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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 Follow Europe Lower 0 comments
    Apr 18, 2012 8:44 AM | about stocks: PNC, HBAN, BK, BLK

    This morning. Lower volume accompanied yesterday's strong gains. U.S. equity markets remain in correction. The DJI recaptured its 20- and 50-day moving averages. The SPX and Nasdaq recaptured their respective 50-day moving averages. The NYSE composite remains below its 20- and 50-day moving averages. The SPX closed -1.99% below its recent April 2nd high of 1419.04. All major indices are above their respective 100- and 200-day moving averages. Most moving averages are trending higher, though the SPX 20-day moving average fell for a 6th consecutive day. Shorter-term averages remain above longer term averages. The SPX is in bull market territory, closing up +29.4% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +48.9% in the same period.

    In Asia, Tokyo and Hong Kong equity markets closed higher, with better strength in Shanghai, where the SHCOMP closed above its 20- and 50-day moving averages. In Europe, equity markets are reversing much of the prior day's gains. Commentary focuses on BOE comments that signaled an end to policy support for additional economic stimulus. 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 higher, with the 10-year at 1.998%, unchanged from 1.988% the prior day. U.S. repo rates are at 15 bps.

    After a fair value adjustment of +2.93 points, June SPX equity futures are at 1379.80, down -6.73 points. The SPX opens at 1390.78, -0.31% below and +0.96% above its respective 20- and 50-day moving averages, and +5.25% and +9.29% above its respective 100- and 200-day moving averages. Next resistance is at 1399.17. First support is at 1375.98.

    Tuesday. Equity markets posted surprisingly strong gains, which were attributed to stronger than expected earnings and better than expected Spanish debt auctions. The Nasdaq rose +1.82%, followed by the SPX, DJI, and NYSE composite, which rose +1.55%, +1.50%, and +1.44%, respectively. From its prior 1369.57 close, the SPX opened above 1376 and rallied convincingly through its 50-day moving average to trade above 1390 after early afternoon, closing just short of its 1392.76 intraday high. The index closed above its 50-day moving average for the 1st time since last Friday. NYSE volume fell -3.50% to 0.89x the 50-day moving average. Market breadth was overwhelmingly positive. All market segments closed at least +0.68% higher. Leaders were technology, oil and gas, and basic materials, which rose at least +1.73%. Financials gained +1.39%. Laggards were telecommunications, consumer goods, and utilities.

    DJ transports underperformed the industrials, rising +1.44% to close at 5310.13, up from 5234.65 the prior day, and -1.10% off its 5368.93 February 3rd closing high. The index closed +1.18% and +1.57% 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 -1.12% below its recent April 2nd high.

    Technical indicators improved. Most major exchanges recaptured their respective 20- and/or 50-day moving averages. All closed above their respective 100- and 200-day moving averages. Volatility fell -5.58% with the VIX at 18.46 at the close. The CBOE put/call skew rose to 121.83, up +4.42% from 116.67 the prior session, above a 115-120 neutral range.

    Immediate support is 1376 (a -23.6% Fibonacci retrace), then 1348 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1399, then 1408, and 1419 (the April high).

    Trading desks reported that Eurozone concerns are increasingly viewed as less "systemic" than last year and that U.S. earnings have been healthy. The rally caught many participants by surprise and short covering clearly had a central role in the day's melt up. However, as indicated by the weaker volume, buying activity was muted.

    The distribution day count is 9 on the NYSE composite, 6 on the DJI, 5 on the Nasdaq and 4 on the SPX. The BKX count is 6.

    In Asia, equity markets closed much higher on mixed volume. Commentary cited the IMF's increase in the global growth forecast. In Tokyo, the NKY closed up +2.14% on a +6.96% volume increase. The index closed below 10,000 for the 11th consecutive day. In Hong Kong, the HSI closed up +1.06% on a -22.4% volume decrease. In Shanghai, the SHCOMP rose +1.96% on a +12.8% increase in volume. Monday, China widened the yuan's currency trading range, a move likely to strengthen consumer demand for imported products.

    In Japan, the NKY closed at 9,667.26, up from 9,464.71 at the prior close. The index traded narrowly through the morning session, but rallied through most of the afternoon to an intraday high of 9,682.88. The index closed -5.73% below its recent March 27th high, and -1.83% and -0.12% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were financials, basic materials, and industrials, which rose at least +2.66%. Laggards were health care and telecommunications, which rose at least +1.05%, and utilities, which declined -0.95%.

    In China, the Hang Seng closed at 20,780.73, up from 20,562.31 at the prior close. The index closed -4.15% below its February 29th high. Volatility fell -5.11% as the VHSI closed -0.99% below its 20-day moving average. The index gapped higher to open at 20,800 and traded within a narrow range through the day, to an early intraday low of 20,392.57 and a mid-afternoon 20,862.32 intraday high. The HSI closed -4.15% below its recent February 29th high, but recaptured its 20-day moving average. It closed +0.36% above and -1.00% below its respective 20- and 50-day moving averages. All market segments ended at least +0.03% higher. Leaders were technology, oil and gas, and consumer services, which closed up at least +1.92%. Laggards were financials, telecommunications, and consumer goods.

    In Shanghai, the SHCOMP closed at 2,380.85, up from 2,334.99 at Tuesday's close. The SHCOMP closed -3.77% below its recent March 14th high. The SHCOMP opened at 2,340 and traded narrowly until late morning, when it rallied strongly and gained steadily to a late afternoon 2383.26 intraday high. The index recaptured both its 20- and 50-day moving averages, up +1.95% and +0.49% above its respective 20- and 50-day moving averages. All market segments closed up at least +1.05%. Leaders were basic materials, industrials, and technology, with gains of at least +2.50%. Financials gained +1.93%. Laggards were utilities, oil and gas, and telecommunications.

    In Europe, equities are moderately lower and trade near their intraday lows. Commentary focuses on the Spanish bank loans, where loan delinquencies are near an 18 year high. The Euro Stoxx 50, FTSE 100, and DAX are down -1.42%, -0.34%, and -0.74%, respectively. All trade below their respective 20- and 50-day moving averages. The FTSE 100 trades +0.77% above its 100-day moving average. The Euro Stoxx 50 and CAC also trade below their 100- and 200-day moving averages. Compared to the prior day's 2,367.05 close, the Euro Stoxx 50 trades at 2,336.45, compared to the 2,331.75 intraday low. The index is -4.69% and -6.27% below its respective 20- and 50-day moving averages. All market segments are at least -0.06% lower. Leaders are technology, consumer goods, and health care. Financials are down -1.96%. Laggards are consumer services, industrials, and utilities, which are at least -2.09% lower.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.14800%, down from 0.15000% the prior day. The recent low was 0.13850% on March 1st, down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.46565%, unchanged from 0.46565% the prior day, and down from the January 4th peak of 0.58250%.
    • The US Libor-OIS (LOIS) spread is 32.67 bps, down from 32.46 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.90 bps, down from 40.80 the prior day and the December 27th high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
    • The Euro 3-month basis swap is -48.50 bps, down from 51.91 bps the prior day, 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 15 bps, compared to an August 2nd high of 33 bps.
    • U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.274% and 1.998%, respectively, compared to 0.270% and 1.998% Monday. The yield curve narrowed to +1.7249%, from +1.728% 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 +2.75% on April 20, 2011.
    • The U.S. dollar is stronger compared to the euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$79.789, compared to a US$79.818 intraday high and US$79.476 the prior day, and mixed compared to its US$79.413 50-day, US$79.630 100-day, and US$77.959 200-day averages. The euro trades at US$1.3076, compared to an intraday low of US$1.3070 and its US$1.3127 close the prior day. The euro compares to its US$1.3207 50-day and $1.3128 100-day averages. In Japan, the dollar trades at ¥81.42, compared to ¥80.85 the day prior. The yen trades slightly worse than its 50-day moving average ¥81.32.
    • Commodities prices are mixed, with lower energy, lower precious metals, higher aluminum and copper, and higher agriculture prices.


    Volatility, Skew:
     

    • The VIX ended at 18.46, down -5.58% from 19.55 at the prior close. The VIX is +9.94% above its 16.79 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up +3.42% to 27.52, compared to 26.59 at the prior day's close. The V2X index trades +13.7% above its 23.80 20-day moving average, -11.3% below the 31.02 30-day high, and +59.4% above the 17.26 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 20.24, down -5.11% from 21.33 the prior day. The VHSI index trades -0.99% below its 20.44 20-day moving average.
    • CBOE skew rose +4.42% to 121.83 from 116.67 at the prior day's close, and 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:

    · MBA mortgage applications for the week ended April 13 rose +6.9%, compared to -2.4% prior.

    Overseas News. In February, the Bank of Spain said the country's bad loans rose to 8.2% from 7.9% in January. Today, European Central Bank (ECB) member Jens Weidman, who is also the German Bundesbank head, said it was not the ECB's role to tackle Spain's problems. In March, China's home prices declined in 46 cities (out of 70 total) month-over-month, the fifth straight month when 50% or more cities witnessed a decline.

    Company News:

    · PNC - reports 1Q12 GAAP and continuing operating EPS of $1.44 and $1.76, beating estimates of $1.44

    · HBAN reports 1Q12 GAAP and continuing operating EPS of $0.17 and $0.18, compared estimates of $0.15

    · BK reports 1Q12 GAAP and continuing operating EPS of $0.52 and $0.52, compared to estimates of $0.52

    · BLK reports 1Q12 continuing operating EPS of $3.16, compared $2.98 estimates.

    1Q2012 Earnings.

    The first quarter's earnings reports have so far exceeded expectations. Of the 37 S&P500 companies that reported earnings to date, 78% (29 out of 37) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +4.7% (versus a historical average of +2%). Aggregate EPS is up +0.68% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 76% beat revenue estimates. 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 9 of the 24 BKX members reporting fourth quarter earnings, 75% beat operating EPS estimates while 83% beat revenue estimates. 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 13.3x estimated 2012 earnings ($104.75) and 11.8x estimated 2013 earnings ($117.94), compared to 13.1x and 11.6 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 -3.6%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.3% and +24.2%, respectively.

    Large-cap banks trade at a median 1.43x tangible book value, and 11.5x and 9.8x 2012and 2013 consensus earnings, respectively, compared to 1.40x tangible book value and 11.3x/9.6x 2012/2013 earnings Thursday. 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 0.85, compared to 1.03 the prior day and below its 5- and 10-period moving averages of 0.95 and 0.96 respectively. The index put/call ratio closed at 1.16, compared to 1.36 the prior day, below the 5- and 10-period moving averages of 1.36 and 1.35, respectively. The equity put/call ratio closed the day at 0.59, compared to 0.70 the prior day, below its 5- and 10-period moving averages of 0.64 and 0.65, 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 2011, and repeatedly through February with the most recent reading on March 26st on the SPX and March 21st and 16th on the BKX. On April 4th, the SPX closed below the lowest level in the previous four days and followed through with lower trading the next day, signaling a potential reversal's initiation. April 11th's rebound in the SPX and BKX came off important support levels near 1345 and 46.80, respectively. A breakdown below those support levels may accelerate the reversal. Short term resistance rests near 1395 and 50.25, respectively.

    NYSE Indicators. Volume fell -3.50% to 709.77 million shares, +0.89x the 50-day moving average, from 735.51 million shares Tuesday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,632 (compared to +411 the prior day), or 3.36:1. Up volume led down volume by 1.46:1.

    SPX. On lower volume, the SPX rose +21.21 points, or +1.55%, to 1390.78, the 62nd straight close above 1300 but the ninth straight close below 1400. Volume fell -6.10% to 551.79 million shares, down from 587.65 million shares Monday and below the 609.67 million share 50-day moving average. For the first time in three sessions, the SPX retook its 50-day moving average (1377.51)and remained above its 200-day moving average (1272.57) for the 76th time in the past 77 sessions. The SPX closed above its 200-week moving average (1133.40) for the 132nd straight session.

    From its prior close at 1369.57, the SPX opened higher to 1376.61, immediately setting the intra-day low. The index quickly rallied to 1380 and paused before a 10:15 rally took hold and lasted through 12:30, bringing the index up to 1391. The SPX traded sideways at 1390 through the close, setting the intra-day high of 1392.76 at 2:35 and finished near the intra-day high.

    Technical indicators are mostly positive. The SPX closed above 1200 for the 95th straight session, above 1300 for the 61st session, but below 1400 for the ninth 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. The 20-day moving average declined. For the ninth straight session, the SPX closed (by -0.31%) below its 20-day moving average (1395.09). The index closed (by +0.96%) above its 50-day moving average for the first time in three sessions. The index closed (by +5.25%) above its 100-day moving average (1321.35) for the 95th straight session. The SPX closed +9.29% above its 200-day moving average for the 76th time in the past 77 sessions. The directional momentum indicator is negative for the sixth straight day, and the trend is moderate and declining. Relative strength rose to 52.14 from 43.90, a neutral range. Next resistance is at 1399.17; next support is at 1375.98.

    BKX. On lower volume, the KBW bank index rose +0.83 points, or +1.74%, to 48.49, its 69th straight close above 40 but its 10th straight close below 50. Volume fell -10.06% to 60.54 million shares, down from 67.31 million shares Monday and below the 79.53 million share 50-day average. The BKX closed +12.82% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -16.32% and -12.83% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

    Financials underperformed the market, and large-cap banks underperformed regional banks. From its prior close of 47.66, the BKX opened higher to 47.92, immediately setting the intra-day low and breaking above 48.00. Through 12:30, the index rallied to 48.65 and traded sideways through 2:45. The intra-day high of 48.69 came at 2:00. A brief sell-off at 2:50 found support at 48.50. A final, small rally back to 48.60 was sold into bell back to 48.50.

    Technical indicators are mostly positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +48.93% from the 32.56 October 4th intra-day low compared to a +29.50% rebound in the SPX. However, the BKX is still -12.8% below its 2011 high, compared to the SPX which previously recovered is 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 74th straight session, the 20-day closed (by +2.00 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +5.19 points) above the 200-day moving average for the 39th straight session, and the gap widened. The 100-day moving average closed (by +1.80 points) above the 200-day moving average for the 21st straight session, and the gap widened. The BKX closed -1.08% below its 20-day moving average for the eighth straight session. The index closed (by +3.13%) above its 50-day moving average for the 79th straight session. The index closed (by +11.14%) above the 100-day moving average for the 80th straight session. The index closed (by +15.92%) above its 200-day moving average for the 62nd time in 63 sessions. The directional movement indicator switched to positive for first time in seven sessions, and the trend is moderate and declining. Relative strength rose to 52.32 from 47.80, a neutral range. Next resistance is 48.86; next support at 47.96.

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