 1369 (a -23.6% Fibonacci retracement from December 19th), 1365 (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 1426, followed by 1433 and 1451.


    There was no change in the distribution day counts of 3 on the Nasdaq, 4 on the DJI and SPX, and 7 on the NYSE composite. The BKX count is 5.

    In Asia, equity indexes closed mixed, with a moderate loss in Tokyo, but strong gains in Hong Kong for the first time in the past five sessions. Shanghai is closed through Wednesday. Hong Kong is closed tomorrow. Volumes fell in Tokyo, but rose in Hong Kong. Commentary focused on a stronger than expected March Chinese non-manufacturing PMI. In Japan, the NKY closed down -0.59%. Volume fell -26.0%. In China, the HSI closed up +1.31% on a +27.9% increase in volume.

    In Japan, the NKY closed at 10,050.39, down from 10,109.87 at the prior close. The index gapped lower to open below 10,080 and traded narrowly through the day, finding support at 10,040 in mid-afternoon. The index closed +0.59% and +5.76% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were financials, industrials, and technology, which rose at least +0.64%. Laggards were consumer services, which rose +0.04%, and basic materials and health care, which lost at least -0.33%.

    In China, the Hang Seng closed at 20,790.98, up from 20,522.26 at the prior close. The index closed -4.10% below its February 29th high. The index opened just above 20,700 but traded off to find support at 20,600 through early afternoon, when the index began a rally that carried through the close, just short of its 20,816.09 intraday high. Volatility fell -7.86%, and closed -11.4% below its 20-day moving average. The HSI closed -0.66% and -0.81% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were technology, consumer goods, and basic materials, which rose at least +2.23%. Financials rose +1.48%. Laggards were telecommunications, which rose +0.24%, and utilities and consumer services, which closed off at least -0.16%.

    In Europe, equities are struggling after yesterday's impressive positive reversal. Equities have lost early gains and trade moderately lower. Commentary focuses on the fiscal situation in Italy and Spain, where unemployment rose to record levels in March. The Euro Stoxx 50, FTSE 100, and DAX are down -0.74%, -0.33%, and -0.33%, 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 2,501.18 close, the Euro Stoxx 50 trades at 2,484.61, compared to the 2,481.76 intraday low. The index is -1.80% and -1.01% below its respective 20- and 50-day moving averages. Most market segments are lower. Leaders are health care, which is up +0.20%, and basic materials and technology, which are down at least -0.06%. Laggards are telecommunications, utilities, and financials, which are down at least -0.83%.

    Libor, LOIS, Currencies, Treasuries, Commodities:

    • USD LIBOR is 0.15100%, up from 0.15000% 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 0.46915%, down from 0.46815% the prior day, and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 33.82 bps, up from 33.66 bps the prior day, but compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 41.60 bps from 41.20 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 -50.000 bps, up from -50.125 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 -10 bps and -40 bps.
    • The U.S. government overnight repo rate is 10 bps, compared to an August 2nd high of 33 bps.
    • U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.333% and 2.175%, respectively, compared to 0.323% and 2.182% Monday. The yield curve narrowed to +1.842%, from +1.859% 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$78.859, compared to a US$78.902 intraday high and US$78.820 the prior day, and mixed compared to its US$79.246 50-day, US$79.508 100-day, and US$77.674 200-day averages. The euro trades at US$1.3316, compared to an intraday high of US$1.3381 and compares to a close of US$1.3321 the prior day. The euro trades better than its US$1.3220 50-day and $1.3161 100-day averages. In Japan, the dollar trades at ¥82.11, compared to ¥82.08 the day prior. The yen trades worse than its 50-day moving average ¥80.31.
    • Commodities prices are mixed, with lower energy, lower precious metals, higher aluminum and copper, and lower agriculture prices.

    Volatility, Skew:
    • The VIX ended at 15.64, up +0.90% from 15.50 at the prior close. The VIX is -1.86% below its 15.94 20-day moving average. The Euro Stoxx 50 volatility index (V2X) is down -0.30% to 21.15, compared to 21.22 at the prior day's close. The V2X index trades -0.5.04 below its 22.28 20-day moving average, -27.2% below the 29.07 30-day high, and +22.5% above the 17.26 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 18.53, down -7.86% from 20.11 the prior day. The VHSI index trades -11.4% below its 20.92 20-day moving average.
    • CBOE skew fell -1.47% to 123.13 from 124.97 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:

    · At 9:45, New York State ISM for March.

    · At 10:00, February factory orders, with survey +1.5% and -1.0% prior.

    Overseas News. In March, China's non-manufacturing purchasing managers index rose to 58 from 57.3 prior, beating expectations of a decline. In March, the U.K. construction PMI unexpectedly rose to 56.7 from 54.3 and defying estimates of a decline to 53.4. Today, a European Central Bank and European Union report increased Portugal's peak debt-to-GDP forecast to 115% in 2013, up from 112% and revised down the country's 2012 growth to a -3.25% decline from -3.0% prior.

    Company News:

    · FITB - upgraded to buy at Stifel Nicolaus, $17 price target

    · USB - downgraded to hold at Stifel Nicolaus.

    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 13.6x estimated 2012 earnings ($104.29) and 12.0x 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 1.46x tangible book value, and 11.8x and 10.1x 2012and 2013 consensus earnings, respectively, compared to 1.45x tangible book value and 11.7x/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 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 0.83, compared to 0.97 the prior day and below its 5- and 10-period moving averages of 0.97 and 0.98 respectively. The index put/call ratio closed at 1.24, compared to 1.43 the prior day, below the 5- and 10-period moving averages of 1.42 and 1.44, respectively. The equity put/call ratio closed the day at 0.53, compared to 0.59 the prior day, below its 5- and 10-period moving averages of 0.62 and 0.61, 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 April 2nd and March 26th.

    NYSE Indicators. Volume fell -21.0% to $763.39 million shares, 0.95x the 50-day moving average, from 966.39 million shares Friday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,516 (compared to +473 the prior day), or 3.03:1. Up volume led down volume by 3.97:1.

    SPX. On lower volume, the SPX rose +10.57 points, or +0.75%, to 1419.04, the 53rd straight close above 1300 and the 11th close above 1400 in the last 13 sessions. Volume fell -22.39% to 578.64 million shares, down from 745.57 million shares Friday and below the 620.90 million share 50-day moving average. For the 70th consecutive day, the SPX closed above its 50-day moving average (1364.98) and remained above its 200-day moving average (1267.83) for the 66th time in the past 67 sessions. The SPX closed above its 200-week moving average (1133.42) for the 121st straight session.

    From its prior close at 1408.47, the SPX opened flat and fell to the intra-day low of 1404.46 at 9:35. The 10:00 ISM manufacturing index release spurred buying, and the index rallied through 12:15, reaching the 1420 level. The SPX traded sideways at 1420 through 2:30, when a small rally lifted the index to its intra-day high of 1422.38 at 3:00. Through the close, gains retraced back to 1417, but the index finished at the high end of the day's mostly positive range.

    Technical indicators are positive. The SPX closed above 1200 for the 85th straight session, above 1300 for the 53rd session, and above 1400 for the 11th time in the past 13 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 increased. For the 18th straight session, the SPX closed (by +1.82%) above its 20-day moving average (1393.71). The index closed (by +3.96%)above its 50-day moving average for the 71st straight session. The index closed (by +8.59%) above its 100-day moving average (1306.76) for the 85th straight session. The SPX closed +11.93% above its 200-day moving average for the 66th time in the past 67 sessions. The directional momentum indicator is positive for the 18th straight session, and the trend is moderate and declining. Relative strength rose to 66.80 from 62.82, a neutral range. Next resistance is at 1426.13; next support is at 1408.21.

    BKX. On lower volume, the KBW bank index rose +0.29 points, or +0.58%, to 50.03, its 59th straight close above 40, but its third close above 50 in the past six sessions. Volume fell -41.19% to 59.08 million shares, down from 100.44 million shares Friday and below the 81.00 million share 50-day average. The BKX closed +16.40% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -13.67% and -10.07% 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 regional banks outperformed large-cap banks. From its prior close of 49.74, the BKX opened lower to 49.50 and sank through 10:00 to the intra-day low of 49.17. The 10:00 ISM economic news spurred buying, and the BKX sharply rebounded, turning positive at 10:50 and reaching 50.20 by 12:05. The index fluctuated between 50.00 and 50.20 through the close, with the intra-day high of 50.25 coming at 3:00. The index finished above 50.0 and at the high 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 +53.65% from the 32.56 October 4th intra-day low compared to a +32.13% rebound in the SPX. However, the BKX is still -10.1% below its 2011 high, compared to the SPX which is +4.1% 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 66th time in the past 67 sessions, the 20-day closed (by +2.35 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +4.25 points) above the 200-day moving average for the 29th straight session, and the gap widened. The 100-day moving average closed (by +0.87 points) above the 200-day moving average for the 11th straight session, and the gap widened. The BKX closed +3.41% above its 20-day moving average for the 18th straight session. The index closed (by +8.69%) above its 50-day moving average for the 69th straight session. The index closed (by +17.30%) above the 100-day moving average for the 70th straight session. The index closed (by +19.74%) above its 200-day moving average for the 52nd time in 53 sessions. The directional movement indicator is positive for the 17th straight session, and the trend is strong and increasing. Relative strength rose to 64.63 from 63.20, a neutral range. Next resistance is 50.46; next support at 49.38.

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