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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 Lower After Weak Weekly Jobs Report,  0 comments
    Apr 19, 2012 8:49 AM | about stocks: BAC, FITB, BBT, KEY, MS

    This morning. U.S. equity markets remain in correction. The DJI closed below its 20-day moving average. The DJI, SPX, and Nasdaq closed above their respective 50-day moving averages. The NYSE composite remains below its 20- and 50-day moving averages. The SPX closed -2.39% 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 7th consecutive day. Shorter-term averages remain above longer term averages. The SPX is in bull market territory, closing up +28.9% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +48.0% in the same period.

    In Asia, Tokyo and Hong Kong equity markets closed mixed, with better strength in Hong Kong. In Europe, equity markets are moderately higher after successful, if not strong, French and Spanish 10-year debt auctions. Commentary focuses on earnings, the likelihood of Chinese policy easing, and the quality of this morning's debt auction announcements. 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 higher. U.S. Treasury yields are higher, with the 10-year at 1.998%, up from 1.975% the prior day. U.S. repo rates are at 15 bps.

    After a fair value adjustment of +2.54 points, June SPX equity futures are at 1378.50, down -2.34 points. The SPX opens at 1385.14, -0.64% below and +0.49% above its respective 20- and 50-day moving averages, and +4.67% and +8.83% above its respective 100- and 200-day moving averages. Next resistance is at 1389.50. First support is at 1382.03.

    Wednesday. Equity markets closed moderately lower, as Eurozone concerns resurfaced ahead of Thursday's Spanish debt auctions. The DJI declined -0.63%, followed by the SPX, NYSE composite, and Nasdaq, which closed off -0.41%, -0.37%, and -0.33%, respectively. From its prior 1390.778 close, the SPX gapped lower to open below 1386 and the index quickly traded to its 1383.29 intraday low. Several rally attempts seemed incline to lead a reversal to the upside, but all failed as the SPX found resistance at 1390.78 at its mid-afternoon intraday high, and traded lower into the close. The index closed below its 20-day moving average, but held above its 1377.51 50-day moving average. NYSE volume rose +1.58% to 0.91x the 50-day moving average. Market breadth was negative. Most market segments closed lower. Leaders were consumer services, which rose +0.09%, and consumer goods and oil and gas, which declined at least -0.17%. Laggards were telecommunications, technology, and financials, which fell at least -0.46%.

    DJ transports outperformed the industrials, falling -0.12% to close at 5301.61, down from 5310.13 the prior day, and -1.22% below its 5368.93 February 3rd closing high. The index closed +1.06% and +1.44% 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 -1.75% below its recent April 2nd high.

    Technical indicators are mixed. The DJI closed below its 20-day moving average after closing above that level the prior day. The NYSE composite closed below its 20- and 50-day moving averages. All closed above their respective 100- and 200-day moving averages. Volatility rose +0.98% with the VIX at 18.64 at the close. The CBOE put/call skew fell to 119.50, down -1.91% from 121.83 the prior session, within a 115-120 neutral range.

    Immediate support is 1377 (a -23.6% Fibonacci retrace), then 1350 (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 1390, then 1401, and 1419 (the April high).

    Trading desks reported a quiet session with most investors focused on today's Spanish bond auction and 1Q2012 earnings reports, which continued to surprise to the upside. The session was generally as buyers stepped aside and the short covering that characterized the prior day waned. Participants have reduced risk exposures in recent weeks.

    The distribution day count rose to 10 on the NYSE composite, 6 on the DJI and Nasdaq and 5 on the SPX. The BKX count rose to 7.

    In Asia, equity markets closed mixed on mixed volume, through Hong Kong rose sharply. Commentary focused on concerns ahead of the Spanish debt auction, but in Hong Kong, equities rose on Chinese stimulus speculation. In Tokyo, the NKY closed down -0.82% on a +6.96% volume increase. The index closed below 10,000 for the 12th consecutive day. In Hong Kong, the HSI closed up +1.03% on a -22.4% volume decrease. In Shanghai, the SHCOMP fell -0.09% on a +12.8% increase in volume.

    In Japan, the NKY closed at 9,558.38, down from 9,667.26 at the prior close. The index gapped lower to open at 9,580, then rallied through the morning session to the 9,617.93 intraday high. The index weakened again through the afternoon, trading to an intraday low of 9,565.83 at mid-afternoon, before rallying modestly into the close. The index closed -6.50% below its recent March 27th high, and -2.43% and -1.08% below its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities, which closed up +0.04%, and technology and consumer goods, which closed down at least -0.23%. Financials lost -0.73%. Laggards were health care, basic materials, and industrials, which fell -1.05%.

    In China, the Hang Seng closed at 20,995.01, up from 20,780.73 at the prior close. The index closed -3.16% below its February 29th high. Volatility fell -5.24% as the VHSI closed -6.28% below its 20-day moving average. The index opened slightly off the prior day's close, but rallied modestly through the morning session to the 20,850 level. The afternoon's rally began in mid-afternoon, and rose sharply to end at the day's high. The HSI recaptured its 50-day moving average. It closed +1.53% and +0.02% above its respective 20- and 50-day moving averages. Most market segments ended higher. Leaders were oil and gas, basic materials, and financials, which closed up at least +1.23%. Laggards were technology, which rose +0.17%, and utilities, and consumer services, which closed down at least -0.06%.

    In Shanghai, the SHCOMP closed at 2,378.63, down from 2,380.85 at Wednesday's close. The SHCOMP opened slightly lower and traded narrowly through the day, between an early morning 2,386.64 intraday high and late afternoon 2,369.64 intraday low. The index closed +1.91% and +0.35% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were financials and utilities, which closed up at least +0.06%, and industrials, which closed down -0.02%. Laggards were telecommunications, consumer services, and consumer goods, which closed down at least -0.34%.

    In Europe, equities are moderately higher, but trade off their intraday higher. Commentary focuses on acceptably strong Spanish and French bond auctions. The Euro Stoxx 50, FTSE 100, and DAX are up +0.54%, +0.69%, and +0.63%, respectively. The FTSE 100 trades above its 20-day moving average. All others trade below their respective 20- and 50-day moving averages. The FTSE 100 trades -1.26% below and +1.08% above its respective 50- and 100-day moving averages. The Euro Stoxx 50 and CAC also trade below their 100- and 200-day moving averages. Compared to the prior day's 2,327.84 close, the Euro Stoxx 50 trades at 2,339.32, compared to the 2,325.05 intraday low and 2,353.37 intraday high. The index is -4.08% and -6.08% below its respective 20- and 50-day moving averages. Most market segments are higher. Leaders are basic materials, health care, and technology, which are up at least +0.77%. Financials are up +0.66%. Laggards are utilities, up +0.23%, while telecommunications, and oil and gas are at least -0.09%.

    Libor, LOIS, Currencies, Treasuries, Commodities:
     

    • USD LIBOR is 0.14800%, unchanged from 0.14800% 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 32.46 bps, unchanged from 32.46 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.50 bps, down from 39.90 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 -47.125 bps, up from -49.00 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 0.268% and 1.998%, respectively, compared to 0.266% and 1.975% Wednesday. The yield curve widened to +1.730%, from +1.709% 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$79.493, compared to a US$79.657 intraday high and US$79.538 the prior day, and mixed compared to its US$79.427 50-day, US$79.640 100-day, and US$77.979 200-day averages. The euro trades at US$1.3142, compared to an intraday low of US$1.31106 and its US$1.3123 close the prior day. The euro compares to its US$1.3205 50-day and $1.3125 100-day averages. In Japan, the dollar trades at ¥81.565, compared to ¥81.26 the day prior. The yen trades slightly worse than its 50-day moving average ¥81.40.
    • Commodities prices are higher, with higher energy, precious metals, aluminum and copper, and agriculture prices.


    Volatility, Skew:
     

    • The VIX ended at 18.64, up +0.98% from 19.46 at the prior close. The VIX is +10.0% above its 16.94 20-day moving average.
    • The Euro Stoxx 50 volatility index (V2X) is up -3.79% to 26.64, compared to 27.68 at the prior day's close. The V2X index trades +7.95% above its 24.67 20-day moving average, -14.1% below the 31.02 30-day high, and +54.3% above the 17.26 30-day low.
    • The Hang Seng volatility index (VHSI) closed at 19.18, down -5.24% from 20.24 the prior day. The VHSI index trades -6.28% below its 20.47 20-day moving average.
    • CBOE skew fell -1.91% to 119.50 from 121.83 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:

    · Initial jobless claims for the week ended April14 were 386K, compared to 370K survey and 388K revised prior.

    · Continuing claims for the week ended April 7 were 3297K, compared to survey 3300K and revised prior 3271K.

    · At 10:00, the April Philadelphia Fed report, with survey at 12.0 compared to 12.5 prior.

    Overseas News. Today, Spain sold €2.54 billion in 2- and 10-year bonds, with demand and yields rising from the prior auction, but with the 10-year yield pricing under 5.75%.

    Company News:

    · BAC reports 1Q12 GAAP and continuing operating EPS of $0.03 and $0.29, beating estimates of $0.12

    · FITB reports 1Q12 GAAP and continuing operating EPS of $0.45 and $0.34, compared estimates of $0.35

    · BBT reports 1Q12 GAAP and continuing operating EPS of $0.61 and $0.66, compared to estimates of $0.52

    · KEY reports 1Q12 GAAP and continuing operating EPS of $0.21 and $0.20, compared to estimates of $0.19

    · MS reports 1Q12 GAAP and continuing operating EPS of -$0.06 and $0.71, compared to estimates of $0.44

    1Q2012 Earnings.

    The first quarter's earnings reports have so far exceeded expectations. Of the 55 S&P500 companies that reported earnings to date, 84% (46 out of 55) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +5.0% (versus a historical average of +2%). Aggregate EPS is up +3.11% over the prior year. Though challenged in the current operating environment, 72% of companies reported increased revenues over the prior year and 78% 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 16 of the 24 BKX members reporting first quarter earnings, 81% beat operating EPS estimates while 77% 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 13.2x estimated 2012 earnings ($104.75) and 11.7x estimated 2013 earnings ($117.94), compared to 13.3x and 11.8 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 1.44x tangible book value, and 11.4x and 9.9x 2012and 2013 consensus earnings, respectively, compared to 1.43x tangible book value and 11.5x/9.8x 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 0.85 the prior day and above its 5- and 10-period moving averages of 0.93 and 0.96 respectively. The index put/call ratio closed at 1.59, compared to 1.16 the prior day, above the 5- and 10-period moving averages of 1.36 and 1.35, respectively. The equity put/call ratio closed the day at 0.60, compared to 0.59 the prior day, below its 5- and 10-period moving averages of 0.63 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 rose +1.58% to 720.97 million shares, +0.91x the 50-day moving average, from 709.77 million shares Tuesday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,015 (compared to +1,632 the prior day), or 0.49:1. Up volume led down volume by 0.45:1.

    SPX. On higher volume, the SPX fell -5.64 points, or -0.41%, to 1385.14, the 63rd straight close above 1300 but the 10th straight close below 1400. Volume rose +0.49% to 554.50 million shares, up from 551.79 million shares Tuesday but below the 610.13 million share 50-day moving average. For the second straight session, the SPX closed above its 50-day moving average (1378.33)and remained above its 200-day moving average (1272.80) for the 77th time in the past 78 sessions. The SPX closed above its 200-week moving average (1133.43) for the 133rd straight session.

    From its prior close at 1390.78, the SPX opened lower to 1386 and fell to the intra-day low of 1383.29 at 9:33. The index traded in a narrow and negative band in the 1384-1390 range through the day, setting the intra-day high of 1390.03 at 3:05. A sell-off into the bell closed the index near the low end of the day's negative range.

    Technical indicators are mostly positive. The SPX closed above 1200 for the 96th straight session, above 1300 for the 62nd session, but below 1400 for the 10th 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 10th straight session, the SPX closed (by -0.64%) below its 20-day moving average (1394.07). The index closed (by +0.49%) above its 50-day moving average for the second straight session. The index closed (by +4.67%) above its 100-day moving average (1323.32) for the 96th straight session. The SPX closed +8.83% above its 200-day moving average for the 77th time in the past 78 sessions. The directional momentum indicator switched back to positive for the first time in seven sessions, and the trend is weak and declining. Relative strength fell to 50.04 from 52.14, a neutral range. Next resistance is at 1389.52; next support is at 1382.03.

    BKX. On higher volume, the KBW bank index fell -0.30 points, or -0.62%, to 48.19, its 70th straight close above 40 but its 11th straight close below 50. Volume rose +3.28% to 62.67 million shares, up from 60.54 million shares Tuesday but below the 79.68 million share 50-day average. The BKX closed +12.12% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -16.84% and -13.37% 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 sector, and regional banks underperformed large-cap banks. From its prior close of 48.49, the BKX opened lower to 48.30 but quickly rose to positive territory by 10:00 and set the intra-day high of 48.76 at 10:50. Through 1:40, the index sold off, turning negative at 11:15 and reaching the intra-day low of 48.14 at 1:40. A small rebound to 48.40 by 3:00 was sold and the index closed near the intra-day low.

    Technical indicators are mostly positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +48.00% from the 32.56 October 4th intra-day low compared to a +29.0% rebound in the SPX. However, the BKX is still -13.4% 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 75th straight session, the 20-day closed (by +1.83 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +5.27 points) above the 200-day moving average for the 40th straight session, and the gap widened. The 100-day moving average closed (by +1.93 points) above the 200-day moving average for the 22nd straight session, and the gap widened. The BKX closed -1.49% below its 20-day moving average for the ninth straight session. The index closed (by +2.34%) above its 50-day moving average for the 80th straight session. The index closed (by +10.13%) above the 100-day moving average for the 81st straight session. The index closed (by +15.23%) above its 200-day moving average for the 63rd time in 64 sessions. The directional movement indicator is positive for second straight session, and the trend is moderate and declining. Relative strength fell to 50.62 from 52.32, a neutral range. Next resistance is 48.59; next support at 47.97.

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