This morning. U.S. equity markets confirmed an uptrend on November 23rd, but fiscal cliff concerns and the declared insolvency of Bankia, the 2010 combination of 10 Spanish savings banks, weigh on markets today. U.S. futures are significantly lower. Asian markets closed higher, with the best strength in Shanghai. European equity markets are moderately lower.
Technical indicators are mixed. Thursday, the SPX, DJI, and Nasdaq closed below their respective 20-day moving averages. The SPX, DJI, and Nasdaq also closed below their respective 100-day moving averages. The Nasdaq also surrendered its 200-day moving average. Other indicators suggest many major markets are approaching possible price exhaustion levels.
This morning's U.S. economic reports are focused on the December NAPM-Milwaukee and Chicago PMI. U.S. Treasury yields are lower, with the 10-year at 1.705%, down from 1.736% Thursday. U.S. repo rates are at 15 bps, down from 30 bps the prior day. Spanish and Italian 10-year debt yields are at 5.30% and 4.53%. The dollar is mixed, though the yen is only slightly lower. U.S. options markets suggest a neutral to bearish short-term outlook. The CBOE skew fell -2.11% to 119.60, from 122.18 the prior day. Commodities prices are mixed.
In pre-market futures trading, March SPX equity futures are lower and near the middle of their 1400-1410 range. After a fair value adjustment of +1.55 points, SPX equity futures are at 1403.00, down -9.30 points. The SPX opens at 1418.10, off -3.25% from September 14th's 1465.77 multi-year closing high, and -0.31%, +0.37%, -0.18%, and +2.01% below and above its respective 20-, 50-, 100-, and 200-day moving averages. The SPX is up +12.8% in 2012. On December 18th, the 20-day moving average crossed above its 50-day moving average and on December 20th crossed above the 100-day moving average. The 50-day moving average crossed above its 100-day moving average on August 17th. The SPX is +31.9% above the 1074.77 October 4, 2011 intraday low. Next resistance is at 1426.67. First support is at 1405.67.
Until recently, financial stocks had underperformed the broader market, but the BKX set a new 51.90 closing high on December 20th, and closed Wednesday -1.83% below its 2012 high, while the SPX is -3.25% below its September 14th high. Thursday, the BKX fell -0.39%. This week, the index is down -0.64%. In December, the BKX is up +4.92%. In November, the BKX closed down -2.10%, following losses of -5.85% and -1.08% in October and September, respectively.
Thursday. On greater but still below-average post-holiday volume, U.S. equity markets posted modest losses. Futures suggested modest gains, but indexes quickly turned lower on fiscal cliff concerns and the sell-off accelerated until late in the session, when Speaker Boehner announced that the House of Representatives would reconvene Sunday evening. The Nasdaq and DJI fell -0.14%, followed by the SPX's -0.12% loss. The NSYE composite managed a +0.05% gain. Market breadth was negative. NYSE volume rose +19.2% to 566.72 million shares, +0.80x the 20-day moving average.
Trading desks reported a quiet day, despite the morning sell-off, and evident resilience in the afternoon's rally. From its 1419.83 prior close, the SPX rose to an early 1422.80 intraday high, but reversed lower before 10:00. The index fell to 1410 by 11:00 and 1401.80 early in the afternoon session. The index rallied in the final hour from 1405 and briefly rose above 1420 before closing at 1418.09. Market volatility fell slightly. From 19.48 at the prior close, the VIX move higher to a mid-morning 20.90 high (its highest level since July), but fell sharply in the final hour to end at 19.47, down -0.05%.
On +27.2% increased volume, the DJ transports fell -0.42%, compared to the DJI's -0.14% loss. The index closed at 5,265.70, down from 5,287.73 the prior day, and below 5,300 for a 2nd consecutive day. The TRAN opened modestly lower, but declined to a mid-session 5,221.16 intraday low. The index rallied in the final hour to 5,278, but eased into the close. The index closed +1.16%, +2.87%, +3.52%, and +2.89% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN closed -1.92% 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 worsened as the SPX surrendered its 100-dy moving average. SPX relative strength (RSI) fell to 49.28, from 50.11 the prior day. The CBOE put/call skew fell -2.11% to 119.60, from 122.18 the prior day. U.S. Treasury bond prices rose.
On the week, the DJI, Nasdaq, NYSE composite, and SPX are down -0.84%, -0.72%, -1.16%, and -0.51%, respectively. In December, the NYSE composite leads with a gain of +1.69%, followed by the DJI and SPX, with respective gains of +0.54% and +0.14%, while the Nasdaq is down -0.81%. In November, the Nasdaq, NYSE composite, and SPX closed up +1.11%, +0.28%, and +0.47%, while the DJI closed down -2.10%. 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 +7.20% higher in 2012.
Immediate SPX support is 1413 (the 50-day moving average) and 1390 (the 200-day moving average). Resistance is 1422 (the 20-day moving average), then 1428 (5-day moving average), then 1466 (the September 14th closing high).
Distribution day count. Since the uptrend confirmation on November 23rd, the NYSE composite, Nasdaq, and S&P 500 have distribution counts of 6, 5, and 4, respectively.
In Asia, equity markets rose, with better strength in Shanghai. In Tokyo, the NKY rose +0.70% on a -13.8% volume decrease. In Hong Kong, HSI rose +0.21% on a -0.85% volume decrease. In Shanghai, the SHCOMP rose +1.24% on a -10.2% volume decrease. The NKY, HSI, and SHCOMP closed above their respective 20-, 50-, 100-, and 200-day moving averages. Economic releases included vehicle sales in Japan and Chinese industrials profits.
Commentary focused on the prospective Chinese and Japanese monetary policy easing and the weaker Japanese yen.
This week, the NKY closed up +4.58%. The HSI closed +0.71% higher. The SHCOMP closed up +3.71%. Last week, the NKY rose +2.08%, the HSI closed down -0.44%, and the SHCOMP closed up +0.12%. In December, the NKY is up +10.1%, the HSI up +2.89%, and the SHCOMP up +12.8%. In November, the NKY closed up +5.80%, while the HSI and SHCOMP closed +0.73% higher and -4.12% lower, respectively.
In Japan, the NKY closed at 10,.95.18, up from 10,322.98 at Thursday's close. The index closed +1.37% above its prior March 27th high, and +22.9% higher in 2012. The index gapped higher to open above 10,400, but traded narrowly until a late rally carried the index to its 10,433.63 intraday high. The index eased in the final minutes to end below 10,400. The NKY closed +6.66%, +11.8%, +14.2%, and +14.2% above its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed higher. Leaders were consumer services basic materials, and consumer goods, which closed up at least +0.81%. Financials rose +0.43%. Laggards were health care, telecommunications, and utilities, which lost at least -0.55%.
In China, the Hang Seng opened at 22,706.33, the intraday high, then eased back to a mid-session 22,628.46. The index traded narrowly into the close. The index is +23.0% higher for the year. The HSI closed +1.63% and +3.61% above its respective 20- and 50-day moving averages. All market segments closed at least +0.02% higher. Leaders were technology, basic materials, and oil and gas, which closed up at least +0.49%. Laggards were industrials, consumer services, and financials.
In Shanghai, the SHCOMP closed at 2,233.25, up from 2,205.85 the prior day. The index closed -9.73% below its 2,474.07 March 14th high, but up +1.54% in 2012. The index opened above 2,207, but traded narrowly through the morning session. The index rallied steadily through the afternoon, closing just shy of its 2233.70 intraday high. The SHCOMP closed +6.10% and +7.47% above its respective 20- and 50-day moving averages. All market segments closed at least +0.46% higher. Leaders were financials, consumer goods, and industrials, which rose at least +0.46%. Laggards were utilities, telecommunications, and oil and gas.
In Europe, the majorequity indexes are moderately lower, with the greater weakness in Spain, where Bankia, the 2010 combination of seven savings banks, was declared worthless. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -0.92%, -0.37%, -0.85%, and -0.556%, respectively. All remain above their respective 20-, 50-, 100- and 200 day moving averages. The Spanish IBEX 35 and Italian FTSE MIB are down -1.77% and up -0.46%, respectively.
For the week, the Euro Stoxx50 is down -0.65%, while the FTSE 100, CAC 40, and DAX are down -0.05%, -0.62%, and -0.34%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.12%, +0.12%, +1.04%, and +1.05%, respectively. For the month, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +2.28%, +1.19%, +2.29%, and +2.77%, respectively. In November, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +2.86%, +1.45%, +3.73%, and +2.00%, respectively. In 2012, the indexes are up +13.7%, +6.54%, +15.2%, and +29.0%, respectively.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.16650%, down from 0.16700% the prior day. USD 3-month LIBOR is 0.30800%, down from 0.31100% the prior day, and compares to the January 4, 2012 peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 15.35 bps, compared to 15.60 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 13.05 bps, up from 11.80 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 is -21.630 bps, compared to -24.129 bps the prior day, and 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 5.30%, compared to 5.28% the prior day. Italian 10-year debt yields are at 4.53%, compared to 4.53% the prior day. German 10-year debt yields are 1.30%, compared to +1.32% the prior day.
- The U.S. government overnight repo rate is 15 bps, compared to 30 bps the prior day.
- U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.254% and 1.705%, respectively, compared to 0.262% and 1.736% Wednesday. The yield curve narrowed, with the 2 to 10 year spread at +1.451%, compared to 1.474% 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, stronger compared to the euro, weaker compared to the British pound, and unchanged compared to the Japanese yen. The dollar trades at US$79.840, compared to a US$79.930 intraday high and US$79.620 the prior day, and worse compared to its US$80.199 50-day, US$80.306 100-day, and US$80.856 200-day averages. The euro trades at US$1.3190, compared to a US$1.3166 intraday low and US$1.3236 the prior day. The euro trades better compared to its US$1.2972 50-day and US$1.2874 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥86.11, compared to ¥86.10 the prior day. The yen trades worse than its 50-day moving average ¥81.95.
- Citigroup Economic Surprise Index fell to 49.10, from 55.50 the prior day, but down from a recent peak of 60.70 on November 13th. The index turned positive on September 5th. The index is better compared to its respective 52.56 5-day and 51.00 10-day moving averages. The index has improved significantly from a recent July 19th -65.30 low, but the trend was lower until December 7th's bullish reversal from the prior day's 35.50 close. After a lag, a rising CESIUSD correlates with stabilizing EPS revisions.
- Commodities prices are mixed, with lower energy, lower precious metals, higher aluminum and copper, and mixed agriculture prices.
- The VIX fell -0.05% to end at 19.47, from 19.48 at the prior close. The VIX is +15.5% above its 16.85 20-day moving average. The VIX set a recent closing low of 13.45 on August 17. Its 30-day high is 20.90.
- At mid-session, the Euro Stoxx 50 volatility index (V2X) is up +7.14% to 19.53, from 18.23 at the prior day's close. The V2X index trades +15.5% above its 16.95 20-day moving average, -12.8% below the 22.40 30-day high, and +30.8% above the 14.93 30-day low. On December 19th, the index fell to a 5-year closing low of 15.65.
- The Hang Seng volatility index (VHSI) closed at 17.19, up +2.26% from 16.81 the prior day. The VHSI index trades +9.84% above its 15.65 20-day moving average. On December 17th, the VHSI closed at 15.14, a 5-year low.
- CBOE skew fell to 119.60, down -2.11% from 122.18 at the prior day's close, and above 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 recent low was 113.23 on November 14th. 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:
- December NAPM-Milwaukee was 52.2, compared to 45.5 prior.
- At 9:45, December Chicago PMI, with 51.0 survey and 50.4 prior.
- Japan - December Markit/JMMA manufacturing PMI was 45.0, compared to 46.5 prior. November preliminary industrial production fell -1.7% compared to -0.5% survey and +1.6% prior.
- South Korea - November industrial production +2.3%, compared to +0.8% survey and +0.7 revised prior.
- France - 3Q2012 final GDP rose +0.1%, compared to +0.2% prior and +0.2% prior.
· Bankia - The 2010 combination of 10 savings banks has a negative net worth of -€10.4 billion and must be recapitalized. Shares on the IBEX will be suspended until January 2, after completion of its €13.5 billion recapitalization.
Price and Selling Exhaustion/Trend Reversal:
· SPX - On a monthly basis,the SPX initiated a buy setup in June 2008, with the month's 1404.05 high setting the resistance level. The setup perfected at 735.09 in February 2009. A sell setup ensued in May 2009. In September 2010, a follow-on setup began. The May 2009 setup perfected in January 2010. Its countdown completed in January 2012, closing at 1312.41 and setting a 1429.36 risk level. The follow-on setup perfected in May 2011. In March 2012, the index closed at 1408.47, above resistance, suggesting further upside. In September 2012, the index closed at 1440.67, above the 1429.36 risk level and suggesting the likelihood of further upside. In October and November, the index closed below the risk level, but above 1404.05 support. Also, the follow-on countdown rose to 8 in September 2012, but hasn't subsequently progressed. In August 2012, the index initiated a new setup, which progressed to 4 in November, when the index closed at 1416.18, compared to 1412.16 the prior month and 1379.32 four months prior. A December close in excess of the risk level would suggest that the uptrend will continue. On a weekly basis, the SPX signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraday low 1266.74 on June 4th, when it perfected a weekly buy setup on the June 8th. The next week's bullish price flip initiated a sell setup that perfected on August 10th at 1405.87. In the week ending December 21st, the index closed up +1.17% at 1430.15, compared to 1413.58 the prior week and 1409.15 close four weeks prior. The sell setup extended to 4. The sell countdown rose to 4. The SPX closed -1.15% below its 1436.40 price exhaustion target. On a daily basis, the SPX perfected a sell setup on August 15th at 1405.53, and completed its sell countdown on September 13th, with its 1459.99 close. The completion generated a 1492.18 risk level. The index showed weak subsequent trend until November 19th, when a bullish price flip initiated a sell setup with support at 1359.88, the open and intraday low. The index perfected the setup on November 30th with its 1416.18 close, initiating a sell countdown. On Thursday, the SPX fell -0.12% to close at 1418.10, compared to 1430.15 the prior day and 1443.69 4 days prior. The buy setup rose to 4. The sell countdown stemming from the November 30th perfection was unchanged at 8.
- BKX - On a monthly basis, the BKX perfected a buy setup in December 2007but has yet to complete its associated buy countdown, which is has been a deferred 13 since April 2011. That same month, the BKX initiated a buy setup, but the setup has remained unperfected since December 2011, when the index closed at 39.38. In September 2012, it initiated a sell setup, which rose to 3 in November. In November, the BKX fell -2.10% to end at 48.56, compared to 49.60 at the end of October, but above 45.52 four months prior. On a weekly basis, the BKX recorded a completed buy countdown December 2, 2011. A bullish price flip in the week ending December 16th initiated a sell setup, which perfected the week of February 10th, when the index closed at 44.53. A bearish price flip ensued the week of April 13th, and a buy setup perfected the week of June 8th, when the index closed at 40.86. A bullish price flip occurred on July 27th, and the sell setup perfected on September 21st. Subsequent trends were weak until December 7, when the index initiated a new sell setup. On December 21st, the BKX closed at 51.28, up +4.10% from 49.26 the prior week and 49.17 four weeks prior. The sell setup rose to 3. The sell countdown rose to 5. On a daily basis, the BKX signaled selling exhaustion on June 4th, then rallied to 44.65 on June 19th, when it perfected a sell setup. The index completed a sell countdown on August 8th, and on August 15th, perfected a daily follow-on sell 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 a sell countdown, followed on September 19th, with an unperfected sell setup. A sell countdown began on September 28th. A bullish price flip on December 6th, was followed on December 14th by a bearish price flip, initiating a buy setup. The index closed Thursday at 51.90, compared to 51.22 at the prior close and 49.26 four days prior. On December 17th, the 50.62 close above the November 1st 50.45 close and above the prior two days' close completed a sell countdown and initiated a sell setup. Thursday, the index closed at 50.95, compared to 51.15 the prior day and 51.90 four days prior. The sell setup rose to 3.
- 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 November, the VIX fell -14.7%, after rising +0.89% in October, and falling 16.2% in September. The VIX ended November at 15.87, compared to 18.60 at the end of October and 17.47 at the end of The month's decline initiated a downward setup but without a countdown. On a weekly basis, the VIX perfected a buy setup on January 27th, and a sell setup on June 8th, followed by another perfected buy setup on August 10th. Last week, the VIX rose +4.94% to end at 17.84, compared to 17.00 the prior week, and the 15.14 close 4 weeks prior. The sell setup rose to 2. The buy countdown was unchanged at 6. On a daily basis, the VIX reached an sell 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 sell setup on August 31st. Subsequently, the VIX exhibited little in the way of a distinct trend. On November 23rd, the index perfected a sell setup. A bearish price flip on December 7th initiated a new sell setup. Thursday, the VIX fell -0.05% to 19.47, compared to 19.48 at the prior close and 17.67 at the 4 days' prior close. The sell setup rose to 6. The VIX closed +38.8% above the 14.02 support level and +4.45% above the 18.64 exhaustion level.
- EUR, USD Cross - On a monthly basis, Euro Dollar cross perfected a downward setup on May 30, 2008, at 1.554. Subsequent monthly trends were weak until December 31, 2009, with a monthly decline of -4.56% that brought the index to 1.4321. The downward move continued until July 2010, when from 1.2238, the index rose +7.10%, with an unperfected downward setup in August 2010. The index failed to establish much strong upward momentum, however, peaking at the end of April 2011 at 1.4807, but then trending lower to test the July 2010 lows, when in August 2012, the index completed a buy countdown. In recent months, the trend has been higher, with an upward setup of 3. The cross ended November at 1.2986, compared to 1.2960 the prior month and 1.2667 4 months prior. The sell setup is 3 with a countdown of 1. On a weekly basis, the cross perfected a buy setup on January 6th, followed by another buy setup and completed countdown on June 1, 2012, when the cross closed at 1.2434. After several weeks without much trend, the index initiated an sell setup the week ended August 3rd, when it closed at 1.2387, and the setup perfected on September 28, with a 1.2860 close. The week of December 21st, the index ended at 1.3184, compared to 1.3163 the prior week and 1.2976 4 weeks prior. The weekly sell setup rose to 5, while the sell countdown rose to 4. On a daily basis, the EURUSD cross perfected a sell setup on September 12th. The subsequent trend was lower, with a buy setup initiated on November 2nd and perfected on November 14th with a 1.2736 close. The index initiated a buy setup the following day and perfected the setup on November 27th at 1.2943. With Thursday's +0.09% increase, the EURUSD cross closed at 1.3236, compared to 1.3224 the prior day and 1.3188 four days prior. The sell setup rose to 2. The sell countdown stemming from the November 27th perfection was unchanged at 12.
- USGG10YR - On a monthly basis, the USGG10YR perfected a buy countdown on February 29th, and a buy setup on May 31st. The subsequent trend has been weak. The rate ended November at 1.6156%, compared to 1.6901% the prior month and 1.6449% 4 months prior. The upward setup of 3 with a countdown of 1. On a weekly basis, the index perfected a buy setup on June 8th, but subsequent trends have been weak, with a sell countdown of 8, unchanged since November 16th. The rate ended the most recent week at 1.7623, up from 1.7015% the prior Friday and 1.6899% four weeks prior. The sell setup rose to 3. 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 was lower until November 16th, when the rate closed at 1.580%. A bullish price flip on December 7th initiated a sell setup. On December 12th, the rate completed a sell countdown. On December 19th, the rate perfected its sell setup and initiated a sell countdown. On December 21st, a bearish price flip initiated a bearish price flip. On Thursday, the rate ended at 1.7364%, compared to 1.7511% the prior day and 1.7962% four days prior. The buy setup rose to 5. The sell countdown associated with the December 19th perfection was unchanged at 1.
- NKY - On a monthly basis, the NKY perfected a buy setup on April 30, 2009, and subsequently has traded narrowly. In November, the index rose +5.80%, following an increase of +1.50% in October. On November 30th, a bullish price flip initiated a sell setup. The index closed at 9,446.01, compared to 8,928.29 the prior month and 9,006.78 four months prior. On a weekly basis, the NKY perfected a sell setup on March 9th, and a subsequent buy setup on June 1st with a countdown of 8. In the week ended December 14th, the NKY rose +2.14% to 9,940.06, compared to 9,737.56 the prior week and 9,366.80 4 weeks prior. On December 21st, the sell setup perfected, initiating a sell countdown. Notably, the index's 10,175.06 weekly high, never crossed its 10,190.35 trend (its April 4th weekly high) and closed -2.46% below trend. On December 28th, the index closed at 10,395.18, compared to 9,940.06 the prior week and 9,446.01 four weeks' prior. The sell countdown rose to 2. 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 sell setup on September 7th, which it perfected on September 20th. A buy setup commenced on September 21st, which was perfected on October 3rd. Subsequent trend and momentum were weak until November 15th, when a bullish price flip initiated a sell setup and countdown. The sell setup perfected on November 30th. Friday, the index closed up +0.70% at 10,395.18, compared to 10,322.98 the prior day and 9,940.06 four days prior. The sell countdown completed at 13.
- 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 three months and ended November at 22,030.39, compared to 21,641.82 the prior month and 19,441.46 four months prior. The sell setup rose to 3, with a countdown of 11. 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 sell setup and countdown in the week ending September 14th. The index perfected the setup on November 9th, and initiated a new sell setup on December 7th. On December 28th, the index closed at 22,666.59, compared to 22,506.29 the prior week and 22,030.39 four weeks prior. The sell setup rose to 4. The sell countdown rose to 5. On a daily basis, the HSI perfected a sell setup and completed an upward countdown on August 8th. After September 5th's lower close, the index perfected a buy setup. An sell setup commenced on September 9th, followed by a completed countdown on October 24th, with a trend of 22071.74, and another perfected setup on October 25th. It completed another sell countdown on December 6th, with a trend of 22,465.97. On December 28th, the HSI closed up +0.21% at 22,666.59, compared to Thursday's 22,619.78 close and 22,659.78 four days prior. The bullish price flip initiated a new sell setup. The sell countdown rose to 4.
- SHCOMP - On a monthly basis, the SHCOMP perfected a buy setup on September 30, 2008, and subsequently rallied to an August 31, 2009, high, but without perfecting a subsequent sell setup. Since then, the SHCOMP resumed a downward trend perfecting another buy setup on January 31, 2012. The index ended November at 1,980.12, below trend exhaustion of 1,987.13, and compared to 2,068.88 the prior month and 2,225.43 four months prior. The current monthly buy countdown is 6. On a weekly basis, the SHCOMP last perfected a buy setup on April 8, 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 buy setup. In subsequent weeks, it traded below the sales exhaustion target of 2148.45 to a 1980.12 close on November 30th, when the buy countdown reached 11. On December 28th, the index closed the week up +3.71% at 2,233.25, compared to 2,153.31 the prior week and 1,980.12 four weeks prior. The sell setup rose to 3. The buy countdown was unchanged at 11. On a daily basis, the SHCOMP perfected a buy setup and a completed a downward countdown on June 28th, but sold through the 2,170.95 exhaustion target on July 23rd to the September 5th 2037.68 closing low. On August 20th, the index perfected a buy setup carryover from August 2nd, and the index perfected another buy setup on August 27th, with completed buy countdowns September 5th and 24th. On September 25th, the index perfected another buy setup. The buy countdown was completed on November 19th. On November 8th, when the index initiated a buy setup at 2,091.25. The index perfected that buy setup on November 20th at 2,004.17. On December 4th, a bullish price flip initiated a sell setup. Friday, the index closed up +1.24% at 2,233.25, compared to 2,205.90 at the prior close and 2,159.05 4 days prior. The sell setup rose to 4.
- SX5E - On a monthly basis, the Euro Stoxx50 last perfected an sell setup on May 31, 2007. It perfected a buy setup on September 30, 2008. The buy countdown completed in May 2012. A bullish price flip in August initiated a sell setup, which ended November at 4. The index closed at 2,575.25, compared to 2,503.64 the prior month and 2,479.82 four weeks prior. On a weekly basis, the index trends are more pronounced, having perfected an sell setup on March 9th, followed by a buy setup on May 25th, followed by a weekly close 2119.19, below the sales exhaustion target. The index subsequently rallied to perfect a sell setup on August 10th. The upward countdown reached 10 on September 14th. A bullish price flip the week of November 23rd initiated a sell setup that closed the following week at 2,575.25, above the price exhaustion target of 2,563.46. In the week ended December 21st, the index rose +0.81% to close at 2,651.09, compared to 2,630.54 the prior week and 2,557.03 at the 4 weeks' prior close. The sell setup rose to 5. The sell countdown rose to 10. On a daily basis, the index perfected a downward setup on May 14th, when it closed at 2,201.95. The index subsequently rallied through a perfected sell setup on June 18th and completed its sell countdown on July 24th. On September 13th, the index perfected an upward setup. Daily trends were weak through November 16th, without sustained upward or downward setups and countdowns. Strong gains on November 19th initiated an upward setup. On November 29th, the index perfected an upward setup. Thursday, the index rose +0.43% to 2,659.95, compared to 2,648.53 the prior day and 2,654.69 at the prior 4 days' close. The sell countdown rose to 11. The index closed -0.24% below the 2,666.32 trend.
3Q2012 Earnings. The 3rd quarter's earnings reports were mixed, beating on EPS, but falling short on sales/revenues. Of 497 reporting companies, 350 or 70.4% surprised positively on earnings, beating by an average +3.82%. Sales and revenues fell short, however, with only 205 or 41.3% surprising positively.
Valuation. The SPX trades at 13.7x estimated 2012 earnings ($103.42), 12.4x estimated 2013 earnings ($114.25), and 11.2x estimated 2014 earnings ($127.16). 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 ($96.97) by +8.90% and +17.8%, respectively.
Options. Options markets are neutral to bearish. Composite options are neutral, index options are neutral, and equity options markets are bearish. The composite put/call ratio is 1.05, compared to 0.95 the prior day, and worse compared to its 5- and 10-period moving averages of 0.97 and 0.91, respectively. The index put/call ratio fell to 1.19, from 1.34 the prior day, and mixed compared to its 5- and 10-period moving averages of 1.30 and 1.13, respectively. The equity put/call ratio closed the day at 0.99 compared to 0.84 the prior day, and worse than its 5- and 10-period moving averages of 0.85 and 0.82, respectively.
NYSE Indicators. Volume rose 19.2% to 566.72 million shares, from 475.59 million shares the prior day, +0.77x the 733.35 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -384 (compared to -947 the prior day), or 0.77:1. Up volume lagged down volume by 0.56:1.
BKX. Volume rose +23.4%, and the KBW bank index closed at 50.95, down -0.39% from 51.15 at the prior close. Volume rose to 50.781 million shares, from 41.093 million shares the prior day, or 0.898:1x the 61.608 million share 15-day moving average. In early trading, the index rose to the 51.31 intraday high, but the index fell to a mid-session 50.20 intraday low. The index narrowed losses in the final hour after news reports of progress on the "fiscal cliff". Large cap banks outperformed the regional banks, as the KRX fell -0.51%.
On the week, the BKX is down -0.64. Last week, the BKX rose +4.10%. In December, the BKX is up +4.92%. In November, the index closed off -2.10%. The index rose +0.04% in October, and +5.06% and +3.67% in September and August, respectively.
The BKX closed above 50 for a 8th consecutive day. The BKX closed -12.1% below its April 23, 2010 close (the post-2008 high point), but +56.5% above the 32.56 low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, which is up +31.9% in the same period. The BKX is up +29.4% in 2012, compared to a +12.8% rise in the SPX.
Technical indicators remain positive as the index closed +2.21%, +3.12%, +3.85%, and +6.95% above its 20-, 50-, 100-, and 200-day moving averages. Its 20-, 50-, 100-, and 200-day moving averages now have a positive slope. The 20-day moving average crossed above its 50-day moving average on December 21st. The index has closed above its 100-day moving average since August 7th. The 20-day moving average rose +12 bps. The 50-day moving average rose +2 bps. Its 100-day moving average rose +6 bps, and the 200-day moving average rose +3 bps. The 20-day closed (by +0.44 points) below the 50-day. The 50-day moving average has closed (by +1.77 points) above the 200-day moving average since February 22nd. The 100-day moving average closed (by +1.42 points) above the 200-day moving average since March 19th, and the gap expanded +3 bps.
The directional movement indicator is positive, but narrowed to 9.078, from 18.020 the prior day. Relative strength fell to 59.07, from 61.155 the prior day, in a neutral range. Next resistance is 51.44; next support at 50.33.