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U.S. Futures Weaken Following French Debt Downgrade

|Includes: HP Inc. (HPQ)

This morning. U.S. equity markets confirmed a new downtrend on October 19th. Monday, the major indexes recorded significant gains and closed near their intraday highs, but the gains came on much lower volume. Markets remain in correction. France lost its AAA-debt rating, as Moody's expressed competitiveness cocnerns.

Monday, the Nasdaq rose +2.21%, followed by the SPX, NYSE composite, and DJI, which closed up +1.99%, +1.88%, and +1.65%, respectively. The DJ Transports rose +1.89%, outperforming the DJI. However, in November, the Nasdaq, DJI, SPX, and NYSE composite are down -2.05%, -2.29%, -1.79%, and -1.72%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite closed off -1.98%, -2.54%, -4.46%, and -0.36%, respectively. In September, the SPX and DJI indexes closed +2.42% and +2.65% higher, respectively, while the Nasdaq and NYSE composite rose +1.61% and +2.95%, respectively. All the major equity indexes also closed higher in August, July, and June. All are at least +4.75% higher in 2012.

The SPX and NYSE composite recaptured their respective 200-day moving averages. All major indexes closed well below their respective 20-, 50-, and 100-day moving averages. Today, Asian equities reversed early gains and closed lower, with moderate losses in Shanghai. In Europe, the major equity indexes modestly lower. Economic reporting is light.

This morning, U.S. equity futures weakened after HP reported poor 3Q2012 earnings, which included a large writedown of a recent acquisition. Futures subsequently improved and are currently mixed. U.S. Treasury yields are slightly higher, with the 10-year at 1.589%. U.S. repo rates are at 18 bps, down from 20 bps the prior day. Spanish and Italian 10-year debt yields are little changed at 5.89% and 4.90%, respectively, compared to 5.90% and 4.90% the prior day. The dollar is mixed. U.S. options markets suggest a neutral to bullish short-term outlook. The CBOE skew fell -2.06% to 113.46, from 115.85 the prior day. Commodities prices are mixed.

In pre-market futures trading, December SPX equity futures are unchanged, off the top of their 1379-1384 range. SPX equity futures are at 1382.50. The SPX opens at 1386.89, off -5.38% from September 14th's 1465.77 multi-year closing high, and -0.85%, -2.92%, and -1.31% below its respective 20-, 50-, and 100-day moving averages, but +0.32% above its 200-dy moving average. The SPX is up +10.3% in 2012. On November 13th, the 20-day moving average crossed below its 50-day moving average. The 50-day moving average crossed above its 100-day moving average on August 17th. The SPX is +29.0% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1395.89. First support is at 1368.88.

Financial stocks have recently underperformed the broader market, with the BKX down -6.66% from its September 14th high. Monday, the BKX closed up +2.23%. The BKX is off -2.82% in November, following losses of -5.85% in October and -1.08% in September.

Monday. Equities gapped significantly higher and then traded narrowly through most of the session, then rallied into the close to end at the day's highs. Market breadth was extremely positive. NYSE volume fell -25.1% from Friday's trade, 0.99x the 15-day moving average. At the close, the Nasdaq rose +2.21%, followed by the SPX, NYSE composite, and DJI, which rose +1.99%, +1.88%, and +1.65%, respectively. Most market segments closed higher. Leaders were technology, basic materials, and telecommunications, which rose at least +2.33%. Financials rose +1.87%. Laggards were consumer services and health care, which rose at least +1.02%, and utilities, which fell -0.01%.

Futures suggested a strong open, and from its 1359.88 prior close, the SPX gapped higher to open above 1370 and rose to 1380 within the session's first hour. The index traded narrowly through 3:00, then rallied again in the final hour to close at its intraday high. Market volatility declined. From 16.41 at the prior close, the VIX opened at 15.80 and generally trended lower through the day to a late afternoon 15.10 intraday low, before closing at 15.24, down -7.13%.

On -46.0% decreased volume, the DJ transports outperformed, rising +1.89%, compared to the DJI's +1.65% higher close. The index closed at 4983.71, compared to 4891.27 the prior day and below 5,000 for the 4th consecutive day. The TRAN rallied in early trading to 4960, but fell back to 4925 by mid-morning, then rallied through the day to close at its intraday high. The index closed -1.35%, -1.19%, -1.70%, and -2.70% below its respective 20-, 100-, and 200- day moving averages. The TRAN closed -7.17% below its 5,368.93 February 3rd closing high. The TRAN has not confirmed multiple DJI new highs (the most recent September 14th) subsequent to February 3rd.

Technical factors remain adverse, but improved as the SPX and NYSE composite recaptured their 200-day moving averages. All closed below their respective 20-, 50-, and 100-day moving averages. All 20-day moving averages are below 50-day moving averages. The CBOE put/call skew fell -2.06% to 113.46, compared to 115.85 the prior day, and post July 2009 low and well below a neutral 115-120 range. U.S. Treasury bond prices were little changed.

Despite the much higher close, trading desks reported a less active day than Friday, as volumes fell significantly. Gains seem spurred by short covering, though strength extended into the close. Europe closed much higher, too, but Asian equities were unable to hold early gains and closed modestly lower, with greater weakness in Shanghai.

Immediate SPX support is 1382 (the 200-day moving average), then 1369, 1351, and 1324. Resistance is 1399 (the 20-day moving average), 1405 (the 100-day moving average), 1407 (the August close), 1420 (the August high close), 1432 (the 50-day moving average), 1466 (the September 14th closing high), and 1471 (the 30-day high).

Distribution day count. Since the start of the current confirmed downtrend on October 19th, distributions number 6 on Nasdaq, SPX, and NYSE composite, and DJI. The BKX count is 6.

In Asia, equity markets opened higher, but closed lower, with greater weakness in Shanghai. The NKY fell -0.12% on -6.57% decreased volume. The HSI closed down -0.16% on +6.27% increased volume. In Shanghai, the SHCOMP fell -0.40% on a -1.97% volume decrease. The NKY closed above its 20-, 50-, 100-, and 200-day moving averages. The HSI closed below its 20-day moving average, but above its 50-, 100-, and 200-day moving averages. The SHCOMP also closed below its 20-, 50-, 100-, and 200-day moving averages.

Commentary focused on the continued uncertainties stemming from new elections in Japan, China's new leadership, and U.S. budget talks.

Compared to last week's close, the NKY is up +1.31%, the HSI is up +0.33%, and the SHCOMP is down -0.29%. Last week, the NKY rose +3.04%, the HSI fell -1.05%, and the SHCOMP closed down -2.27%. In November, the NKY is up +2.40%, while the HSI and SHCOMP are down -1.91% and -2.90%, respectively. In October, the NKY closed up +1.50%, while the HSI and SHCOMP ended +3.85% higher and -0.83% lower, respectively.

In Japan, the NKY closed at 9,142.64, down from 9,153.20 at Monday's close, but closing above 9,000 for a 3rd consecutive session. The index closed down -10.9% from its March 27th high, but +8.13% higher in 2012. The index gapped higher to open just shy of its early session 9,200.85 intraday high, but the index quickly experienced a bout of profit taking, drawing the index back to breakeven within the first hour. The index traded narrowly through mid-afternoon, then reversed lower to the 9,129.43 intraday low. A late rally narrowed the loss. The NKY closed +2.60%, +2.76%, +3.02%, and +0.75% above their respective 20-, 50-, 100-, and 200-day moving averages. Market segments closed mixed. Leaders were utilities, telecommunications, and oil and gas, which rose at least +0.69%. Laggards were consumer goods, financials, and technology, which fell at least -0.34%.

In China, the Hang Seng closed at 21,228.28, down from 21,262.06 at the prior close, and off -3.99% from its recent November 2nd high. The index has closed above 20,000 since September 12th. The index closed +15.2% higher in 2012. The index gapped higher to open at its 21,478.00 intraday high. The index traded narrowly through mid-afternoon, when it slipped below 21,400. Profit taking accelerated into the close, as the index reversed lower late in the session to end just better than its 21,213.12 intraday low. The HSI closed -1.70% below and +0.82% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were technology, oil and gas, and consumer services, which closed up at least +0.09%. Financials lost -0.26%. Laggards were telecommunications, basic materials, and consumer goods, which fell at least -0.44%.

In Shanghai, the SHCOMP closed at 2,008.92, down from 2,016.98 at the prior close. The index closed -18.8% below its 2,474.07 March 14th high, and down -8.66% in 2012. The index opened slightly higher, but traded around breakeven through late in the morning session, when selling pressure took the index lower to test support at 2,005. The index closed -3.23% and -3.49% below its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities and consumer goods, which rose at least +0.05%, and oil and gas, which fell -0.34%. Financials lost -0.39%. Laggards were technology, basic materials, and consumer services, which fell at least -0.66%.

In Europe, the major equity indexes are mostly lower, with a modest gain in Frankfurt. The Euro Stoxx50, FTSE 100, and CAC 40, are down -0.33%, -0.19%, and -0.39%, respectively, while the DAX is up +0.06%. The Euro Stoxx50, FTSE 100, and CAC 40, and DAX are below their respective 20- and 50-day moving averages. The FTSE 100 is also below its 100- and 200-day moving averages. The CAC remains below its 100-day moving average. All others trade above their respective 200-day moving averages. On the day, the Spanish IBEX 35 and Italian FTSE MIB are down -0.77% and -0.94%, respectively. Economic reporting is light.

Commentary focuses on Moody's downgrade of French sovereign debt.

From its prior 2,495.21 close, the Euro Stoxx50 opened below 2,486 and has traded narrowly but mostly lower through the day, testing breakeven twice in the morning session, but falling back. Market segments are mixed. Leaders are technology, basic materials, and industrials, which are up at least +0.41% higher. Financials are down -0.85%. Laggards are oil and gas, telecommunications, and utilities, which are down at least -1.02%.

On the week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.51%, +2.15%, +2.56%, and +2.58%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed -2.12%, -2.83%, -2.40%, and -2.97% lower, respectively. In November, the Euro Stoxx50 is up +1.39%, while the FTSE 100, CAC 40, and DAX are down -0.96%, -0.06%, and -1.80%, respectively. In 2012, the indexes are up +7.36%, +2.77%, +8.46%, and +20.9%, respectively.

Libor, LOIS, Currencies, Treasuries, Commodities:

  • USD LIBOR is 0.15450%, unchanged from 0.15450% the prior day. USD 3-month LIBOR is 0.31050%, down from 0.31150% the prior day, and compares to the January 4th peak of 0.58250%.
  • The US Libor-OIS (LOIS) spread is 16.65 bps, compared to 17.70 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 12.30 bps, down from 12.40 bps the prior day, and down from the December 27th high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
  • The 3-month Euro basis swap improved to -28.606 bps, from -28.609 bps the prior day, but up from a trough of -147.00 bps on December 14th and within a normal -10 bps and -40 bps range.
  • Spanish 10-year debt yields are 5.89%, compared to 5.90% the prior day. Italian 10-year debt yields are at 4.90%, compared to 4.90% the prior day. German 10-year debt yields are 1.40%, compared to +1.36% the prior day.
  • The U.S. government overnight repo rate is 18 bps, compared to 20 bps the prior day.
  • U.S. Treasury yields are slightly higher, with 2- and 10-year maturities yielding 0.246% and 1.630%, respectively, compared to 0.242% and 1.613% Monday. The yield curve is widened slightly, with the 2 to 10 year spread +1.384%, compared to 1.371% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.174% on July 24, 2012, to a high of +1.998% on March 19, 2012.
  • The U.S. dollar is mixed, weaker compared to the euro and Japanese yen, but slightly stronger compared to the British pound. The dollar trades at US$80.859, compared to a US$80.796 intraday low and US$80.874 the prior day, and mixed compared to its US$79.962 50-day, US$81.159 100-day, and US$80.780 200-day averages. The euro trades at US$1.2813, compared to a US$1.2823 intraday high and US$1.2814 the prior day. The euro trades mixed compared to its US$1.2918 50-day and US$1.2653 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥81.46, compared to ¥81.41 the prior day. The yen trades worse than its 50-day moving average ¥79.77.
  • Citigroup Economic Surprise Index fell to 46.80, down from 47.50 the prior day and down from a peak of 60.70 on November 13th. The index turned positive on September 5th. The index is lower compared to its respective +52.54 and +53.70 5- and 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend appears to have again turned lower. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
  • Commodities prices are mixed, with mixed energy, higher precious metals, and aluminum and copper, and mixed agriculture prices.

Volatility, Skew:

  • The VIX fell -7.13% to end at 15.24, from 16.41 at the prior close. The VIX is -13.6% below its 17.64 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 19.65.
  • The Euro Stoxx 50 volatility index (V2X) is down -0.48% to 19.54, from 19.64 at the prior day's close. The V2X index trades -11.7% below its 22.14 20-day moving average, -21.1% below the 24.77 30-day high, and +0.78% above the 19.39 30-day low.
  • The Hang Seng volatility index (VHSI) closed at 16.35, down -0.24% from 16.35 the prior day. The VHSI index trades -1.33% below its 16.57 20-day moving average.
  • CBOE skew fell -2.06% to 113.46, from 115.85 at the prior day's close, moving back within a neutral (115-120) range. Spikes in excess of 130 (as last on September 21, but also on March 12, 15, and 16) correlate well with short-term market tops. The recent high close was 130.60 on September 21st. The index rarely falls below 110, last on July 31,2009. 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:

  • October housing starts were 894K, compared to 840K survey compared to 863K revised prior.
  • October building permits were 866K, with 864K survey and 890K revised prior.

Overseas News:

  • France - Moody's downgraded its debt rating to Aa1 from Aaa, citing a worsening growth and competitiveness outlook.

Company Ratings/News:

  • HPQ - Reports disappointing 3Q2012 earnings, with a $8.8 billion charge related to "accounting improprieties" at its acquisition of Autonomy Corp.

Price and Selling Exhaustion/Trend Reversal:

  • SPX - On a monthly basis,the SPX signaled selling exhaustion in February 2009 and rallied through a perfected upward setup in January 2010 and a completed upward countdown in January 2011. In May 2011, the SPX perfected another setup in April 2011. After September and August 2012's respective +1.98% and +2.42% higher closes, followed by October's -1.98% decline, the upward monthly setup is 4 and the countdowns is 11. On a weekly basis, the SPX signaled buying exhaustion the week of March 30th, when it completed an upward countdown on its higher 1408.47 daily and weekly close. The SPX signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraday low 1266.74 on June 4th, with a completed downward weekly setup on the June 8th. Subsequently, the SPX rebounded and perfected an upward setup on August 10th, when it closed at 1402.11. In the week ending November 16th, the index closed down -1.45% to 1359.88, compared to 1379.85 the prior week and 1433.19 four weeks prior. The downward setup rose to 6. The downward countdown rose to 4. The SPX closed -6.00% below its 1446.74 price exhaustion target. On a daily basis, the SPX perfected an upward setup on August 16th and completed an upward countdown on September 13th, when the SPX rose +0.40% to close at 1465.77. The SPX set a new multi-year closing high of 1465.77 the following day. Monday, the SPX rose +1.99%, and closed at 1386.89, compared to 1359.88 the prior day and the 1374.53 close 4 days prior. The upward spike erased a downward setup of 8 and countdown of 7, and initiated an upward setup and countdown.
  • BKX - On a monthly basis, the BKX recorded a completed downward countdown in February 2009. The BKX reached an unperfected downward setup of 9 in December 2011. In October, the BKX rose +0.04%, after having increased +5.06%, and +3.67% in the prior 2 months. Its upward setup is 2, with an upward countdown of 1. On a weekly basis, the BKX recorded a completed countdown last November 25th. The index subsequently rallied, perfecting a setup on February 10th, and rising the week of March 30th to 50.9, above to the 49.30 price exhaustion target. The index subsequently reversed, and on June 8, the BKX closed at 41.00 with downward perfected setup. On September 21st, the index closed at 50.22, down -2.36% on the week, but above the 47.17 close 4 weeks prior, perfecting an upward setup. On October 26th, the index closed at 49.25, below the 49.58 close 4 weeks prior, initiating a new downward setup and countdown. Friday, the BKX closed at 47.15, down -2.04% from 48.13 at the prior week's close. The close was below the 50.44 close 4 weeks prior, extending the downward set up to 8, while the downward countdown rose to 6. On a daily basis, the BKX signaled selling exhaustion on June 4th, then rallied to 44.65 on June 19th, when it perfected an upward daily setup. The index completed an upward daily countdown on August 8th. On August 15th, the index perfected a daily upward setup. On September 6th, the BKX initiated a new setup with its +2.93% gain, which broke through resistance at 47.75. On September 14th, the index completed an upward countdown, followed on September 19th, when the index perfected its upward setup. Since then, the BKX traded without much direction until Wednesday's -4.36% decline, which closed below both the prior day's and 4 day prior closes, initiating both a new downward setup and countdown. Monday, the BKX rose +2.23% to close at 48.20, compared to 47.15 the prior day, and the 47.66 close 4 days prior. The upward spike was sufficient to erase a setup of 8 and countdown of 6. The index initiated an upward setup and countdown.
  • VIX - On a monthly basis, the VIX perfected an upward setup on January 31, 2008, and reached an upward setup of 7 on October 31, 2008. In September, the VIX rose +18.3%, after falling -16.9% in August, and rising +8.36% in July. Presently, the VIX exhibits no particular monthly trend. On a weekly basis, the VIX perfected a downward setup on January 27th, and an upward setup on June 8th, followed by another perfected downward setup on August 10th. Last week, the VIX fell -11.8% to end at 16.41, compared to 18.61 the prior week, and the 17.06 close 4 weeks prior. The current upward setup is 1, with an upward countdown of 1. On a daily basis, the VIX reached an upward countdown of 11 on June 4th, and subsequently exhibited a more distinct downward trend with a perfected setup on August 17th, followed by a perfected upward setup on August 31st. Subsequently, the VIX exhibited little in the way of a distinct trend. Monday, the VIX fell -7.13% to 15.24, compared to 16.41 at the prior close, and 16.68 at the 4 days' prior close. The downward setup rose to 6, while the countdown rose to 4. The VIX closed +8.70% above the 14.02 support level and -13.3% below the 17.57 exhaustion level.
  • DXY - On a monthly basis, DXY perfected a downward setup on May 31, 2011. Subsequent monthly trends have proven de minimus. The DXY closed October at 79.919, down -0.28% from 79.935 at the end of the prior month, but below 82.635 at the end of June, four months' prior. The monthly downward setup is 2, with a downward countdown of 1. On a weekly basis, the currency perfected an upward setup on January 6th. From a weekly high of 83.48 on July 20th, the DXY has trended lower, setting an unperfected downward setup of 9 on September 28th, with a downward countdown of 6. In subsequent weeks, the trend has been higher, as the DXY initiated an upward setup on October 12th. On November 16th, the DXY closed at 81.257, compared to 81.026 the prior week, and 79.621 four weeks prior. The upward setup extended to 6 with an upward countdown of 5. The index ended -2.70% below the 83.508 price resistance target. On a daily basis, the DXY perfected an upward setup on June 6th, but showed little distinct trend until the end of August, when it initiated a downward setup, which was perfected on September 11th. After 6 weeks without much trend, the DXY initiated a new upward setup on November 2nd, which it perfected on November 14. After Monday's -0.47% decline, the DXY closed at 80.874, compared to 81.257 the prior day and 81.084 four days prior. The currency initiated a downward setup and countdown.
  • USGG10YR - On a monthly basis, the USGG10YR perfected a downward countdown on February 29th, and a downward setup on May 31st. The subsequent trend has been week, with an upward setup of 3 and countdown of 1. On a weekly basis, the index perfected a downward setup on June 8th, but subsequent trends has been weak. The rate ended the most recent week at 1.5800, down from 1.6063%, the prior Friday and 1.7633% four weeks prior. The downward setup rose to 3, and the countdown rose to 2. On a daily basis, the USGG10YR completed a downward setup on May 8th, followed by two downward countdowns on May 17th and June 4th. Subsequent trends were weak until August 3rd, when the rate rose nearly 9 bps to end at 1.5905%, initiating a new upward setup. This setup perfected on August 15th, when the rate ended at 1.8155%. A new downward setup commenced on August 21st, when the rate rose to 1.8610% before ending at 1.7984%, below the prior 4 day's close of 1.8155%. The downward setup perfected on August 31st, when the rate ended at 1.5484%. The trend reversed upward on September 3rd, and the upward setup reached an unperfected 9 on September 18th. After a late October intraday spike to 1.861%, the trend has been lower, with the rate ending at 1.6131% Monday, above the prior day's 1.5800% and 1.5945% four days prior. The rate initiated an upward setup and countdown.
  • NKY - On a monthly basis, the NKY perfected a downward setup on April 30, 2009, and subsequently has traded narrowly. In October, the index rose +0.51%, following increases of +0.34% and +1.67% in September and August, respectively. However, the October close was below the 9,006.78 June close, four months prior. There is currently no setup or countdown. On a weekly basis, the NKY perfected an upward on March 9th, and a subsequent downward setup on June 1st with a countdown of 8. For the week ended November 16th, the NKY rose +3.04% to 9,024.16, compared to 8,757.60 the prior week and 9,002.68 4 weeks prior. The upward setup rose to 4 with a countdown of 1. On a daily basis, the NKY perfected an upward setup on March 27th, and two consecutive downward setups on April 12th, and May 14th, with completed downward countdowns on May 16th and June 4th. The index rallied through August 21st, but then strung together multiple lower closes, perfecting a downward setup on September 5th. The index subsequently rallied, initiating a setup on September 7th, which it perfected on September 20th. A downward setup commenced on September 21st, and the setup perfected on October 3rd. The countdown reached 10 on October 15th. Subsequent trend and momentum were weak until November 8th, when Asian equity markets followed post-election U.S. equity markets lower. The index closed today at 9,142.64, down from 9,153.20 the prior day and 8,661.05 four days prior. The upward setup rose to 4, and countdown rose to 4.
  • HSI - On a monthly basis, the HSI perfected a downward countdown on March 31, 2009, and two subsequent perfected upward setups on December 31, 2009 and May 31, 2011. The index has yet to reach its 24,923.28 price exhaustion target. The index has risen in each of the past two months and concluded October at 22,111.33, with a upward setup and countdown counts of 2. On a weekly basis, the HSI perfected an upward setup on March 2nd, and subsequently traded to a low close of 18,185.59 on June 4th. After a period of weak trend, the index established a new upward setup and countdown in the week ending September 14th. Last week, the index fell -1.05% to close at 21,159.01, compared to 21,384.38 the prior week and 21,551.76 4 weeks prior. After perfecting its upward setup on November 9th, the index initiated a downward setup and countdown. On a daily basis, the HSI perfected an upward daily setup and completed an upward countdown on August 8th. After September 5th's lower close, the index perfected a downward setup. An upward setup commenced on September 9th, followed by a completed countdown on October 15th, and another perfected setup on October 25th. After today's -0.16% decline, the HSI closed at 21,228.28, compared to 21,262.06 the prior day and 21,441.99 four days prior. The day's loss was sufficient to initiate a down setup.
  • SHCOMP - On a monthly basis, the SHCOMP perfected a downward setup on September 30, 2008, and subsequently rallied to an August 31, 2009, high, but without perfecting a subsequent upward setup. Since then, the SHCOMP resumed a downward trend perfecting another downward setup on January 31, 2012. The current monthly setup and countdowns are 6 and 11, respectively. On a weekly basis, the SHCOMP last perfected an upward setup on April 11, 2011. The index has subsequently trended lower, with a downward perfected setup on September 23, 2011, and January 6, 2012 countdown completion, when it closed at 2,163.40. The index rallied to a high of 2,476.22 during the week ending March 16th, but without perfecting an upward setup. On July 13th, the index perfected a downward weekly setup and traded below the sales exhaustion target of 2148.45. The index completed a downward countdown on August 31st. On November 16th, the index closed the week off -2.63% at 2,014.73, compared to 2,117.05 the prior week and 2,531.21 four weeks prior. The downward setup increased to 2, with a countdown of 1. On a daily basis, the SHCOMP perfected a daily downward setup and a completed a downward countdown on June 8th, but sold through the 2,170.95 exhaustion target on July 23rd to the September 5th yearly 2037.68 closing low. On August 23th, the index perfected a downward setup carryover from August 2nd, and the index perfected another downward setup on August 27th, with completed downward countdowns September 3rd and 5th. On September 25th, the index perfected another downward setup. The subsequent trend has been weak. Today, the index ended -0.40% lower to close at 2,008.92, compared to 2,016.98 at the prior close and 2055.42 4 days prior. The index perfected a downward setup. The countdown was unchanged at 8. The close below resistance at 2,009.79 (the September lows) would suggest materially greater downside.
  • SX5E - On a monthly basis, the Euro Stoxx50 last perfected an upward setup on May 31, 2007, and perfected a downward setup on September 30, 2008. The downward countdown reached 10 in March 2009, with the index closing at 2,071.13. Subsequently, the index has traded without much trend or momentum, though a new upward setup and countdown commenced in August 2012. Its current upward setup is 4, and countdown is 2. On a weekly basis, the index trends are more pronounced, having perfected an upward setup on March 9th, followed by a downward setup on May 25th, followed by a weekly close 2119.19 below the sales exhaustion target. The index subsequently rallied to perfect an upward setup on August 10th. The upward countdown reached 10 on September 14th. In the week ended November 9th, the index fell -2.64%, but the 2,479.82 close remained above the 2,454.26 4 weeks' prior close. On a daily basis, the index perfected a downward setup on May 14th and countdown on June 1st, when it closed at 2,068.66, below the 2,087.31 sales exhaustion target. The index subsequently rallied through a perfected upward setup on June 18th and completed its upward countdown on August 3rd, notably rising through the 2,344.95 price exhaustion target. On September 13th, the index perfected an upward setup. Subsequent daily trends were weak, until the index's -2.24% decline on November 7th, which initiated a new downward setup. Monday, the index closed at 2,495.21, compared to 2,437.49 the prior day and 2,493.14 at the prior 4 days' close. The +2.80% higher close erased a downward setup and initiated an upward setup.

3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 479 reporting companies, 68.9% surprised positively on earnings, beating by an average +2.92%. Sales and revenues fell short, however, with only 1965 or 41.0% surprising positively.

Valuation. The SPX trades at 13.9x estimated 2012 earnings ($108.87) and 12.1x estimated 2013 earnings ($114.89), compared to 13.9x and 12.6x respective 2011-12 earnings the prior day. The 10-year average median price/earnings multiple is 15.9x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -7.14%, and -3.60%, respectively. Analysts expect 2012 and 2013 earnings to exceed actual 2011 earnings ($96.94) by +4.12% and +18.0%, respectively.

Options. Options markets are neutral to bullish. Composite options are bullish, index options are bullish, and equity options markets are neutral. The composite put/call ratio is 0.74, compared to 1.02 the prior day, and better compared to its 5- and 10-period moving averages of 0.98 and 1.04, respectively. The index put/call ratio closed at 0.78, compared to 1.02 the prior day, and better compared to its 5- and 10-period moving averages of 1.01 and 1.07, respectively. The equity put/call ratio closed the day at 0.72, compared to 1.03 the prior day, and worse compared to its 5- and 10-period moving averages of 0.99 and 1.02, respectively.

NYSE Indicators. Volume fell -25.1% to 710.89 million shares, from 948.57 million shares the prior day, +0.99x the 15-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +2,333 (compared to +1,478 the prior day), or 7.44:1. Up volume led down volume by 14.2:1.

BKX. Volume fell -29.6%, and the KBW bank index closed at 48.20, up +2.23% from 47.15 at the prior close. Volume fell to 57.803 million shares, from 82.051 million shares the prior day, or 0.96:1x the 59.803 million share 15-day moving average. The index gapped +2.0% higher to open at 47.90 and in early trading rallied to the 48.26 intraday high, then traded narrowly through the close. Large cap banks outperformed the regional banks, as the KRX rose +1.96%.

Last week, the BKX closed down -2.04%, compared to the prior week's -5.87% decline, its 3rd weekly decline in the past 4 weeks. In November, the index is also down -4.94%. The index rose +0.04% in October, and +5.06% and +3.67% in September and August, respectively.

The BKX closed below 50 for the 9th consecutive session. It closed -6.66% below its recent September 14th peak. It has closed above 40 since January 3rd. The BKX closed -16.8% below its April 23, 2010 close (the post-2008 high point), but +48.0% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +29.0% in the same period. The BKX is up +22.4% in 2012, compared to a +10.3% rise in the SPX.

Technical indicators are adverse, but improved as the BKX recaptured its 100-day moving average. The BKX closed -1.52% and -3.20% below, and +0.51% and +2.45% above its respective 20-, 50-, 100-, and 200-day moving averages. The 20-day moving average crossed below its 50-day moving average on November 13th. The index has closed above its 100-day moving average since August 7th. The 20-day moving average declined -13 bps. The 50-day moving average fell -1 bp. Its 100-day moving average rose +4 bps and the 200-day moving average rose +2 bps. The 20-day closed (by -0.75 points) below the 50-day. The 50-day moving average has closed (by +2.74 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +0.91 points) above the 200-day moving average since March 19th, with the gap unchanged.

The directional movement indicator is negative, but its negative aspect narrowed Friday. Relative strength improved to 44.9819 from 35.7572 the prior day, at the bottom of a neutral range. Next resistance is 48.49; next support at 47.69.