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Futures Fall Following Strong U.S. Employment Report; Asia Ends Week Lower

This morning. U.S. equity futures reversed lower following a far better than expected October U.S. employment report. Yesterday, U.S. equity markets closed near their intraday lows and distributed. The DJI Industrials (DJI) fell -0.97% off its prior day record close. The Nasdaq fell -1.90%, followed by the NYSE composite and S&P 500 index (SPX), which fell -1.32% and -1.34%, respectively.

Trading desks reported greater volatility stemming from yesterday's distributions, but suggest that the declines are consistent with the consolidation of recent gains. In late September through October's first week, the SPX fell -75 points, then set new highs by month's end. Conviction is low, but few are postured in an aggressive manner in either direction. Skeptics continue to hope for a more significant pullback. With SPX equities trading at a relatively full 15.8x 2013 earnings multiple, attention focuses on 3Q2013 earnings and valuations (15.8x times survey $122.73 2014 SPX earnings suggest a 1936 SPX level next year, a +10.8% rise).

Technicals worsened, as the SPX surrendered its 5- and 10-day moving averages. The index closed above its 20-, 50-, 100-, and 200-day moving averages. All SPX market segments closed at least -0.90% lower. Market breadth was negative, and up volume lagged down volume. Volatility rose. Treasury bond markets strengthened. U.S. Treasury 10-year bond yields fell -4.22 basis points (bps) to 2.5999%, compared to 2.6421% the prior day.

Today, U.S. equity futures are lower after fair value adjustment. In Asia, equity markets closed lower. Monday's Nikkei 225 December (NKZ3) equity futures are up +0.213%. In Europe, equities are lower following yesterday's distributions.

This morning, 10-year U.S. Treasury yields are up +11.99 bps to 2.7198%, compared to 2.5999% at the prior close. Spanish and Italian 10-year debt yields are 4.09% and 4.12%, respectively, compared to 4.05% and 4.10% the prior day. The U.S. dollar rallied following the U.S. employment report. U.S. options markets worsened to neutral to bullish, from neutral the prior day. The CBOE skew rose to 123.83, compared to 118.69 the prior day, above a neutral range (115-120), but below levels (above 130) that often signal short-term market tops.

In pre-market futures trading, December SPX equity futures (SPZ3) are lower and price near the bottom of a 1736-1750 trading range. After a fair value adjustment of -2.10 points, SPX equity futures price at 1741.50, down -1.65 points. The SPX opens +0.03% and +2.31% above its respective 20- and 50-day moving averages, and +3.77% and +7.24% above its respective 100- and 200-day moving averages. Initial resistance is 1765.73. Initial support is 1737.39, then 1727.62.

In Asia, equity markets closed lower. The Nikkei 225 (NYSEARCA:NKY) fell -1.00%. The Hang Seng (HSI) fell -0.60%, while the Shanghai composite (SHCOMP) fell -1.09%. All closed at least +0.78% higher last week. All are lower in November. The NKY and SHCOMP closed lower in October, while the HSI ended higher. The NKY and HSI are bull markets. Today's volumes are unavailable.

Economic reporting was light. Commentary focused on prospects for the October U.S. employment report, the Chinese Communist Party's meeting, and European Central Bank policy intentions.

The NKY relative strength index (RSI) fell to 43.66, compared to 47.16 the prior day, in a neutral 30-70 range. The index's RSI is down from an overbought 82.61 on May 22nd, up from a low of 34.42 on June 13th, and below the most recent peak of 64.16 on July 23rd. The HSI RSI ended at 42.68, down from 45.85 the prior day. The SHCOMP's RSI closed at 37.36, compared to 41.63 the prior session, and down from an overbought 80.85 on September 12th.

This week, the NKY, HSI, and SHCOMP are down -0.81%, -2.17%, and -2.02%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +0.78%, +2.16%, and +0.80%, respectively. In November, the NKY is down -1.68%. The HSI and SHCOMP are down -1.99% and -1.66%, respectively. In October, the NKY closed down -0.88%. The HSI closed up +1.51%. The SHCOMP closed down -1.52%.

In 2013, the NKY is up +35.5%. The HSI is up +0.39%. The SHCOMP is down -7.18%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

In Japan, the NKY closed at 14,086.80, compared to 14,228.44 the prior day, and -9.86% below its recent May 22nd 15,627.26 high. The index gapped lower to open below 14,040, but improved to 14,080 in early trading, and subsequently traded narrowly at that level through the close. The index closed -2.05% and -1.17% below its respective 20- and 50-day moving averages, and +0.17% and +5.29% above its respective 100- and 200-day moving averages. Most market segments closed lower. Leaders were health care, which rose +0.04%, and oil and gas and technology, which fell at least -0.235. Financials fell -0.66%. Laggards were industrials, basic materials, and consumer services, which fell at least -0.86%.

In China, the HSI closed at 22,744.39, compared to 22,881.03 at the prior close. The index closed -4.52% below its recent January 30th 23,822.06 high, but +25.1% above its 18,185.59 June 4, 2012 low. The index gapped lower to open below 22,720, but traded as high at 22,813.76 by mid-morning. The index traded narrowly around 22,740 through the close. All market segments closed at least -0.05% lower. Leaders were utilities, consumer services, and financials, which fell at least -0.45%. Laggards were consumer goods, telecommunications, and technology, which fell at least -0.92%.

In Shanghai, the SHCOMP closed at 2,106.13, compared to 2,129.40 at the prior close and +8.01% above the 1,950.01 June 27th closing low. The index moved lower through mid-morning, but rallied back to breakeven late in the morning session. The index opened just above 2,120, but improved to an early 2,128.13 intraday high, then weakened to a mid-session 2,103.59 intraday low. The index rallied to 2,120 by mid-afternoon, but weakened into the close. All market segment closed at least -0.73% lower. Leaders were telecommunications, financials, and consumer goods. Laggards were basic materials, consumer services, and technology, which fell at least -1.81%.

In Europe, the major equity indexes rallied strongly after the ECB repo rate cut. The Euro Stoxx50 (SX5E), FTSE 100, CAC 40, and DAX are up +1.14%, +0.42%, +1.18%, and +1.16%, respectively. The Spanish IBEX 35 is up +1.65%. The Italian FTSE MIB is up +0.78%. All are higher in November, and closed higher in October and September as well. Intraday, the CAC 40 and DAX are trading at record highs.

Commentary focuses on the surprise ECB rate cut. Earnings continue. Overall, European EPS has a +2.80% surprise, but revenues have fallen -0.08% short of surveys.

Today, the SX5E currently trades +0.76% above its 3,067.95 October 31st post-2008 high close, but -41.1% below its 5,249.55 March 31, 2000, all-time closing high. European bourses have recently outperformed U.S. equity indexes. SX5E relative strength (RSI) is 67.43, up from 61.96 at the prior close and in a neutral 30-70 range.

From its 3,056.40 prior day close, the SX5E traded narrowly below breakeven until the ECB announcement. The index immediately rallied to 3,080 and currently trades at 3,097.33, its intraday high. All market segments closed higher. Leaders are industrials, financials, and consumer goods, which rose at least +1.15%. Laggards are basic materials, oil and gas, and telecommunications, which are up +0.57%.

This week the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +1.28, +0.49%, +1.49%, and +1.54%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +0.29%, +0.45%, +0.31%, and +0.34%, respectively. In November, the Euro Stoxx 50, FTSE 100, CAC 40, and DAX are up +0.76%, +0.4%, +0.86%, and +1.25%, respectively. In October, the Euro Stoxx 50, FTSE 100, CAC 40, and DAX closed up +6.04%, +4.17%, +3.78%, and +5.11%, respectively. In 2013, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +17.3%, +14.8%, +19.1%, and +20.2%. In 2012, the indexes closed up +13.8%, +5.84%, +15.2%, and +29.1%, respectively.

3Q2013 SPX Earnings. Of 446 (of 498) reporting companies, 331 or 74.2% surprised positively on earnings, with a +4.08% surprise average. Of reporting companies, 240 or 54.0% reported sales or revenues in excess of estimates. The average sales/revenue surprise is +0.61%. Materials leads with respective +6.92% EPS surprise, but and -0.25% revenue miss, followed by consumer discretionary. 3rd place financials had a +5.55% EPS surprise but with a 2nd place +0.22% revenue surprise.

Valuation. The SPX trades at 16.9x 2012 adjusted EPS ($103.41), 15.8x estimated 2013 earnings ($110.70), 14.2x estimated 2014 earnings ($122.65), and 12.9x estimated 2015 earnings ($135.11). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, and 2015 earnings to grow +7.05% and +10.8%, and +10.2%, respectively.

The BKX trades at 14.8x 2012 adjusted EPS ($4.32), 12.4x estimated 2013 earnings ($5.16), 11.3x estimated 2014 earnings ($5.65), and 10.3x 2015 earnings ($6.17). Analysts expect 2013, 2014, and 2015 EPS will grow +19.4%, +9.60%, and +9.21%, respectively.

Composite, index, and equity options. Options markets worsened to bearish to bullish, from neutral the prior session. Composite options are neutral, index options are bullish, and equity options are bearish. The composite put/call ratio is 0.91, compared to 0.91 the prior day, and worse than 5- and 10-period moving averages of 0.85 and 0.85, respectively. The index put/call ratio is 0.79, compared to 1.10 the prior day, and better than its 5- and 10-period moving averages of 0.90 and 1.05, respectively. The equity put/call ratio closed the day at 0.96, compared to 0.85 the prior day, and worse than its 5- and 10-period moving averages of 0.84 and 0.80, respectively.

NYSE Volume, Breadth Indicators. Volume rose +29.2% to 909.58 million shares, from 704.17 million shares the prior day, 1.24x the 734.54 million shares 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -1,695 (compared to +184 the prior day), or 0.28:1. Up volume was 0.19:1 down volume.

Distribution day count and market trend. The market trend is "confirmed uptrend". The uptrend commended on September 9th, when the SPX opened at 1655.17. The distribution count is 8 for the DJI, and 7 on the SPX and NYSE composite, and 7 on the Nasdaq.

Libor, LOIS, Currencies, Treasuries, Commodities:

· USD LIBOR is 0.10210%, compared to 0.10170% the prior day. USD 3-month LIBOR is 0.23940%, down from 0.23890% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

· The US Libor-OIS (LOIS) spread is 15.340 bps, compared to 15.090 bps the prior day, and compares to the recent June 12, 2012 46.785 bps high. Euribor-OIS is 10.800 bps, up from 12.100 bps the prior day, and down from the December 27, 2011, high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

· The 3-month Euro basis swap is -2.806 bps, a new low, compared to -3.958 the prior day, up from a trough of -147.00 bps on December 14, 2011, but far below a normal -10 bps and -40 bps range.

· Spanish 10-year debt yields are 4.09%, down from 4.12% the prior day and moving below the recent lows. Italian 10-year debt yields are at 4.12%, down from 4.10% the prior day, but up from the 3.822% May 3rd low. German 10-year debt yields are 1.69%, compared to 1.68% the prior day. Japanese 10-year debt yields are 0.59%, compared to 0.60% the prior day.

· The U.S. government overnight repo rate is +8 bps, compared to +8 bps the prior day. The January 2, 2013, 45 bps rate was the highest since late 2008. The record -2 bps low was on October 22, 2013.

· U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.282% and 2.604%, respectively, compared to 0.282% and 2.600% Thursday. The yield curve widened +0.360 bps, with the 2- to 10-year spread at +2.322%, compared to 2.318% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.342% on November 16, 2012, to a high of +2.498% on September 10, 2013.

· The U.S. dollar is mixed, stronger compared to the British pound and Japanese yen, but slightly weaker compared to the euro. The dollar trades at US$80.865, compared to a US$80.953 intraday high and US$80.845 the prior day, and mixed compared to its $80.529 50-day, US$81.379 100-day, and US$81.796 200-day averages. The euro trades at US$1.3421, compared to a US$1.3389 intraday low and US$1.3419 the prior day. The euro trades mixed compared to its US$1.3502 50-day and US$1.3346 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥98.20, compared to ¥98.09 the prior day. The yen trades worse than its 50-day moving average ¥98.48, and better than its May 17th 103.21 closing low, its weakest multi-year closing low.

· Citigroup Economic Surprise Index improved to 13.00, compared to +0.40 the prior day. The index is mixed compared to its respective +3.74 5-day and +6.75 10-day moving averages. The index signaled exhaustion on December 20, 2012, and from 55.76 moved lower to -30.80 on January 30th. The index turned positive on February 25th and moved to a March 25th high of 30.20, but turned negative again on May 6th and fell to a low of -32.90 on June 10th. The index improved and turned positive on July 30th and rose to a recent high of 53.30 on October 1st, but subsequently fell on dollar weakness to -2.10 on October 31st. After a lag, the CESIUSD correlates with EPS revisions.

· Commodities prices are mostly higher, with higher energy, higher precious metals, mixed aluminum and copper, and mostly higher agriculture prices.

Volatility, Skew:

· The CBOE SPX Volatility Index (VIX) closed at 13.91, up +9.79% from 12.67 at the prior close. The VIX is +0.05% below its 13.90 20-day moving average. Its 30-day high is 21.34. Its 30-day low is 12.34. The index's all-time closing low is 11.26 on June 30, 1993. The long-term average is 20.18.

· At mid-session, the Euro Stoxx 50 volatility index (V2X) is 17.60, up +5.43% from 16.44 at the prior day's close. The V2X index trades +5.83% above its 16.69 20-day moving average, -25.1% below the 23.49 30-day high, and +17.2% above the 15.01 30-day low.

· The Hang Seng volatility index (VHSI) closed at 15.20, up +1.06% from 15.04 the prior day. The VHSI index trades -3.24% below its 15.71 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.

· CBOE SKEW (SKEW) closed at 123.83, up +4.33% from 118.69 at the prior day's close, and moving back above a neutral (115-120) range. The recent low was 112.47 on May 25, 2013. The 52-week high was 135.42 on October 25th. Spikes in excess of 130 (as on October 11, 15, 18, 21, and 24, 25, 26, 28, and 31 and on February 15 and 18, 2013, and previously on September 21, 2012, and March 12, 15, and 16, 2012) correlate well with short-term market tops. The record high was 139.25, on March 12, 2012. Other recent high closes were 130.46 on February 15th and 130.60 on September 21st. The index rarely falls below 110, last on July 31, 2009. The index correlates with 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. Economic Reporting and News:

· At 8:30, the October change in nonfarm payrolls was 204K, compared to 120K survey and 163K revised prior.

· The change in private payrolls was 212K, compared to 125K survey and 150K revised prior.

· The change in manufacturing payrolls was 19K, compared to 5K survey and 4K revised prior.

· The unemployment rate rose to 7.3%, compared to 7.3% survey and 7.2% revised prior.

· September personal income rose +0.5%, compared to +0.3% survey and +0.5% revised prior.

· At 10:00, November preliminary University of Michigan confidence, with 74.5 survey and 73.2 prior.

Overseas Economic Reporting and News:

· France - September MoM industrial production fell -0.5%, compared to +0.1% survey and +0.7% revised prior. MoM manufacturing production fell -0.7%, compared to +0.4% survey and +0.9% prior.

· United Kingdom - September MoM construction output rose -0.9%, compared to +1.5% survey and +0.1% revised prior.

Company Ratings/News:
 

  • None.


Thursday's Trade. On higher and above average volume, U.S. equity markets opened higher, set early morning highs, but quickly reversed lower and ended with distributions in all the major exchanges. The Nasdaq fell -1.90%, followed by the NYSE composite, SPX, and DJI, which fell -1.34%, -1.32%, and -0.97%, respectively.

The U.S. equity market trend is "confirmed uptrend". The uptrend commenced on September 8th.

Market breadth was negative, with gainers 0.28:1 losing stocks. Most SPX market segments closed lower. Leaders were health care, which rose +0.11%, and industrials and basic materials, which fell at least -0.30%. Laggards were financials, telecommunications, and consumer services, which fell -1.15%.

NYSE volume rose +29.2% to 909.58 million shares, from 704.17 million shares the prior day, 1.24x the 734.54 million share 20-day moving average volume. Bond markets strengthened. U.S. 10-year yields fell -4.22 bps to 2.5999%, from 2.6421% at the prior close.

From its prior day 1770.49 close, SPX futures suggested moderate gains. At the open, the SPX rose, but more modestly than futures had forecast, and the index quickly found its 1774.54 intraday high and reversed lower before 10:00. The index fell through initial support at 1760 by mid-afternoon and trended lower through the session to a late 1746.20 intraday low. The index closed at 1747.15.49. The index closed +62.6% above the 1074.77 October 4, 2011, intraday low.

The DJ Transportation index (TRAN) closed at 6,940.83, down -1.42% from its prior day close, compared to the DJI's -0.97% loss. The TRAN has not confirmed the DJI's November 6th record close. The TRAN ended -2.64% below its November 4th record high. From the prior day's 7,040.68 close, the index rose to an early 7,074.00 intraday high, but quickly reversed lower and led the broader market lower to a late 6,935.70 intraday low. Volume rose +19.6% to 1.06:1 average volume. The TRAN closed +2.03% and +5.42% above its respective 20- and 50-day moving averages, and +7.74% and +11.3% above its respective 100- and 200-day moving averages.

Market volatility rose from its lowest level since August 13th. From its prior 12.67 close, the VIX opened near 13.00 and trended higher through late afternoon to its 14.14 intraday high. The VIX closed at 13.91, up +9.79% on the day and +0.05% above its 13.90 20-day moving average. The VIX's all-time closing low was 11.26, on June 30, 1993.

The broader market's technical factors worsened. The SPX index surrendered its 5- and 10-day moving averages, but above its 20-, 50-, 100-, and 200-day moving averages. SPX relative strength (RSI) fell to 54.06, from 65.49 the prior day, to the middle of a neutral range. The RSI is down from an overbought 72.13 on September 18th, when the SPX closed at a previous record high, but up from an oversold 39.19 on October 9th. The CBOE put/call skew rose +4.33% to 123.83, up from 118.69 the prior day, above a neutral 115-120 range.

This week, the SPX, DJI, Nasdaq, and NYSE composite are down -0.82%, -0.14%, -1.65%, and -0.94%, respectively. Last week, the SPX and DJI closed up +0.11% and +0.29%, respectively, while the Nasdaq and NYSE composite closed down -0.54% and -0.36%. The prior week, the SPX, DJI, Nasdaq, and NYSE composite closed up +0.88%, +1.11%, +0.74%, and +0.69%, respectively. In November, the DJI is up +0.31%, while the SPX, Nasdaq and NYSE composite are down -0.53%, -1.59%, and -0.85%, respectively. In October, the SPX, DJI, Nasdaq, and NYSE composite gained +4.46%, +2.75%, +3.93%, and +4.04%, respectively.

In 2013, the SPX, DJI, Nasdaq, and NYSE composite are up +22.5%, +19.0%, +27.8%, +17.5%, respectively. All closed at least +5.91% higher in 2012.

KBW Bank Index (BKX). On greater and above average volume, the BKX closed at 63.74, down 1.12% from 64.46 at the prior day's close. The index opened at 64.60, but quickly eased and reversed lower by in early afternoon and trended lower to a late 63.72 intraday low. Volume rose +38.7% to 55.881 million shares, compared to 40.277 million shares the prior day, 1.11:1 the 50.451 million share 15-day moving average.

Large cap banks outperformed the regional banks' performance, as the KBW regional banking index (KRX) fell -1.22%.

This week, the BKX is down -0.93%. Last week, the BKX closed down is -0.80%, compared to a -1.01% decline the prior week. In November, the BKX is down -0.75%. In October, the BKX closed up +3.16%, compared to September, when the BKX closed up +0.06%. For the year, the BKX is up +24.3%, better than the SPX's +22.5% rise. In 2012, the index rose +18.1%, compared to a +13.4% rise in the SPX.

The BKX is now +7.69% better than the June 24th 59.19 close, its worst since May 13th. The index crossed above 50 on December 17, 2012, and 60 on May 15, 2013. The BKX closed +95.8% above the 32.56 intraday low on October 4, 2011. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +62.6% in the same period.

The BKX index closed -47.4% below its February 20, 2007, record 121.06 high. The BKX is up +242.3% from its 18.62 March 6, 2009, closing low.

Technical indicators worsened, as the index surrendered its 5-, 10-, 20-, and 100 day moving averages. The index closed above its 50- and 200-day moving averages. The index closed -1.29% below and +0.19% above its respective 20- and 50-day moving averages. The index closed -0.27% below and +5.37% above its respective 100- and 200-day moving averages. The 20-day moving average rose +2 bps to 64.57. The 63.62 50-day moving average rose +2 bps. Its 100-day moving average rose +2 bps to 63.91, and the 200-day moving average rose +5 bps to 60.49. The 20-day closed (by +0.95 points) below the 50-day, and the gap was unchanged. The 50-day moving average closed (by +3.13 points) above the 200-day moving average, and the gap narrowed -2 bps. The 100-day moving average closed (by +3.42 points) above the 200-day moving average, and the gap narrowed -2 bps.

The directional movement indicator worsened to -6.795, from -1.924 the prior day, and its 3rd consecutive negative reading. Relative strength fell to 45.46, from 53.13 the prior day, but up from 35.75 on October 8th. The lowest most recent RSI level was 31.08 on November 14, 2012, which is also the date of the BKX's 52-week closing low. Next resistance is 64.43; next support is at 63.38.