This morning. Today, U.S. equity futures suggest modest losses. In Asia, equity markets closed mixed. In Europe, indexes are moderately higher. The dollar is slightly stronger. Commodities are mostly lower. Monday's Nikkei 225 June 2014 (NKM4) equity futures are down -0.996%.
On April 4th, the U.S. equity markets distributed, and the market outlook worsened to "in correction", ending a brief "confirmed uptrend" that began on April 1st. The SPX opens -3.06% below the April 2nd record 1890.90 close.
Yesterday, on greater and above average volume, major equity indexes distributed, posting their worst losses since early February, surrendering all the prior day's strong gains. The S&P 500 (SPX), DJ Industrials (Private:DJI), Nasdaq, and NYSE composite closed down -2.09%, -1.62%, -3.10%, and -1.78%, respectively. The DJ Transports (TRAN) fell -2.10%.
U.S. equity markets opened modestly lower, but selling intensified as U.S. treasuries prices strengthened through the session. Indexes fell steadily to late intraday lows. Notably, NYSE volume rose +9.70% to 1.00x its 20-day moving average. All the major indexes are now at least -0.32% lower in 2014.
The damage was worse in other notable indexes. The Russell 2000 (RTY), Nasdaq Internet (QNET), and Nasdaq Biotech (NBI) fell -2.78%, -4.40%, and -5.64%, respectively. The QNET and NBI are in correction, down -15.8% and -18.8%, respectively, from recent highs.
The 1Q2014 earnings reports began on March 15th, though only 28 of 500 SPX companies have now reported.
Trading desks report a continuation of yesterday's U.S. equity sell-off in Japan and Europe, but China fared somewhat better. In yesterday's trading, desk flows were heavy (though orderly) and remained elevated through late afternoon, with hedge funds providing the bulk of the activity. Sentiment deteriorated further.
Price earnings multiples remain elevated. With SPX equities trading at a 16.6 (compared to 17.0x the prior day) 2013 earnings multiple, attention focuses on 2014 earnings and valuations (16.6x times survey $117.18 2014 SPX operating earnings suggests a 1,950.04 SPX level next year, a +6.38% rise).
Technicals worsened. Led by consumer services and health care, all SPX market segments closed at least -0.36%. Market breadth was negative, and up volume lagged down volume. Volatility rose. Treasury bond markets strengthened. On the day, the U.S. Treasury 10-year bond yield fell -4.24 bps to 2.6474%, compared to +2.6898% at the prior close.
This morning, 10-year U.S. Treasury yields are down -3.35 bps at 2.6139%, compared to the prior close. Spanish and Italian 10-year debt yields are near their lowest levels since 2005, at 3.21% and 3.17%, respectively, compared to 3.22% and 3.17% the prior day.
U.S. options markets worsened to bearish to bullish, compared to neutral to bullish the prior day. The CBOE SKEW fell -4.19% to 125.11, compared to 130.79 the prior day, above a neutral range (115-120), but below 130, a level that correlates well with short-term market tops.
In pre-market futures trading, June SPX equity futures (SPM4) price near the bottom of a 1815-1831 trading range. After a fair value adjustment of -0.52 points, the SPM4 future prices at 1820.50, down -5.73 points. The SPX opens -1.60% and -0.56% below its respective 20- and 50-day moving averages, and +0.28% and +4.13% above its 100-, and 200-day moving averages. Initial resistance is 1860.12. Initial support is 1818.46, then 1803.83.
In Asia, equity markets closed lower, with continued weakness in Japan, but modest losses in China. On the day, the Nikkei 225 (NYSEARCA:NKY) fell -2.38%, its worst close since October 2013. The NKY is in correction. The Hang Sang index (HSI) fell -0.79%. The Shanghai SE composite (SHCOMP) index fell -0.18%. Today's volumes are unavailable.
In Japan, commentary focused on the decline in a single stock (Fast Retailing closed down -8% after weak earnings) with a 9.5% weighting in the NKY and yesterday's NYSE carnage. This week, the NKY closed down -7.33%%, while the HSI and SHCOMP closed up +2.19% and +3.48%, respectively. Last week, the NKY, HSI, and SHCOMP closed up +2.50%, +2.01%, and +0.84%, respectively. In April, the NKY is down -5.85%, while the HSI and SHCOMP are up +3.85% and +4.78%, respectively, compared to March, when the NKY, HSI, and SHCOMP lost -0.09%, -3.00%, and -1.12%, respectively.
In 2014, the NKY and HSI are down -14.3% and -1.30%, respectively, while the SHCOMP is up +0.69%. In 2013, the NKY rose +56.7%. The HSI closed up +2.87%. The SHCOMP closed down -6.75%.
In China, short-term interbank lending rates remained volatile and rose +1 bps to 3.70%, compared to 3.69% on Thursday, up from a 2.26% low on March 11th, but down from the February 7th 5.41% recent high.
Regional relative strength indexes (RSI) show Tokyo, Hong Kong, and Shanghai, in neutral ranges. The NKY RSI fell to 33.84, compared to 39.78 the prior day, in the lower end of a neutral range, but up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI fell to 63.92, compared to 68.93 the prior day. The SHCOMP's RSI fell to 65.83, compared to 66.97 the prior session. On June 27, 2013, the index's RSI fell to a low of 15.27, which was also last year's low index close.
In Japan, the NKY closed at 13,960.05, compared to 14,300.12 the prior day, -14.3% below its recent year-end 16,291.31 high and -64.1% below its late-1989 38,915.87 high close. The index gapped lower to open below 14,050, set an early 14,065.97 intraday high, then fell sharply to an early 13.885.11 intraday low. The index improved back to 14,000 by mid-session, but weakened again late in the session. The index closed -4.36%, -5.01%, -7.67%, and -4.41% below its respective 20-, 50-, 100-, and 200-day moving averages. Most market segments closed lower. Leaders were oil and gas and utilities, which rose at least +0.34%, and consumer goods, which fell -1.14%. Financials fell -1.55%. Laggards were health care, telecommunications, and consumer services, which fell at least -2.56%.
In China, the HSI closed at 23,003.64, compared to 23,186.96 at the prior close. At the open, the index gapped lower to 23,150, traded briefly higher to a 23,194.15 intraday high, then fell back to a late session 22,946.21 intraday low. Most market segments closed lower. Leaders were industrials and financials, which rose at least +0.14%, and utilities, which fell -0.37%. Laggards were basic materials, consumer services, and technology, which fell at least -2.41%. The index closed -3.79% below its recent December 3rd 23,910.47 high, but +25.6% above its 18,185.59 June 4, 2012 low.
In Shanghai, the SHCOMP closed at 2,130.54, compared to 2,134.30 at the prior close, +9.26% above the 1,950.01 June 27th close, last year's low. The index traded narrowly lower through the morning session to an early afternoon 2,120.52 intraday low, then reversed briefly higher to 2,138.65 by mid-afternoon. The index eased in the final hour. Most market segments closed lower. Leaders were health care, consumer goods, and consumer services, which rose at least +0.09%. Financials fell -0.11%. Laggards were basic materials, oil and gas, and technology, which fell at least -0.46%.
In Europe, major equity indexes are selling off and trade near their intraday lows. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -1.46%, -1.24%, -1.41%, and -1.82%, respectively. The Spanish IBEX 35 is down -1.85%, and the Italian FTSE MIB down -1.25%. Commentary focuses on the Ukrainian tensions and commodity and currency pricing developments.
Economic reporting is light. Commentary focuses on yesterday's U.S. equity weakness.
European bourses have recently outperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 44.94, compared to 52.39 at the prior close, in a neutral (30-70) range, but better than its recent February 5th 33.57 low, which coincided with its 2014 low. The indexes lowest recent RSI level was 25.77 on June 24th, which marked the 2013 2,494.54 closing low.
Today, the Euro Stoxx50 trades at 3,106.11, -3.82% below its 3,230.33 April 4th post-2008 high close, and -404.8% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,152.86 close, the index gapped lower to open below 3,135, traded narrowly in early trading then came for sale and fell to an early afternoon 3,098.51 intraday low. All market segments are at least -0.36% lower. Leaders are oil and gas, consumer goods, and telecommunications. Laggards are industrials, basic materials, and technology, which are down at least -1.78%.
This week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX are down -3.82%, -2.03%, -2.96%, and -4.26%, respectively. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed up +1.83%, +1.21%, +1.66%, and +1.13%, respectively. In April, the Euro Stoxx50, FTSE 100, and CAC 40 are down -1.73%, -0.58%, -0.91%, and -2.86%, respectively. In March, Euro Stoxx50 closed up +0.39%, while the FTSE 100, CAC 40, and DAX closed down -3.10%, -0.38%, and -1.40%, respectively.
In 2014, the indexes are mixed. The Cac 40 is up +1.30%, while the Euro Stoxx50, FTSE 100, and DAX are down -0.07%, -2.80%, and -2.82%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.
1Q2014 SPX Earnings. Of 25 (of 500) reporting companies, 14 or 56.0% surprised positively on earnings, with an average +1.11% surprise average. Of reporting companies, 12 or 48.0% reported sales or revenues above estimates. The average sales/revenue surprise is -0.25%. Consumer discretionary leads with respective +6.72% and +0.33% earnings and revenue surprises. Industrials lag with respective -13.4% and -1.08% revenues surprises.
Valuation. The SPX trades at 16.6x estimated 2013 earnings ($110.15), 15.6x estimated 2014 earnings ($117.18), 14.0x estimated 2015 earnings ($130.62), and 12.6x estimated 2016 earnings ($144.99). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2013, 2014, 2015, and 2016 earnings to grow +6.52%, +6.38%, +11.5%, and 11.0%, respectively.
The KBW Bank Index (BKX) trades at 13.3x 2013 adjusted EPS ($5.16), 12.6x estimated 2014 earnings ($6.08), 11.3x estimated 2015 earnings ($6.10), and 10.1x 2016 earnings ($6.84). Analysts expect 2013, 2014, 2015, 2016 EPS will grow +19.4%, +6.08%, +11.4%, and +12.2%, respectively.
Composite, index, and equity options. Options markets worsened to bearish to bullish, compared to neutral to bullish the prior session. Composite options are neutral, index options are bullish, and equity options are bearish. The composite put/call ratio is 1.01, compared to 0.61 the prior day, and worse than 5- and 10-period moving averages of 0.89 and 0.89, respectively. The index put/call ratio is 0.88 compared to 0.94 the prior day, and better than its 5- and 10-period moving averages of 0.90 and 0.97, respectively. The equity put/call ratio closed the day at 1.12, compared to 0.53 the prior day, and worse than its 5- and 10-period moving averages of 0.91 and 0.87, respectively.
NYSE Volume, Breadth Indicators. Volume rose +9.70% to 771.16 million shares, compared to 703.00 million shares the prior day, 0.28x the 770.01 million share 20-day moving average. By large margins, market breadth was negative, and up volume lagged down volume. Advancing stocks lagged by -1,738 (compared to +1,432 the prior day), or 0.28:1. Up volume was 0.12:1 down volume.
Market Outlook and Distribution Day Count. On April 4th, the U.S. equity markets distributed and the market outlook worsened to "in correction", ending a brief "confirmed uptrend" that began on April 1st. The SPX opened April 4th at a record 1888.77, up +0.88% from the April 1st 1872.34 open. Today, the SPX opens -3.06% below the April 3rd record close.
Libor, LOIS, Currencies, Treasuries, Commodities:
· USD LIBOR is 0.08700%, compared to 0.08850% the prior day. USD 3-month LIBOR is 0.22645%, down from 0.22705% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
· The US Libor-OIS (LOIS) spread is 14.265 bps, compared to 14.405 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 13.500 bps, up from 14.000 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 -1.463 bps, compared to -1.727 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.
· German 10-year debt yields are 1.53%, compared to 1.52% the prior day. Japanese 10-year debt yields are 0.61%, compared to 0.61% the prior day.
· Spanish and Italian 10-year debt yields are at their best levels since 2005. Spanish 10-year debt yields are 3.19%, compared to 3.17% the prior day. Italian 10-year debt yields are at 3.19%, compared to 3.17% the prior day.
· U.S. Treasury yields are slightly lower, with 2- and 10-year maturities yielding 0.351% and 2.641%, respectively, compared to 0.351% and 2.647% Thursday. The yield curve narrowed -0.63 bps, with the 2- to 10-year spread at +2.290%, compared to 2.296% 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 +2.648% on December 31, 2013.
· The U.S. dollar is stronger compared to the euro, Japanese yen, and British pound. The dollar trades at US$79.532, compared to a US$79.569 intraday high and US$79.383 the prior day, and worse compared to its $80.113 50-day, US$80.346 100-day, and US$80.754 200-day averages. The euro trades at US$1.3875, compared to a US$1.3864 intraday low and US$1.3886 the prior day. The euro trades better compared to its US$1.3757 50-day and US$1.3705 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥101.59, compared to ¥101.33 the prior day. The yen trades better than its 50-day moving average ¥102.33, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.
· Citigroup Economic Surprise Index improved to -41.80, compared to -45.20 the prior day, at its worst level since May 2012 and continuing its string of consecutive negative readings since February 18th. The index is mixed compared to its respective -44.38 5-day and -39.27 10-day moving averages. Last June 10th, the index fell to a then 52-week low of -33.26. The index improved and turned positive on July 30th and rose to 53.30 on October 1st, but subsequently fell on dollar weakness to -2.10 on October 31st. It subsequently strengthened to a +72.70 high on January 15th, but then subsequently trended lower and turned negative on February 19th and fell to a -43.80 124-week low on April 7th . After a lag, the CESIUSD correlates with EPS revisions.
· Commodities prices are mixed, with lower energy, higher precious metals, mixed aluminum and copper, and mostly lower agriculture prices.
· The CBOE SPX Volatility Index (VIX) rose +15.0% to 15.89, compared to 13.82 at the prior close. The VIX is +8.37% above the 14.66 20-day moving average. Its 30-day high is 18.22. Its 30-day low is 12.60. The index's all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.14.
· The Euro Stoxx 50 volatility index (V2X) is 18.34, up +6.28% compared to 17.25 at the prior day's close. The V2X index trades +1.15% above its 18.13 20-day moving average, -24.7% below the 24.35 30-day high, and +18.3% above the 15.50 30-day low.
· The Hang Seng volatility index (VHSI) closed at 16.23, up +2.13% compared to 15.89 at the prior close. The VHSI index trades -1.44% below its 16.47 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
· CBOE SKEW (SKEW) fell -4.34% to 125.11, compared to 130.79 the prior session, above a neutral reading (115-120), but again below 130, a level that correlates well with short-term market tops. The recent record high was 143.20 on December 20th. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, though not in October or November. 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:
- March monthly USG budget was -$36.9 billion, compared to -$36.0 billion survey and -$106.5 billion prior.
- March MoM PPI final demand rose +0.5%, and +0.1% survey and -0.1% prior.
- At 9:55, April preliminary University of Michigan confidence, with 81.0 survey and 80.0 prior.
Overseas Economic Reporting and News:
- United Kingdom - February MoM construction output fell -2.8%, compared to -1.38% survey and +2.1% revised prior.
- JPM - Reported 1Q2014 adjusted EPS of $1.28, compared to $1.378 survey. Revenues were $23.863 billion, compared to $24.486 billion survey.
- WFC - Reported 1Q2014 adjusted EPS of $1.05, compared to $0.964 survey. Revenues were $20.842 billion, compared to $20.642 billion survey
Thursday's Trade. On greater and above average NYSE volume, U.S. equity indexes distributed. On the day, the SPX, DJI, Nasdaq, and NYSE composite fell -2.09%, -1.62%, -3.10%, and -1.78%, respectively, one of the strongest sell-offs since early February. All are now lower on the week, in April, and in 2014.
Other notable indexes fared even more poorly as the sector rotation continued. The Russell 2000 (RTY) fell -2.78%, and is -6.70% below its March 4th record close. The Nasdaq Internet Index (QNET) fell -4.40%, and is in correction at -15.8% below its March 6th closing high. The Nasdaq Biotech Index (NBI) fell -5.64%, in correction and down -18.8% from its recent February 25th record high.
On April 4th, the U.S. equity markets distributed, and the market outlook worsened to "in correction", ending a brief "confirmed uptrend" that began on April 1st. Today, the SPX opens -3.06% below the April 2nd record 1890.90 close.
Market breadth was negative, with gainers 0.28x losing stocks. All SPX market segments closed at least -0.36% lower. Leaders were telecommunications, utilities, and consumer goods. Financials fell -2.41%. Laggards were technology, consumer services, and health care, which fell at least -2.49%.
NYSE volume rose +9.70% to 771.16 million shares, compared to 703.00 million shares the prior day, 1.00x the 770.01 million share 20-day moving average volume. On the day, bond markets strengthened markedly. The U.S. 10-year yield opened at 2.6944%, and in early session rose as high as 2.7007% before falling below 2.6600% by mid-session and 2.6122% late in the session. The yield closed at 2.6474%, down -4.24 bps compared to the 2.6898% prior close.
From its prior day 1872.18 SPX close, June 2014 SPX futures (SPM4) suggested a modestly lower open. The SPX index opened unchanged and set an early 1872.53 intraday high before weakening and trending modestly lower. The downward slope increased by mid-morning and trended lower to 1840 by mid-afternoon, when the index weakly rallied. The index fell to a final hour 1830.87 intraday low. The SPX ended at 1833.08, -3.06% below its 1890.90 April 2nd record close. The index closed +70.6% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.
The DJ Transportation index (TRAN) fell -2.10%, compared to DJI's -1.62% loss. From its prior 7,590.78 close, the TRAN traded narrowly lower through mid-morning, then weakened with the broader market and trended lower through the session to a late 7,424.30 intraday low. The TRAN closed at 7,431.23, its worst since March 27th. Volume rose +32.0% to 14.074 million shares, compared to 11.252 million shares the prior session, and 1.05x the 15-day moving average volume. The TRAN closed -1.37% below its 20-day moving average, but +0.32%, +1.25%, and +6.71% above its respective 50-, 100-, and 200-day moving averages.
Market volatility rose +15.0%, as the CBOE SPX volatility index (VIX) closed at 15.89, compared to 13.82 at the prior close. The VIX opened at 14.10, moved narrowly through mid-morning, then trended higher to a final hour 16.38 intraday high. The VIX's all-time closing low was 9.31, on December 22, 1993. Its record high was 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -4.34% to 125.11, compared to 130.79 the prior session, above a neutral 115-120 range, but below 130, a level that correlates well with short-term market tops.
The market's technical factors worsened, as major indexes surrendered their 5-, 10-, and 20-day moving averages. The Nasdaq also below its 50- and 100-day moving averages. SPX relative strength (RSI) fell to 42.53, compared to 53.96 the prior day, in a neutral range, and better than an oversold 31.24 on February 3rd. The RSI is also down from an overbought 71.26 on December 31st, when the SPX closed an earlier record high, but above earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th. This week, the SPX, DJI, Nasdaq, and NYSE composite are down -1.32%, -0.94%, -2.45%, and -0.65%, respectively. Last week, the SPX, DJI, and NYSE composite closed up +0.40%, +0.55%, and +0.79%, respectively, while the Nasdaq closed down -0.67%. In April, the SPX, DJI, Nasdaq, and NYSE composite are down -2.10%, -1.75%, -3.45%, and -1.53%, respectively. In March, the DJI and NYSE composite closed up +0.01% and +0.09%, respectively, while the SPX and Nasdaq are down -0.10% and -3.54%, respectively.
In 2014, the SPX, DJI, Nasdaq, and NYSE composite are down -0.83%, -2.45%, -2.93%, and -0.32%, respectively. In 2013, the SPX, DJI, Nasdaq, and NYSE composite closed up +29.6%, +26.5%, +38.2%, +23.2%, respectively. All closed at least +5.91% higher in 2012.
KBW Bank Index (BKX). On greater and above average volume, the BKX fell -2.95% to 68.86, compared to 70.95 at the prior day's close, its 1st close below 70.0 since March 14th, its lowest close since March 4th, and -5.55% below its 72.91 March 20th post-2008 closing high. The index opened lower and trended steadily lower through the mid-afternoon, when it found support at 69.0 until late in the session, when it weakened further to close at the intraday low. Volume rose +34.0% to 62.584 million shares, compared to 46.718 million shares the prior day, and 1.09x the 57.356 million share 15-day moving average.
Large cap banks underperformed the regional banks, as the KBW regional banking index (KRX) fell -2.88%.
This week, the BKX is down -3.61%. Last week, the BKX closed up +0.35%, compared to a decline of -1.73% the prior week. In April, the BKX is down -4.74%, compared to March, when the BKX closed up +4.94%. In 2014, the BKX is down -0.58%, compared to the SPX's -0.83% loss. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.
The BKX is now +16.3% better than the June 24th 59.19 close, its worst since May 13, 2013. The index crossed above 50 on December 17, 2012, 60 on May 15, 2013, and 70 on January 8, 2014, but then dropped back below 70 on January 24th, which persisted until March 6th. The BKX closed +111.5% above the 32.56 intraday low on October 4, 2011, the bottom of that year's correction. Large-cap bank stocks have outperformed the broader market's rebound, with the SPX up +70.6% in the same period.
The BKX index closed -43.1% below its February 20, 2007, record 121.06 high. The BKX is up +269.8% from its 18.62 March 6, 2009, closing low.
Technical indicators worsened. The index closed -3.72%, -1.30%, and -0.36% below its respective 20-, 50-, and 100-day moving averages, but +3.31% above its 200-day moving averages. The 20-day moving average fell -5 bps to 71.52. The 69.76 50-day moving average rose +2 bps. Its 100-day moving average rose +3 bps to 69.11, and the 200-day moving average rose +4 bps to 66.65. The 20-day closed (by +1.76 points) above the 50-day, but the gap narrowed -7 bps. The 50-day moving average closed (by +3.11 points) above the 200-day moving average, and the gap widened +2 bps. The 100-day moving average closed (by +2.46 points) above the 200-day moving average, and the gap narrowed -1 bp.
The directional movement indicator improved to -14.693, compared to -4.884 the prior day, its 4th consecutive negative reading. Relative strength fell to 37.06, compared to 48.95 in a neutral range, up from the recent 32.95 low on February 3rd, but down from an overbought 75.56 and 71.88 on January 9th and 10th, respectively. The recent low RSI level 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 70.25; next support is 68.16.