This morning. After yesterday's distributions, U.S. equity futures are moderately lower and near their pre-market lows. Economic reporting is generally light, but in Europe, German and British trade figures disappointed. The market outlook remains "confirmed uptrend". The dollar is mixed. The U.S. Treasury 10-year yields are lower. Commodities are mixed. Wednesday's Nikkei 225 September 2014 (NKU4) equity futures are modestly lower.
Monday, major U.S. indexes distributed. The SPX, DJI, Nasdaq, and NYSE composite fell -0.39%, -0.26%, -0.77%, and -0.62%, respectively. Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.25%, +1.28%, +2.00%, and +1.19%, respectively. All are at least +0.89% higher in July. In 2014, the SPX, DJI, Nasdaq, and NYSE composite are +6.99%, +2.70%, +6.58%, and +6.11% higher, respectively. NYSE volume rose +12.0% to 0.84x its 20-day moving average.
Elsewhere, market damage was greater. The DJ Transports (TRAN) fell -1.03%. The Russell 2000 (RTY) fell -1.77% and closed -1.81% below early March highs. The Nasdaq Internet (QNET) index fell -1.49%, and the Nasdaq Biotech (NBI) index fell -2.43%. The QNET is down -7.85%, from recent highs, while the NBI closed -4.98% below its recent high.
Trading desks report mixed trading in Asia, but European equities are moderately lower. Despite the losses, yesterday's trade was quiet, with the most of the session's losses in the morning session. The decline must be viewed in the context of the past weeks' gains, indexes at records Thursday, and somewhat overbought market conditions, which spurred some profit taking. Observers remain incredulous that indexes trade where they do, with little euphoria seen. The next FOMC meeting is July 29-30. The flow of earnings reports will increase next week. The equity bias appears higher, with expectations that gains will become more difficult, compared to the recent linear move higher. Conviction is low.
The 2Q2014 earnings seasons began June 18th, and now 21 of 500 SPX companies have reported with respective +1.55% and +0.66% adjusted EPS and revenues surprises. In 1Q2014, 499 of 499 SPX companies reported with respective +5.91% EPS and +0.20% revenue surprises. Forward estimates moved up. Compared to March 28th, the June-end 2014 EPS estimate rose +1.16% to $118.55, from $117.20. Respective estimates for 2014, 2015 and 2016 are now $118.56, $132.22, and $146.42, respectively compared to $117.20, $130.50 and $144.96 at March-end, respective increases of +1.16%, +1.31% and +1.01%. Price earnings multiples remain elevated. With SPX equities trading at a 17.3x (compared to 17.3x the prior day) average 2014-15 earnings multiple, attention focuses on 2014-15 earnings and valuations (16.7x times survey 2014-15 SPX average operating earnings suggests a 2171.39 SPX level in the next year, a +9.80% rise from yesterday's close).
Technicals were little changed. Most SPX market segments closed lower. Market breadth was negative, and up volume lagged down volume. Volatility rose from near historically low levels. Treasury bond markets strengthened. On the day, the U.S. Treasury 10-year bond yield fell -2.73 bps to 2.6110%, compared to 2.6383% at the prior close.
This morning, 10-year U.S. Treasury yields are -2.35 bps at 2.5875%, compared to the prior close. World sovereign bond markets are stronger. Spanish and Italian 10-year debt yields are 2.70% and +2.84%, respectively, compared to 2.68% and +2.81% the prior day.
U.S. options markets worsened to neutral, compared to neutral to bullish the prior day. The CBOE SKEW rose fell -3.18% to 137.76, compared to 1.36% to 142.28 the prior day, well above 130, a level that correlates well with short-term market tops. The SKEW closed at a record 143.60 on June 20th.
In pre-market futures trading, September SPX equity futures (SPM4) price near the bottom of their 1966-1971 trading range. After a fair value adjustment of -0.55 points, the SPU4 future prices at 1967.50, down -2.95 points. The SPX opens +1.07% and +3.02% above its respective 20- and 50-day moving averages, and +4.72% and +7.96% above its 200-day moving averages. Initial resistance is 1982.95. Initial support is 1973.61, then 1969.58.
"Confirmed Uptrend" Market Outlook and Distribution Day Count. On May 27th , the market outlook improved to "confirmed uptrend", ending a period of market "in correction" that began on April 4th. The SPX closed July 2nd at a record 1974.62, +8.75% above the 1815.69 close on April 11th, the recent low close. On February 3rd, the Nasdaq closed at its 3996.96 year-to-date low, but has recovered +11.5% to the July 2nd 4,458.65 close. Since May 27th, distribution days number 4 for the SPX, DJI, and NYSE composite, and 3 for the Nasdaq.
In Asia, equity markets closed mixed. The Nikkei 225 (NYSEARCA:NKY) fell -0.33%. The Hang Seng (HSI) Index was unchanged. The Shanghai SE composite (SHCOMP) rose +0.20%. The NKY, HSI, and SHCOMP 50-day moving averages are below their respective 200-day moving averages. Today's volumes are unavailable.
Economic reporting remains light. Commentary focused on Samsung's earnings warning, the direction of monetary policy, currency, and commodity price developments.
This week, the NKY is down -0.79%, the HSI is down -0.02% , and the SHCOMP is up +0.23%. Last week, the NKY closed rose +2.27%, the HSI gained +1.40%, and the SHCOMP gained +1.12%. In July, the NKY, HSI, and SHCOMP are up +1.00%, +1.51%, and +0.77%, respectively. In June, the NKY gained +3.62%, the HSI gained +0.47%, and the SHCOMP gained +0.58%.
In 2014, the NKY is down -6.00%, the HSI is up +1.01%. The SHCOMP is down -2.46%. 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 remain volatile, as the SHIBO 7-day rate rose +11 bps to 3.51%, compared to 3.42% the prior day, 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 are in a neutral ranges. The NKY RSI fell to 57.80, compared to 61.05 the prior session, up from an oversold 27.92 on February 4th, the most recent prior yearly low. The HSI RSI rose to 64.23, compared to 64.21 the prior day. The SHCOMP's RSI rose to 57.57, compared to 56.00 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 15,314.41, compared to 15,379.44 the prior day, -6.00% below its recent year-end 16,291.31 high and -60.7% below its late-1989 38,915.87 high close. The index set an early 15,225.11 intraday low, then improved through the morning session and briefly reversed higher to the session's 15,389.89 intraday high. The index then eased through the close. All market segments closed lower. Leaders were consumer staples, industrials, and information technology. Laggards were energy, telecommunications, and financials, which fell at least -0.82%.
In China, in Shanghai, the SHCOMP closed at 2,064.02, compared to 2,059.93 at the prior close, +5.85% above the 1,950.01 June 27, 2013 close, last year's low. The index opened lower and set a mid-morning 2,047.37 intraday low, then improved and reversed higher by mid-afternoon. The index traded as high as 2064.43 just before the close. Most market segments closed higher. Leaders were utilities, technology, and telecommunications, which rose at least +0.54%. Laggards were financials, which rose +0.12%, and energy and consumer staples, which fell at least -0.03%.
In Europe, equities have are moderately lower in mid-afternoon, with greater weakness in Milan. The Euro Stoxx 50, FTSE 100, CAC 40, and DAX are down -0.50%, -0.59%, -0.52%, and -0.54%, respectively. The Spanish IBEX 35 is down -0.95%. The Italian FTSE MIB is down -1.44%.
Economic reporting focuses on worse than expected German manufacturing. The euro is slightly weaker compared to the dollar.
European bourses have recently outperformed U.S. equity indexes. Intraday Euro Stoxx50 relative strength (RSI) is 41.93, compared to 44.82 at the prior close, in a neutral (30-70) range, 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 24, 2013, which marked the year's 2,494.54 closing low.
The Euro Stoxx50 trades -38.7% below its 5,249.55 March 31, 2000, all-time closing high. From its prior day 3,219.36 close, the index opened higher, set an early 3,239.82 intraday high, but reversed lower in the first half hour and fell to an early afternoon 3,211.71 intraday low. The index currently trades at 3,214.66. All market segments are at least -0.02% lower. Leaders are health care, energy and utilities. Laggards are consumer discretionary, materials, and financials, which are down at least -0.68%.
This week, the Euro Stoxx50 and CAC 40 are down -0.26% and -1.11%, respectively, while the FTSE 100 and DAX are up +0.39% and +0.52%. Last week, the Euro Stoxx50, FTSE 100, CAC 40, and DAX closed down -2.26%, -0.99%, -2.30%, and -1.72%, respectively. In July, the Euro Stoxx50 and CAC 40 are down -0.28% and -0.80%, respectively, while the FTSE 100 and DAX are up +0.60% and +0.34%, respectively. In June, the Euro Stoxx50 close up +0.03%, while the FTSE 100, CAC 40, and DAX closed down -0.88%, -1.53%, and -0.84%, respectively.
In 2014, the indexes are higher. The Euro Stoxx50, FTSE 100, CAC 40, and DAX are up +3.55%, +0.52%, +2.13%, and +3.29%, respectively. In 2013, the indexes closed up +18.0%, +14.4%, +18.0%, and +25.5%, respectively.
2Q2014 SPX Earnings. The 2nd quarter earnings season began June 18th, and now 21 of 500 SPX reporting firms have reported, with respective +1.55% EPS and +0.66% revenue surprises.
In 1Q2014, of 499 (of 499) reporting companies, 370 or 74.5% surprised posi2tively on earnings, with an average +5.91% surprise average. Of reporting companies, 263 or 53.0% reported sales or revenues above estimates. The average sales/revenue surprise was +0.20%. Energy led with respective +10.0% and -1.01% earnings and revenue surprises. Financials had a respective +5.67% and +0.26% earnings and revenue surprises. Consumer staples lagged with respective +0.34% and -0.66% earnings and revenue surprises.
Valuation. The SPX trades at 18.0x estimated 2013 earnings ($110.15), 16.7x estimated 2014 earnings ($118.56), 15.0x estimated 2015 earnings ($132.22), and 13.5x estimated 2016 earnings ($146.42). The 10-year average median price/earnings multiple is 15.9x. Analysts expect 2014, 2015, and 2016 earnings to grow +7.64%, +11.5%, and 10.7%, respectively.
The KBW Bank Index (BKX) trades at 13.9x 2013 adjusted EPS ($5.16), 13.5x estimated 2014 earnings ($5.32), 12.0x estimated 2015 earnings ($5.97), and 10.7x 2016 earnings ($6.66). Analysts expect 2014, 2015, 2016 EPS will grow +3.16%, +12.2%, and +11.6%, respectively.
Composite, index, and equity options. Options markets improved are unchanged at neutral to bullish, compared to neutral to bullish the prior session. Composite options are bullish, index options are neutral, and equity options are neutral. The composite put/call ratio is 0.87, compared to 0.87 the prior day, and better than 5- and 10-period moving averages of 0.69 and 0.77, respectively. The index put/call ratio is 1.39, compared to 1.04 the prior day, and worse than its 5- and 10-period moving averages of 1.22 and 1.09, respectively. The equity put/call ratio closed the day at 0.87, compared to 0.81 the prior day, and worse than its 5- and 10-period moving averages of 0.78 and 0.79, respectively.
NYSE Volume, Breadth Indicators. Volume fell -10.0% to 536.96 million shares, compared to 596.69 million shares the prior day, 0.75x the 715.15 million share 20-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led by +473 (compared to -796 the prior day) or 1.37:1. Up volume was 2.46:1 down volume.
Libor, LOIS, Currencies, Treasuries, Commodities:
· USD LIBOR is 0.09410%, compared to 0.09450% the prior day. USD 3-month LIBOR is 0.23360%, down from 0.23410% the prior day, and compares to the January 4, 2013, recent peak of 0.58250%.
· The US LIBOR-OIS (LOIS) spread is 13.410 bps, compared to 13.310 bps the prior day, and compares to the recent June 12, 2012, 46.785 bps high. Euribor-OIS is 14.950 bps, compared to 15.100 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 -11.622 bps, compared to -11.419 bps the prior day, up from a trough of -147.00 bps on December 14, 2011, and within a normal -10 bps and -40 bps range.
· German 10-year debt yields are 1.24%, compared to 1.26% the prior day.
· Japanese 10-year debt yields are 0.56%, compared to 0.57% the prior day.
· Spanish and Italian 10-year debt yields are slightly higher. Spanish 10-year debt yields are 2.71%, compared to 2.68% the prior day, modestly above the U.S. 10-year yield and compares to its 2.575% June 9th low. Italian 10-year debt yields are at 2.84%, compared to 2.81% the prior day and their June 9th 2.704% recent low. Spanish and Italian 10-year debt yields peaked at 7.62% and 7.26%, respectively, in July 2012 and November 2011.
· U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.500% and 2.588%, respectively, compared to 0.512% and 2.611% Monday. The yield curve narrowed -1.07 bps, with the 2- to 10-year spread at 2.088%, compared to 2.099% 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 mixed, stronger compared to the euro and British pound, but weaker compared to the Japanese yen. The dollar trades at US$80.265, compared to US$80.298 intraday high and US$80.218 the prior day, and better compared to its $80.174 50-day, US$80.047 100-day, and US$80.259 200-day averages. The euro trades at US$1.3597, compared to a US$1.3588 intraday low and US$1.3605 the prior day. The euro trades worse compared to its US$1.3667 50-day and US$1.3735 100-day averages, and compares to a multi-year low of US$1.1877 on June 7, 2010. In Japan, the dollar trades at ¥101.71, compared to ¥101.86 the prior day. The yen trades better than its 50-day moving average ¥101.96, and better than its January 1st 105.31 closing low, its weakest prior multi-year closing low.
· Citigroup Economic Surprise Index worsened to -11.20, compared to -9.70 the prior day. The index is better compared to its respective -14.30 5-day and -16.32 10-day moving averages. From a +72.70 high on January 15th, the index subsequently trended lower and turned negative on February 19th and fell to a -45.90 124-week low on April 7th. The index turned briefly positive in the latter half of May, but has been negative since May 29th. After a lag, the CESIUSD correlates with EPS revisions.
· Commodities prices are mixed, with lower energy, higher precious metals, mixed aluminum and copper, and mixed higher agriculture prices.
· The CBOE SPX Volatility Index (VIX) rose +9.79% to 11.33, compared to 10.82 at the prior close. The VIX is -0.64% below the 11.40 20-day moving average. Its 30-day high is 12.89. Its 30-day low is 10.28. Its all-time closing low is 9.31 on December 22, 1993. The long-term average is 20.00.
· The Euro Stoxx 50 volatility index (V2X) is 14.93, up +4.21% compared to 14.33 at the prior day's close. The V2X index trades +7.07% above its 13.94 20-day moving average, -13.3% below the 17.23 30-day high, and +12.0% above the 12.30 30-day low.
· The Hang Seng volatility index (VHSI) closed at 12.09, -4.50% compared to 12.66 at the prior close. The VHSI index trades -4.43% below its 12.65 20-day moving average. Its lowest historical close was 11.72, on June 30, 2005.
· CBOE SKEW (SKEW) fell -3.18% to 137.76, compared to 142.28 the prior session, above a neutral reading (115-120) and since June 19th, above 130, a level that correlates well with short-term market tops. The recent record high was 143.26 on June 20, 2014. Its recent low was 112.47 on May 25, 2013. Spikes in excess of 130 correlate well with short-term market tops, as occurred last December, ahead of market declines last January. 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 7:30, June NFIB small business optimism fell to 95.0, compared to 97.0 survey and 96.6 prior.
- At 10:00, May JOLT job openings.
- At 3:00, May consumer credit.
Overseas Economic Reporting and News:
- France - June Bank of France business sentiment rose to 97, compared to 96 survey and 97 prior. The May trade balance was -4.866 billion, worse than -4.250 billion survey.
- Germany - May trade balance was 17.8 billion, compared to +16.2 billion survey and 17.2 billion revised prior.
- United Kingdom - May MoM industrial production fell -0.7%, compared to +0.3% survey and prior. May MoM manufacturing production fell -1.3%, compared to -0.4% survey and +0.3% revised prior.
Monday's Trade. On greater, but below average NYSE volume, major U.S. equity indexes distributed, closing off at least -0.26% from prior day record or multi-year highs. The SPX, DJI, Nasdaq, and NYSE composite fell -0.39%, -0.26%, -0.77%, and -0.62%, respectively. The SPX, DJI, Nasdaq, and NYSE composite are at least +2.70% higher in 2014. All are at least +0.51% higher in July. Market breadth was negative, with gainers only +0.44x losing stocks. Most SPX market segments closed lower. Leaders were utilities, telecommunications, and consumer staples, which rose +0.085. Financials fell -0.50%. Laggards were industrials, health care, and materials, which fell at least -0.665.
Other notable indexes also distributed. The Russell 2000 (RTY) fell -1.77% and closed -1.81% below its March 4th record. The Nasdaq Internet Index (QNET) fell -1.49% and closed -7.85% below its March 6th closing high. The Nasdaq Biotech Index (NBI) fell -2.43%, -4.98% below its February 25th record high.
NYSE volume rose +12.0% to 601.54 million shares, compared to 536.96 million shares the prior day, 0.84x the 713.12 million share 20-day moving average volume. Bond markets strengthened. The U.S. 10-year yield rose to an early 2.6593% intraday high, but moved lower by 8:00 am, and fell to an early afternoon 2.6065% intraday low before finding resistance. The index traded narrowly to the close, ending at 2.6110%, down -2.73 bps compared to the 2.6383% prior close.
From its prior day and record 1985.59 SPX close, June 2014 SPX futures (SPM4) suggested a moderately lower open. The index opened at 1980, found initial support at 1978, but after a failed mid-morning rally to 1982, the index fell back to 1976, which provided support through the close. The index closed at 1977.65, +84.0% above the 1074.77 October 4, 2011, intraday low, the bottom of the most recent correction.
From its prior day 8,232.59 close, the DJ Transportation index (TRAN) fell -1.03%, compared to the DJI's -0.26% loss. The TRAN fell to 8,220 in early trading, eased to the 8,193.06 intraday low by mid-afternoon, then traded narrowly to the close. The index closed at 8,209.32, -1.07% below the prior July 3rd 8,298.17 record close. Volume rose +59.1% to 13.737 million shares, compared to 8.633 million shares the prior session, and 1.04x the 15-day moving average volume. The TRAN closed +0.61% and +2.81% above its respective 20- and 50-day moving averages, and +6.17% and +10.9% above its respective 100- and 200-day moving averages.
Market volatility rose +9.79%, as the CBOE SPX volatility index (VIX) closed at 11.33, compared to 10.32 at the prior close. The index opened above 11.10, fell to 11.01 by mid-morning, then rose to the 11.54 intraday high by late morning. The index traded narrowly around 11.40 through the afternoon. The VIX's all-time closing low is 9.31, on December 22, 1993. Its record high is 89.53 in December 2008. Its lifetime average is 20.01. The CBOE put/call SKEW fell -3.18% to 137.76, compared to 142.28 the prior session, above a neutral 115-120 range, and well above 130, a level that correlates well with short-term market tops. Its record 143.26 high came on June 20th.
The market's technical factors were little changed. The SPX relative strength (RSI) rose to 67.33, compared to 73.62 the prior day, moving into an overbought range, and compared to an overbought 73.73 on June 9th, but better than 58.90 on June 12th, and an oversold 31.24 on February 3rd. The RSI compares to an overbought 71.26 on December 31st, when the SPX closed at an earlier record high, and compares to earlier oversold levels of 35.14 on August 27th and 39.19 on October 9th.
Last week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.29%, +1.28%, +2.00%, and +1.19%, respectively. The prior week, the SPX, DJI, Nasdaq, and NYSE composite closed up +1.28%, +0.45%, +2.02%, and +1.02%, respectively. In July, the SPX, DJI, Nasdaq, and NYSE composite are up +0.89%, +1.17%, +0.98%, and +0.51%, respectively. In June, the SPX, DJI, Nasdaq, and NYSE composite rose +1.91%, +0.65%, +3.90%, and +2.07%, respectively.
In 2014, the SPX, DJI, Nasdaq, and NYSE composite are up +6.99%, +2.70%, +6.58%, and +6.11%, 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 lower and below 15-day average volume, the BKX fell -0.65% to 71.91, compared to 72.38 at the prior day's close, its 22nd consecutive close above 70, but -1.37% below its 72.91 March 20th post-2008 closing high. The index opened lower and set its 72.30 intraday high, then fell to 71.80 by mid-morning, which provided support through the session's remainder. Volume rose +1.02% to 37.249 million shares, compared to 36.412 million shares the prior day, and 0.82x the 44.941 million share 15-day moving average.
Large cap banks outperformed the regional banks, as the KBW regional banking index (KRX) fell -1.17%.
Last week, the BKX rose +1.51%, compared to a gain of +0.83% the prior week. In July, the BKX is up +0.84%, compared to June, when the BKX rose +3.48%. In 2014, the BKX is up +3.83%, compared to the SPX's +6.99% gain. In 2013, the BKX rose +35.1%, better than the SPX's +29.6% rise.
The BKX is now +24.1% better than the June 24, 2013, 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. On April 10th, the BKX fell below 70.00 and then eased consistently to the May 15th 66.81 closing low, its lowest close since early February. The BKX closed +120.9% 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 +84.0% in the same period.
The BKX index closed -40.2% below its February 20, 2007, record 121.06 high. The BKX is up +288.7% from its 18.62 March 6, 2009, closing low, its low during the 2008-09 financial panic.
Technical indicators were little changed. The index closed +1.51% and +4.13% above its respective 20- and 50-day moving averages, and +3.70% and +6.25% above its respective 100- and 200-day moving average. The 20-day moving average rose +11 bps to 71.31. The 69.51 50-day moving average rose +5 bps. Its 69.80 100-day moving average rose +5 bps, and the 200-day moving average rose +4 bps to 68.12. The 20-day closed (by +1.80 points) above the 50-day, and the gap widened +6 bps. The 50-day moving average closed (by +1.39 points) above the 200-day moving average, and the gap widened +1 bp. The 100-day moving average closed (by +1.68 points) above the 200-day moving average, and the gap widened 1 bp.
The directional movement indicator narrowed to +16.445, compared to +18.150 the prior day, with consecutive positive readings since June 10th. Relative strength fell to 60.50, compared to 66.41 the prior day, in a neutral range, down from an overbought 73.14 on June 9th but up from the recent 32.95 low on February 3rd. The lowest recent RSI level was 31.08 on November 14, 2012, which is also the date of the BKX's 2012 closing low. Next resistance is 72.22; next support is 71.67.
SPX, DJI, RTY, TRAN, CCMP, NYA, VIX, SKEW, NKY, EURUSD, USGG10YR, HSI, SHCOMP, SX5E, CAC, DAX, FTSE, JPY, GBP, EUR