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U.S. Futures Up Modestly; Asia Lower, Europe Looks Oversold

This morning. Today, U.S. equity futures are modestly higher after fair value adjustment. In Asia, equity markets closed lower on the day and week. In Europe, equities are moderately lower, extending December's losses, but with relative strength indexes (RSI) suggesting oversold conditions. Friday's Nikkei 225 December (NKZ3) equity futures are down -0.966%. Economic reporting focuses on U.S. November retail sales and the latest weeks' initial and continuing jobless claims. Commentary focuses on prospects for central bank tapering and the congressional budget deficit agreement announced after yesterday's close.

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

Wednesday, U.S. equity markets distributed, with its largest daily loss since early November. The Nasdaq fell -1.40%, followed by the NYSE composite, S&P 500 (SPX), and DJ Industrials (DJI), which fell -1.22%, -1.13%, and -0.81%, respectively. The DJI closed -1.58% off its record 16,097.33 November 27th close. The DJ Transport (TRAN) index closed -1.60% lower. Volumes rose.

Trading desks reported, despite yesterday's distributions, another "nothing happened" session in which news flows were slow and other than a few marginal development, no change in the broader macro narrative. "Tapering" possibilities took the blame, though few regard tapering as a large concern. Expectations for the beginning of long term asset purchases (LSAP) taper have been pushed forward to the January FOMC meeting, from the end of 1Q2014, but that its zero interest rate policy (ZIRP) will remain a long-term market attribute. Skeptics continue to hope for a significant pullback. With SPX equities trading at a relatively full 16.0x 2013 earnings multiple, attention focuses on 2014 earnings and valuations (16.0x times survey $122.44 2014 SPX earnings suggest a 1965.16 SPX level next year, a +10.3% rise).

Technicals worsened, as the SPX closed below its 5-, 10-, and 20-day moving averages. All SPX market segments closed at least -0.32% lower. Market breadth was negative, and up volume lagged down volume modestly. Volatility rose. Treasury bond markets weakened following a weak 10-year bond auction. The U.S. Treasury 10-year bond yield rose +5.29 bps to 2.8535%, compared to 2.8006% at the prior close.

This morning, 10-year U.S. Treasury yields are down -0.91 bps to 2.844% compared to the prior close. Spanish and Italian 10-year debt yields are 4.09% and 4.09%, respectively, compared to 4.03% and 4.06% the prior day. The U.S. dollar is mixed. U.S. options markets worsened to neutral, compared to neutral to bullish the prior day. The CBOE skew rose +0.05% to 126.74, compared to 126.68 the prior day, well above a neutral range (115-120).

In pre-market futures trading, December SPX equity futures (SPZ3) price near the top of a 1784-1776 trading range. After a fair value adjustment of +0.87 points, SPX equity futures price at 1782.50, up +0.91 points. The SPX opens -0.77% below and +1.37% above its respective 20- and 50-day moving averages, and +3.67% and +7.25% above its respective 100- and 200-day moving averages. Initial resistance is 1796.76. Initial support is 1773.88, then 1765.55.

In Asia, equity markets closed lower for a 3rd consecutive session. The Nikkei 225 (NYSEARCA:NKY) lost -1.12%, but closed well above its intraday low. The Hang Seng (HSI) fell -0.51%, while the Shanghai composite (SHCOMP) fell -0.06%. Indexes are lower on the week and in December. All closed higher in November. The NKY and HSI are bull markets. Today's volumes are unavailable.

Commentary focused on prospective Fed tapering and Chinese economic reform.

The NKY relative strength index (RSI) fell to 53.13, compared to 57.85 the prior day, in a neutral 30-70 range. The index's RSI is down from an overbought 70.20 on December 3rd. The HSI RSI ended at 42.17, compared to 44.94 the prior day. The SHCOMP's RSI closed at 50.80, compared to 51.18 the prior session.

This week, the NKY is up +0.27%, while the HSI and SHCOMP are down -2.78% and -0.80%, respectively. Last week, the NKY closed down -2.31%, while the HSI and SHCOMP closed with losses of -1.71% and -1.47%, respectively. In December, the NKY is down -2.04%. The HSI and SHCOMP are down -2.78% and -0.80%, respectively. In November, the NKY closed down -2.31%. The HSI closed down -0.58%. The SHCOMP closed up +0.75%.

In 2013, the NKY is up +47.6%. The HSI is up +2.48%. The SHCOMP is down -2.92%. In 2012, the NKY rose +1.37%. The HSI rose +22.9%. The SHCOMP rose +3.17%.

In Japan, the NKY closed at 15,341.82, compared to 15,515.06 the prior day, and -2.45% below its recent November 29th 15,727.12 high. The index opened below 15,400 and trended lower through the morning session to an early afternoon 15,255.36 intraday low. The index improved through the session's final two hours. The index closed -0.44% below and +3.95% above its respective 20- and 50-day moving averages, and +6.42% and +10.6% above its respective 100- and 200-day moving averages. Most market segments closed lower. Leaders were utilities, which rose +0.21%, and financials and telecommunications, which closed down at least -0.19%. Laggards were technology, health care, and basic materials, which closed off at least -1.26%.

In China, the HSI closed at 23,218.12, compared to 23,338.24 at the prior close. The index closed -2.90% below its recent December 3rd 23,910.47 high, but +27.7% above its 18,185.59 June 4, 2012 low. The index traded moderately lower through the first hour, then fell to a mid-morning 23,160.90 intraday low. In early afternoon, the index improved to its 23,327.44 intraday high, then trended lower to the close. Most market segments closed lower. Leaders were consumer services and industrials, which closed up at least +0.51%, and utilities, which fell -0.10%. Financials closed off -0.51%. Laggards were consumer goods, technology, and basic materials, which fell at least -1.41%.

In Shanghai, the SHCOMP closed at 2,202.80, compared to 2,204.17 at the prior close and +13.0% above the 1,950.01 June 27th closing low. The index opened below 2,200, but traded narrowly through the session, with a late morning 2,195.32 intraday low and mid-afternoon 2,214.47 intraday high. Most market segments closed higher. Leaders were telecommunications, technology, and health care, which rose at least +0.87%. Laggards were basic materials, utilities, and financials, which fell at least -0.27%.

In Europe, the major equity indexes are moderately lower and trade near their intraday lows. The Euro Stoxx50 (SX5E), FTSE 100, CAC 40, and DAX are down -0.79%, -1.01%, -0.64%, -0.85%, respectively. The Spanish IBEX 35 is down -0.84%. The Italian FTSE MIB is down -0.96%. The indexes are lower this week. All are at least -1.38% lower this week and -3.19% lower in December. All closed mixed in November, but higher in October and September.

Market commentary focuses on the U.S. economic reports and next week's FOMC meeting.

Today, the SX5E currently trades -5.20% below its 3,092.42 November 28th post-2008 high close, but -44.2% 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 32.78, compared to 36.05 at the prior close, near the bottom of a neutral 30-70 range and at its lowest level since 25.77 on June 24th, which marked the year's 2,494.54 closing low.

From its 2,947.31 prior day close, the SX5E opened at 2,935 and traded narrowly through mid-session, then moved down to the day's 2,920.12 intraday low. The index currently trades at 2,924.69. Most market segments are lower. Leaders are health care, which is up +0.07%, and oil and gas and telecommunications, which are down at least -0.31%. Laggards are consumer goods, financials, and technology, which are down at least -1.08%.

This week, the Euro Stoxx50, FTSE 100, and CAC 40 are down -1.63%, -1.73%, -0.35%, and -0.71%, respectively. In December, the Euro Stoxx 50, FTSE 100, CAC 40, and DAX are down -5.03%, -3.19%, -5.19%, and -4.18%, respectively. In November, the Euro Stoxx 50 and DAX closed up +1.13% and +4.41%, respectively. The FTSE 100 and CAC 40 closed down -1.20% and -0.11%, respectively. In 2013, the indexes are up +11.2%, +9.17%, +11.9%, and +18.4%, respectively, compared to +13.8%, +5.84%, +15.2%, and +29.1% the prior year.

4Q2013 SPX Earnings. Of 2 (of 499) reporting companies, 1 or 50.0% surprised positively on earnings, with an average -4.11% surprise average. Of reporting companies, 2 or 100.0% reported sales or revenues below estimates. The average sales/revenue surprise is -1.25%. Consumer discretionary leads with +0.33% EPS surprise, but a -0.37% revenue miss.

Valuation. The SPX trades at 17.2x 2012 adjusted EPS ($103.41), 16.0x estimated 2013 earnings ($111.04), 14.6x estimated 2014 earnings ($122.44), and 13.5x estimated 2015 earnings ($135.54). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, and 2015 earnings to grow +7.38% and +10.3%, and +10.7%, respectively.

The BKX trades at 15.4x 2012 adjusted EPS ($4.32), 12.7x estimated 2013 earnings ($5.24), 11.8x estimated 2014 earnings ($5.66), and 10.7x 2015 earnings ($6.20). Analysts expect 2013, 2014, and 2015 EPS will grow +21.2%, +8.04%, and +9.56%, respectively.

Composite, index, and equity options. Options markets worsened to neutral, compared to neutral to bullish the prior session. Composite options are neutral, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.96, compared to 0.75 the prior day, and worse than 5- and 10-period moving averages of 0.86 and 0.84, respectively. The index put/call ratio is 1.10, compared to 1.02 the prior day, and worse than its 5- and 10-period moving averages of 1.15 and 1.10, respectively. The equity put/call ratio closed the day at 0.86, compared to 0.65 the prior day, and worse than its 5- and 10-period moving averages of 0.74 and 0.74, respectively.

NYSE Volume, Breadth Indicators. Volume rose +17.2% to 741.20 million shares, compared to 632.68 million shares the prior day, 1.10x the 670.81 million share 20-day moving average. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -1,950 (compared to -602 the prior day), or 0.22:1. Up volume was 0.15:1 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, with a subsequent gain of +7.68%. The distribution count is 9 for the DJI, and 8 on the SPX and NYSE composite, and 8 on the Nasdaq.

Libor, LOIS, Currencies, Treasuries, Commodities:

· USD LIBOR is 0.10130%, compared to 0.10150% the prior day. USD 3-month LIBOR is 0.24285%, down from 0.24385% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.

· The US Libor-OIS (LOIS) spread is 15.585 bps, compared to 15.825 bps the prior day, and compares to the recent June 12, 2012 46.785 bps high. Euribor-OIS is 10.400 bps, up from 9.700 bps the prior day, and down from the December 27, 2011, high of 98.800 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.

· The 3-month Euro basis swap is +0.763 bps, compared to +1.169 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, but far better than a normal -10 bps and -40 bps range.

· Spanish 10-year debt yields are 4.09%, up from 4.03% the prior day. Italian 10-year debt yields are at 4.09%, up from 4.06% the prior day, but up from the 3.822% May 3rd low. German 10-year debt yields are 1.82%, compared to 1.81% the prior day. Japanese 10-year debt yields are 0.66%, compared to 0.65% the prior day.

· The U.S. government overnight repo rate is +0 bps, compared to +2 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 mixed, with 2- and 10-year maturities yielding 0.310% and 2.841%, respectively, compared to 0.306% and 2.854% Wednesday. The yield curve narrowed -1.680 bps, with the 2- to 10-year spread at +2.531%, compared to 2.548% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.429% on May 1, 2013, to a high of +2.534% on December 6, 2013.

· The U.S. dollar is mixed, weaker compared to the Japanese yen and British pound, but stronger compared to the euro. The dollar trades at US$79.919 compared to a US$79.853 intraday low and US$79.894 the prior day, and better compared to its $80.348 50-day, US$81.817 100-day, and US$81.756 200-day averages. The euro trades at US$1.3782, compared to a US$1.3803 intraday high and US$1.3786 the prior day. The euro trades mixed compared to its US$1.3592 50-day and US$1.3470 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥102.78, compared to ¥102.42 the prior day. The yen trades worse than its 50-day moving average ¥99.67, and better than its May 17th 103.21 closing low, its weakest multi-year closing low.

· Citigroup Economic Surprise Index rose to +34.10, compared to +33.00 the prior day. The index is better compared to its respective +29.82 5-day and +18.22 10-day moving averages. 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 mixed, with higher energy, lower precious metals, higher aluminum and copper, and mixed agriculture prices.

Volatility, Skew:

· The CBOE SPX Volatility Index (VIX) closed at 15.42, up +10.9%, from 13.91 at the prior close. The VIX is +14.5% above its 13.47 20-day moving average. Its 30-day high is 15.71. Its 30-day low is 11.99. The index's all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.14.

· At mid-session, the Euro Stoxx 50 volatility index (V2X) is 18.14, up +4.52% from 17.36 at the prior day's close. The V2X index trades +15.5% above its 15.71 20-day moving average, -2.26% below the 18.56 30-day high, and +31.5% above the 13.79 30-day low.

· The Hang Seng volatility index (VHSI) closed at 15.67, down -0.06% from 15.68 the prior day. The VHSI index trades -3.07% below its 16.17 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.4

· CBOE SKEW (SKEW) remains elevated at 126.74, up +0.05% from 126.68 at the prior day's close, above a neutral (115-120) range. The recent high was 137.06 on November 18th. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 (as on November 14, 15, 18, 19, and 20 and 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, November MoM advance retail sales rose 0.7%, compared to +0.6% survey and +0.6% revised prior. Ex auto and gas rose 0.6%, compared to +0.3% survey and +0.6% revised prior.

· The latest weeks' initial and continuing jobless claims were 368K and 2791K, respectively, compared to 320k and 2743K survey and 300K and 2751K revised prior.

· At 10:00, October business inventories, with +0.3% survey and +0.6% prior.

Overseas Economic Reporting and News:

· Australia - November unemployment was rose to 5.8%, compared to 5.7% prior.

· Hong Kong - 3Q2013 industrial production fell -0.9%, compared to +0.3% prior.

· Eurozone - October MoM industrial production fell -1.1%, compared to +0.3% survey and -0.2% revised prior.

Company Ratings/News:
 

  • None.


Wednesday's Trade. On greater and above average volume, U.S. equity markets distributed. The Nasdaq fell -1.40%, followed by the NYSE composite, SPX, and DJI, which fell -1.22%, -1.13%, and -0.81%, respectively. The TRAN closed -1.60% lower.

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

Market breadth was negative, with gainers 0.22:1 losing stocks. All SPX market segments closed lower. Leaders were consumer goods, consumer services and utilities, which fell at least -0.32%. Laggards were industrials, health care, and basic materials, which fell at least -1.47%.

NYSE volume rose +17.2% to 741.20 million shares, compared to 665.43 million shares the prior day, 1.10x the 670.81 million share 20-day moving average volume. On the day, bond markets initially strengthened, then weakened significantly following the 1:00 pm 10-year bond auction announcement. U.S. 10-year yields opened at 2.82%, fell to 2.80% by mid-morning, then spiked to a 2.8609% intraday high. The index closed up 5.29 bps at 2.8535%, compared to 2.8006% at the prior close.

From its prior day 1782.62 close, SPX futures suggested modest gains. The SPX opened at the 1802.97 intraday high, but immediately eased to 1795 and trended lower to 1790 at 3:00. Selling pressure rose through the final hour to a late session 1780.09 intraday low. The index closed at 1782.22, -1.45% below its December 9th record 1808.37 close. The index closed +65.8% above the 1074.77 October 4, 2011, intraday low.

The DJ Transportation index (TRAN) closed at 7,057.47, down -1.60% compared to the DJI's -0.81% loss. The TRAN ended -2.72% below its November 27th record 7,255.00 high, which confirmed the DJI record 16,097.33 close that same day. From the prior day's close, the index trended briefly higher but traded to 7,080 by 3:00, faded with the market through the final hour to a late 7,052.40. Volume rose +37.8% to 1.29:1 average 15-day volume. The TRAN closed -1.72% below and +1.11% above its respective 20- and 50-day moving averages, and +4.77% and +8.80% above its respective 100- and 200-day moving averages.

Market volatility rose +10.9% to 15.42, compared to 13.91 at the prior close. The VIX opened at 13.98 and rose through the session to a late 15.43 intraday high. The VIX closed +14.5% above the 13.47 20-day moving average. The VIX's all-time closing low was 9.31, on December 22, 1993.

The broader market's technical factors worsened. The SPX index surrendered its 5-, 10-, and 20-day moving averages. SPX relative strength (RSI) fell to 48.80, from 59.25 the prior day, moving to the middle of a neutral range. The RSI is down from an overbought 72.13 on September 18th, when the SPX closed at an earlier record high, but up from an oversold 39.19 on October 9th. The CBOE put/call skew rose +0.05% to 126.74, compared to 126.68 the prior day, above a neutral 115-120 range, but below 130, which correlates well with short-term market tops.

This week, the Nasdaq is down -1.45%, while the NYSE composite, SPX, and DJI, which are down -1.38%, -1.27%, and -1.10%, respectively. Last week, the Nasdaq rose +0.06%, while the SPX, DJI, and NYSE composite closed down -0.04%, -0.41%, and -0.51%, respectively. In November, the SPX, DJI, Nasdaq, and NYSE composite closed up +2.80%, +3.48%, +3.58%, and +1.73%, 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 +25.0%, +20.9%, +32.6%, +18.3%, respectively. All closed at least +5.91% higher in 2012.

KBW Bank Index (BKX). On greater and above average volume, the BKX closed at 66.48, down -1.38% from 67.41 at the prior day's close. The index traded briefly higher at the open, but eased to 66.60 by mid-session, then fell to a late 66.39 intraday low. Volume rose +46.4% to 61.758 million shares, compared to 42.178 million sales the prior day, 1.28:1 the 48.312 million share 15-day moving average.

Large cap banks equaled the regional banks' performance, as the KBW regional banking index (KRX) fell -1.38%.

This week, the BKX is down -1.39%. Last week, the BKX closed down -0.53%, compared to a -0.01% decrease the prior week. In December, the BKX is down -1.92%. In November, the BKX closed up +5.54%, compared to October, when the BKX closed up +3.16%. For the year, the BKX is up +29.6%, better than the SPX's +25.0% rise. In 2012, the index rose +18.1%, compared to a +13.4% rise in the SPX.

The BKX is now +12.3% better than the June 24th 59.19 close, its worst since May 13th, and closed at a new post-2008 high close. The index crossed above 50 on December 17, 2012, and 60 on May 15, 2013. The BKX closed +104.2% 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 +68.8% in the same period.

The BKX index closed -45.1% below its February 20, 2007, record 121.06 high. The BKX is up +257.0% from its 18.62 March 6, 2009, closing low.

Technical indicators worsened, as the index surrendered its 5-, 10-, and 20-day moving averages. The index closed -1.03% below and +1.82% above its respective 20- and 50-day moving averages. The index closed +2.59% and +7.38% above its respective 100- and 200-day moving averages. The 20-day moving average rose +5 bps to 67.04. The 65.29 50-day moving average rose +7 bps. Its 100-day moving average fell -1 bp to 64.80, and the 200-day moving average rose +6 bps to 61.91. The 20-day closed (by +1.75 points) below the 50-day, and the gap widened +6 bps. The 50-day moving average closed (by +3.38 points) above the 200-day moving average, and the gap widened +1 bp. The 100-day moving average closed (by +2.89 points) above the 200-day moving average, and the gap narrowed -2 bps.

The directional movement indicator widened to -4.970, compared to +4.349 the prior day, its 1st negative reading since November 13th. Relative strength fell to fell to 49.56, compared to 58.38 the prior day, moving to the middle of a neutral range, down from an overbought 72.62 on November 26th, and up from an oversold 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 67.18; next support is at 66.09.

SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR