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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 Ease Ahead Of Good Friday Holiday 0 comments
    Apr 5, 2012 9:23 AM | about stocks: HBAN, RF, SIVB, STI, ZION, NYCB, KEY, FHN, CMA

    This morning. For the first time in 2012, U.S. equity markets are in correction, ending an uptrend that began on November 28th, when the SPX opened at 1158.67. The SPX 50-day moving average has trended higher since October 13th. Most technical indicators remain positive, but recent market distributions have generated the current correction. After yesterday's losses, only the Nasdaq close above its 20-day moving average. All major indices are above their respective 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 Wednesday up +30.2% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, up +50.5% in the same period.

    In Asia, Chinese equity market reopened after holidays, and closed mixed with the better result in Shanghai. Commentary focused on Eurozone sovereign debt concerns, centered in Spain. In Europe, stock exchanges are moderately lower. 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 short-term outlook. Commodities prices are mixed. U.S. Treasury yields are lower, with the 10-year at 2.175%, down from 2.223% the prior day. U.S. repo rates are at 20 bps.

    After a fair value adjustment of +0.96 points, June SPX equity futures are at 1388.60, down -5.76 points. The SPX opens at 1398.96, -0.04% below and +2.22% above its respective 20- and 50-day moving averages, and +6.80% and +10.2% above its respective 100- and 200-day moving averages. Next resistance is at 1410.00. First support is at 1391.00.

    Wednesday. Markets gapped lower and briefly traded above 1400, but lost ground to 1395 by 11:00. The SPX rose back to 1398 after mid-day, then re-tested support at 1395 in early afternoon. The index rallied back to 1400 in the final hour, but eased into the close. NYSE volume rose +1.87% to 1.03x the 50-day moving average. SPX volume fell, but volume rose on other exchanges. The Nasdaq, DJI, and NYSE composite indexes suffered distributions. The Nasdaq lost -1.46%, followed by the NYSE composite, SPX, and DJI, which closed off -1.34%, -1.02%, and -0.49%, respectively. Market breadth was negative. Most market segments closed lower. Leaders were telecommunications, which rose +0.03%, and utilities and consumer goods, which closed at least -0.16%. Laggards were technology, basic materials, and financials, which lost at least -1.37%.

    DJ transports outperformed the industrials, falling -0.35% to close at 5276.51, from 5294.83 the prior day, and -1.72% off its 5368.93 February 3rd closing high. The index closed +0.30% and +0.58% 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 -1.43% below its recent April 2nd high.

    Technical indicators are generally positive, but show some deterioration. All major exchanges closed below their 20-day moving averages, but remain above their respective 50-, 100-, and 200-day moving averages. Volatility rose as the VIX closed at 16.44, up +4.98% from 15.66 the prior day. The CBOE put/call skew fell -2.29% to 121.00 from 123.84 the prior session, and above a 115-120 neutral range.

    Trading desks reported a generally quiet day, particularly after the European close at 11:30. Activity was again skewed toward short-term traders. There was relatively little buying on the dips, but there wasn't much selling pressure as much as relatively less demand and participation ahead of the Easter and Passover weekend. Conviction remains lacking. Sentiment remains skeptical ahead of the start of 1Q2012 earnings next week.

    Immediate support is 1391, 1372 (the February high), 1373 (a -23.6% Fibonacci retracement from December 19th), 1369 (50-day moving average), 1345 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1400 (the 20-day moving average), then 1410, followed by 1419 (the April high), 1421, and 1440.

    (click to enlarge)

    The February 29th distribution day grew stale. Counts number 8 on the NYSE composite, 6 on the DJI, 5 on the SPX, and 3 on the Nasdaq. BKX count rose to 7.

    In Asia, equity markets reopened in Hong Kong and China. Markets closed mixed. In Tokyo, the NKY closed down -0.53% on a +11.7% increase in volume. The index closed below 10,000 for the 2nd consecutive day. In Hong Kong, the HSI closed off -0.95% on a +2.55% increase in volume. In Shanghai, the SHCOMP rose +1.74% on a +29.6% increase in volume. Commentary focused on renewed Eurozone debt concerns.

    In Japan, the NKY closed at 9,767.61, down from 9,819.99 at the prior close. The index gapped lower to open below 9,750 and traded by mid-morning to an intraday low of 9,692.70, where support held. By mid-afternoon, the index rallied back to its 9,806.40 intraday high, then eased into the close. The index closed -4.51 below its recent March 27th high, and -2.50% below and +2.59% above its respective 20- and 50-day moving averages. Most market segments closed at lower. Leaders were utilities, which rose +0.39%, and health care and basic materials, which fell at least -0.07%. Laggards were financials, telecommunications, and consumer services, which closed down at least -0.73%.

    In China, the Hang Seng closed at 20,593.00, down from 20,790.98 at Tuesday's close. The index closed -5.01% below its February 29th high. The 20,404.15 intraday low was set at just after the open. The index rallied through the mid-afternoon to its 20,670.20 intraday high, but profit taking took the index back to 20,525 in the final hour. The HSI rallied into the close. Volatility rose +7.34%, but remains -3.73% under the 20-day moving average. The HSI closed -1.60% and -1.84% below its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities, which rose +0.28%, and technology and consumer services, which lost at least -0.01%. Laggards were financials, industrials, and consumer goods, which closed off at least -1.01%.

    In Shanghai, the SHCOMP closed at 2,302.24, up from 2,262.79 at last Friday's close. The SHCOMP closed -6.95% below its recent March 14th high. The SHCOMP opened lower and quickly touched its 20,404.15 intraday low, the reversed and rallied by mid-afternoon to its 20,670.20 intraday high. Profit taking took the index back to 20,525 in the final hour, but then rallied into the close. The index closed -3.18% and -2.53% below its respective 20- and 50-day moving averages. All market segments closed at least +0.40% higher. Leaders were consumer goods, technology, and industrials, which rose at least +3.04%. Laggards were telecommunications, financials, and oil and gas.

    In Europe, equities are struggling for a 3rd consecutive day. Equities opened slightly higher, but Eurozone sovereign debt concerns continue to sap confidence, and indexes have traded lower to moderate losses. Commentary focuses on the fiscal situation in Spain. The Euro Stoxx 50, FTSE 100, and DAX are down -1.10%, -0.46%, and -1.04%, respectively. All trade below their respective 20- and 50-day moving averages. Compared to the prior day's 2,398.46 close, the Euro Stoxx 50 trades at 2,372.64, up modestly from its 2,362.95 intraday day low. The index is -1.03% and -6.06% below its respective 20- and 50-day moving averages. All market segments are at least -0.27% lower. Leaders are oil and gas, technology, and health care. Laggards are basic materials, utilities, and financials, which are down at least -1.17%.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.15100%, unchanged from 0.15100% 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%, unchanged from 0.46915% the prior day, and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 32.57 bps, down from 32.72 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 40.62 bps, down from 40.90 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 -52.75 bps, down from -52.60 bps the prior day, but 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 20 bps, compared to an August 2nd high of 33 bps.
    • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.3335% and 2.179%, respectively, compared to 0.341% and 2.223% Wednesday. The yield curve narrowed to +1.845%, from +1.883% 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, better compared to the euro and British pound, but worse compared to the Japanese yen. The dollar trades at US$79.995, compared to a US$80.079 intraday high and US$79.778 the prior day, and mixed compared to its US$79.275 50-day, US$79.549 100-day, and US$77.750 200-day averages. The euro trades at US$1.3073, compared to an intraday low of US$1.3057 and a close of US$1.3218 the prior day. The euro trades worse than its US$1.3218 50-day and $1.3153 100-day averages. In Japan, the dollar trades at ¥81.94, compared to ¥82.46 the day prior. The yen trades worse than its 50-day moving average ¥80.50.
    • Commodities prices are mixed, with mixed energy, mixed precious metals, lower aluminum and copper, and mixed agriculture prices.


    Volatility, Skew:
     

    • The VIX ended at 16.44, up +4.98%, from 15.66 at the prior close. The VIX is +5.76% above its 15.54 20-day moving average. The Euro Stoxx 50 volatility index (V2X) is up +5.37% to 27.25, compared to 25.86 at the prior day's close. The V2X index trades +24.7% above its 21.84 20-day moving average, -6.28% below the 29.07 30-day high, and +17.3% above the 17.26 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 19.89, up +7.34% from 18.53 the prior day. The VHSI index trades -3.73% below its 20.66 20-day moving average.
    • CBOE skew fell -2.29% to 121.00, from 123.84 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 7:30, March Challenger job cuts declined -8.8%, compared to +2.0% prior.

    · At 8:30, initial jobless claims for the week ended March 31, were 357K, compared to survey 355K and 363K revised prior.

    · Continuing claims for the week ended March 24, were 3338K, compared to 3350K survey and 3354K prior.

    Overseas News. In February, U.K. manufacturing output fell -1%, disappointing +0.1% estimates. In February, German industrial production fell more than expected, declining -1.3% compared to -0.5% estimates.

    Company News:

    · HBAN - Initiated Neutral at Citi, $7.00 target

    · RF - Initiated Neutral at Citi, $7.00 target

    · SIVB - Initiated Neutral at Citi, $66.00 target

    · STI - Initiated Neutral at Citi, $26.00 target

    · ZION - Initiated Neutral at Citi, $22.00 target

    · NYB - Initiated Sell at Citi, $11.00 target

    · KEY - Assumed Buy at Citi vs. Neutral prior, $10.00 target

    · FHN - Assumed Neutral at Citi, $11.00 target

    · CMA - Assumed Sell at Citi vs. Neutral prior, $29.00 target

    4Q2011 Earnings. The fourth quarter's earnings reports exceeded expectations. Of the 498 S&P500 companies that reported earnings to date, 68% (338 out of 498) 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 13.4x estimated 2012 earnings ($104.28) and 11.9x estimated 2013 earnings ($117.94), compared to 13.6x and 12.0 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 11.5x and 9.9x 2012and 2013 consensus earnings, respectively, compared to 1.46x tangible book value and 11.8x/10.1x 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 0.98, compared to 0.94 the prior day and in between its 5- and 10-period moving averages of 0.95 and 0.99 respectively. The index put/call ratio closed at 1.35, compared to 1.54 the prior day, below the 5- and 10-period moving averages of 1.41 and 1.47, respectively. The equity put/call ratio closed the day at 0.67, compared to 0.53 the prior day, above its 5- and 10-period moving averages of 0.61 and 0.63, 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 rose +1.87% to 832.49 million shares, +1.03x the 50-day moving average, from 817.21 million shares Tuesday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,838 (compared to -889 the prior day), or 0.24:1. Up volume lagged down volume by 0.17:1.

    SPX. On lower volume, the SPX fell -14.42 points, or -1.02%, to 1398.96, the 55th straight close above 1300 but the first close below 1400 in eight sessions. Volume fell -2.11% to 625.15 million shares, down from 638.65 million shares Tuesday but above the 622.70 million share 50-day moving average. For the 72nd consecutive day, the SPX closed above its 50-day moving average (1368.61) and remained above its 200-day moving average (1269.14) for the 68th time in the past 69 sessions. The SPX closed above its 200-week moving average (1133.32) for the 123rd straight session.

    From its prior close at 1413.38, the SPX opened lower to 1404, immediately setting the intra-day high. By 11:00, the index fell to 1395 before a small rebound took the SPX back to 1398 by 12:30. The index double bottomed at 1:30, setting the intra-day low of 1394.09, but rallied into the close. By 3:15, the index retook 1400, but failed to hold that level at the bell.

    Technical indicators are positive. The SPX closed above 1200 for the 87th straight session, above 1300 for the 55th session, but below 1400 for the first time in eight 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 first time in 20 sessions, the SPX closed (by -0.04%) below its 20-day moving average (1399.53). The index closed (by +2.22%)above its 50-day moving average for the 73rd straight session. The index closed (by +6.80%) above its 100-day moving average (1309.84) for the 87th straight session. The SPX closed +10.23% above its 200-day moving average for the 68th time in the past 69 sessions. The directional momentum indicator is positive for the 20th straight session, and the trend is moderate and declining. Relative strength fell to 54.25 from 62.92, a neutral range. Next resistance is at 1410.00; next support is at 1391.00.

    BKX. On higher volume, the KBW bank index fell -0.90 points, or -1.80%, to 49.00, its 61st straight close above 40 but its fifth close below 50 in the past eight sessions. Volume rose +5.83% to 74.00 million shares, up from 69.92 million shares Tuesday but below the 80.90 million share 50-day average. The BKX closed +14.01% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -15.44% and -11.92% 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 regional banks underperformed large-cap banks. From its prior close of 49.90, the BKX opened lower to 49.56, immediately setting the intra-day high. At 10:30, the index fell through the 49.00 level and reached 48.80 at 10:55, setting the intra-day low. Financials rallied through 12:45 and retook 49.00, but failed to break meaningfully above 49.20. The index sold off slightly into the close from a 49.20 level at 3:00 to finish at 49.00, 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 +50.49% from the 32.56 October 4th intra-day low compared to a +30.26% rebound in the SPX. However, the BKX is still -11.9% below its 2011 high, compared to the SPX which is +2.6% 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 68th time in the past 69 sessions, the 20-day closed (by +2.64 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +4.46 points) above the 200-day moving average for the 31st straight session, and the gap widened. The 100-day moving average closed (by +1.05 points) above the 200-day moving average for the 13th straight session, and the gap widened. The BKX closed +0.20% above its 20-day moving average for the 20th straight session. The index closed (by +5.91%) above its 50-day moving average for the 71st straight session. The index closed (by +14.36%) above the 100-day moving average for the 72nd straight session. The index closed (by +17.22%) above its 200-day moving average for the 54th time in 55 sessions. The directional movement indicator is positive for the 19th straight session, and the trend is strong and stable. Relative strength fell to 55.78 from 63.44, a neutral range. Next resistance is 49.55; next support at 48.58.

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