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U.S. Futures Modestly Lower As News Flow Slows

|Includes: Capital One Financial Corporation (COF)
This morning. U.S. equity markets are in a confirmed uptrend. The uptrend began on November 28th, when the SPX opened at 1158.67, but the SPX 50-day moving average has trended higher since October 13th. Technical indicators are positive. All major indices are above their respective 20-, 50-, 100-, and 200-day moving averages. The SPX is in bull market territory, closing Wednesday up +30.7% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, up +52.8% in the same period.

In Asia, equity markets closed mixed, with greater weakness in Hong Kong, which appears troubled by slack property valuations. In Europe, stock exchanges are modestly lower, but improving from their intraday lows. The dollar is mixed against the euro, pound, and Japanese yen. U.S. options markets suggest a neutral to bearish short-term outlook. Commodities prices are mostly lower. U.S. Treasury yields are lower, with the 10-year at 2.273%, down from 2.294% the prior day. U.S. repo rates are at 19 bps.

The ECB's bank LTRO lending facilities are credited with easing interbank lending and associated liquidity problems. Overnight and 3-month LIBO and Euribor-OIS spreads have stabilized in recent weeks at much lower levels than in December, when Eurozone solvency concerns were at their peak. The 3-month Euro basis swap is at its best level since early August and less than half its worst level of late December.

After a fair value adjustment of +0.17 points, June SPX equity futures are at 1395.50, down -3.17 points. The SPX opens at 1404.17, a new multi-year closing high, and +2.40% and +4.76% above its respective 20- and 50-day moving averages, and +8.86% and +11.4% above its respective 100- and 200-day moving averages. Next resistance is at 1406.21. First support is at 1401.80.

Friday. Equity markets closed mixed, as modest SPX and NYSE composite gains offset small losses on the Nasdaq and DJI. Quadruple options expirations pushed volumes significantly higher, but there was little evidence that institutional shareholders were lightening portfolios. All the major indexes closed the week higher. The NYSE composite and SPX led with a gains of +0.29% and +0.11%, respectively. The Nasdaq and DJI lost -0.04% and -0.15%, respectively. The BKX distribution day count fell to 5; otherwise, there was no change in the distribution day counts of the major indexes. Market breadth was modestly negative. NYSE volume rose 95.2% to 2.03x the 50-day moving average. Market segments closed mixed. Leaders were oil and gas, basic materials, and financials, which closed up at least +0.27%. Laggards were consumer services, utilities, and consumer goods, which closed down at least -0.13%.

DJ transports outperformed the industrials, rising +0.03% to close at 5351.32, up from 5349.74 the prior day, but -0.33% off the 5,368.93 February 3rd closing high. The index closed +3.38% and +2.48% above its 20- and 50-day moving averages. The TRAN has not confirmed subsequent DJI new highs.

Technical factors are positive. All major exchanges closed above their respective 20-, 50-, 100-, and 200-day moving averages. Volatility fell -6.16%, and the VIX closed at 14.47, down from 15.42 the prior day. The CBOE put/call skew rose to 138.43, up from 136.51 the prior session. Spikes above 130 correlate well with short-term market tops, though the March 12th spike to 139.25 produced no pullback.

From its prior 1402.60 close, the SPX tested resistance at 1405 through the day, but traded within a narrow range, to an intraday high of 1405.88 and intraday low of 1401.47. Trading desks focused on the mixed commodities picture, with oil and gas rallying even as precious metals fell. Treasuries stabilized. Institutional investors continue to accumulate shares on weakness. d rallied to close with a modest loss. Short selling remains subdued.

Immediate support is 1402, then 1372 (the February high), 1371 (the 20-day moving average), 1356 (a -23.6% Fibonacci retracement from December 19th), 1340 (50-day moving average), 1327 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1406, followed by 1408 and 1413.

The distribution day count is 3 on the DJI, 4 on the SPX and Nasdaq, and 5 on the NYSE composite. The BKX count fell to 5.

In Asia, indexes closed mixed, with greater weakness in Hong Kong. Volumes were also mixed. Commentary focused on the comments of IMF managing director Lagarde that emerging markets growth may slow in 2012 and Chinese home prices, which posted their worst performance of the year. In Japan, the NKY closed up +0.12% on a -17.1% decrease in volume. In China, the HSI closed down -0.95% on a -12.1% decrease in volume. The SHCOMP closed up +0.23% on a -0.01% increase in volume. In 2012, the indexes are up +20.0%, +14.5%, and +9.58%, respectively.

In Japan, the NKY closed at 10,141.99, up from 10,129.83 the prior day. The index opened at 10,150 and rallied to an early session intraday high of 10,172.64, but dropped back to test support at 10,145 by mid-day. The index again tested resistance at 10,170 early in the afternoon session, then fell to the intraday low of 10,134.48 late in the session, before rallying mildly into the close. The index closed +4.01% and +10.5% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were oil and gas, industrials, and health care, which closed up at least +0.20%. Financials rose +0.06%. Basic materials, telecommunications, and utilities lagged and closed down at least -0.21%.

In China, the Hang Seng closed at 21,115.29, down from 21,317.85 at the prior close. The index at the intraday 21,454.01 high, and traded above the prior close through most of the session, but sold off late on IMF comments on emerging growth risks, and closed just slightly better than the 21,075.38 intraday low. The HSI closed -0.82% below its 20-day moving average, but remains +2.59% above its 50-day moving average. Market segments closed mostly lower. Technology managed a +1.57% gain, but oil and gas and financials lost at least -0.01%. Laggards were consumer services, basic materials, and telecommunications, which lost at least -2.09%. In Shanghai, the SHCOMP closed at 2,410.18, up from 2,404.74 at the prior close. The SHCOMP opened lower and traded to an intraday low of 2,383.77 late in the morning session, the rallied through the close to end just off its 2,412.34 intraday close. Most market segments closed higher. Leaders were health care, basic materials, and technology, which rose at least +1.17%. Laggards were oil and gas, financials, and telecommunications, which closed down at least -0.30%.

In Europe, equities are modestly lower, but have narrowed earlier moderate losses. Commentary reflects profit taking, as markets retreat from 8-month highs. The Euro Stoxx 50, FTSE 100, and DAX are down -0.37%, -0.35%, and -0.61%, respectively. All are above their respective 20-day, 50-day, 100-, and 200-day moving averages. Compared to the prior day's 2,608.30 close, the Euro Stoxx 50 trades at 2,597.96, compared to the 2,588.93 intraday low. The index is up +2.70% and +4.96% above its respective 20- and 50-day moving averages. Most market segments are lower. Leaders are telecommunications and technology, which are up at least +0.40%. Financials are unchanged. Laggards are basic materials, health care, and industrials, which are off at least -0.99%.

Libor, LOIS, Currencies, Treasuries, Commodities:
 

  • USD LIBOR rose to 0.14850%, unchanged from 0.14850% the prior day, but down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.47365%, unchanged from 0.47375% the prior day and down from the January 4th peak of 0.58250%.
  • The US Libor-OIS (LOIS) spread fell to 34.22 bps, from 33.87 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS fell to 48.40 bps from 49.40 bps the prior day and the December 27th high of 98.80 bps. A fall in the LOIS indicates a decreased intra-bank lending risk premium.
  • The Euro 3-month basis swap improved to -58.00 bps, up from -59.96 bps the prior day, at their best levels since August 1st, and up from a trough of -147.00 bps on December 14th.
  • The U.S. government overnight repo rate is 19 bps, compared to an August 2nd high of 33 bps.
  • U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.339% and 2.269%, respectively, compared to 0.359% and 2.294% Friday. The yield curve narrowed to +1.930%, from +1.935% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.520% on September 22, 2011, to a high of +2.77% on April 8, 2011.
  • The U.S. dollar is mixed against the euro, British pound, and Japanese yen. The dollar trades at US$79.770, compared to a US$79.724 intraday low and US$79.786 at the prior day's close, and mixed compared to its US$79.576 50-day, US$79.289 100-day, and US$77.469 200-day averages. The euro trades at US$1.3168, compared to an intraday high of US$1.3187 and compares to a close of US$1.3175 the prior day. The euro trades better than its US$1.3118 50-day, but worse than its US$1.3206 100-day averages. In Japan, the dollar trades at ¥83.15, compared to ¥83.43 the day prior. The yen trades worse than its 50-day moving average ¥79.03.
  • Commodities prices are mostly lower, with lower energy, lower precious metals, mixed aluminum and copper, and lower agriculture prices.

Volatility, Skew:
  • The VIX ended at 14.47, down -6.16% from 15.42 at the prior close. The VIX is -16.4% below its 17.30 20-day moving average.
  • The Euro Stoxx 50 volatility index (V2X) is up +3.84% to 19.23, compared to 18.52 at the prior day's close. The V2X index trades -17.8% below its 23.38 20-day moving average, -33.9% below the 29.07 30-day high, and +11.4% above the 17.26 30-day low.
  • The Hang Seng volatility index (VHSI) closed at 20.84, up +5.41% from 19.77 the prior day. The VHSI index trades -5.09% below its 21.96 20-day moving average.
  • CBOE skew rose +1.41% to 138.43 from 136.51 at the prior day's close, well above a neutral (115-120) range. Spikes in excess of 130 correlate well with short-term market tops. The index tracks market tail risks, the cost of buying out-of-the-money, long-dated options, i.e., options not affected by expirations. A rise suggests that investors are buying more puts than calls, a bearish signal.

U.S. news and economic reporting:

· March NAHB housing market index was , compared to survey 30 and prior 29.

· Housing starts rose % to K in February, compared to survey 700K and prior 699K.

· Building permits rose % to K, compared to survey 686K and prior 676K.

Overseas News. In January, Italian industrial orders fell more than expected, declining -7.4% over the prior month compared to -3.2% estimates. In January, the Eurozone's seasonally adjusted Current Account recorded the highest surplus in five years, rising to €4.5 billion from €3.4 billion in December.

Company News:

· COF - upgraded to buy at Jeffries, $72 price target

4Q2011 Earnings. The fourth quarter's earnings reports have so far exceeded expectations. Of the 474 S&P500 companies that reported earnings to date, 68% (320 out of 474) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +3.2% (versus a historical average of +2%). EPS is up +4.9% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 56% beat revenue estimates. In the fourth quarter of 2011, analysts estimate the SPX will earn $24.34 per share, compared to $25.19 and $22.25 per share in 3Q11 and 4Q10, a -3.4% and +9.4% change, respectively.

With all 24 BKX members reporting fourth quarter earnings, 42% beat operating EPS estimates, with aggregated results disappointing by -16.7%, while 46% beat revenue estimates, with aggregated results missing by -0.9%. EPS is down by -20.4% over the prior year while revenue has decline by -3.8%. In the fourth quarter, the BKX earned $1.25 per share, compared to $1.24 and $0.91 per share in 3Q11 and 4Q10, a +0.8% and +37.4% change, respectively.

Valuation. The SPX trades at 13.5x estimated 2012 earnings ($104.29) and 11.9x estimated 2013 earnings ($117.94), compared to 13.4x and 11.9 respective 2011-12 earnings Friday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -4.1%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +9.8% and +24.2%, respectively.

Large-cap banks trade at a median 1.43x tangible book value, and 11.8x and 10.0x 2012and 2013 consensus earnings, respectively, compared to 1.42x tangible book value and 11.8x/10.0x 2012/2013 earnings yesterday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.30 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.1% and +45.4% increase, respectively.

Options. Options markets are mixed to bearish. Composite options markets are neutral, index options markets are neutral, and equity options markets are bearish. The composite put/call ratio closed at 0.76, compared to 0.69 the prior day and below its 5- and 10-period moving averages of 0.84 and 0.89 respectively. The index put/call ratio closed at 1.30, compared to 0.89 the prior day, and above the 5- and 10-period moving averages of 1.19 and 1.23, respectively. The equity put/call ratio closed the day at 0.48, compared to 0.53 the prior day, below its 5- and 10-period moving averages of 0.58 and 0.63, respectively.

Price Exhaustion/Trend Reversal. On a daily timeframe, technical price exhaustion metrics show the SPX and S&P futures began reaching potential upward price exhaustion levels as early as January 18th, the first such signals since April, and repeatedly through February with the most recent reading on February 21st on both indices and March 16th on the BKX. Intra-day timeframes of 120- and 60-minute intervals show the SPX and BKX reached multiple levels of potential price exhaustion in January and February with the most recent indicator coming on March 14th and 15th.

NYSE Indicators. On options expiration, volume rose +95.2% to 1.648 billion shares, 2.03x the 50-day moving average, from 844.45 million shares Thursday. Market breadth was negative, but up volume led down volume. Advancing stocks lagged decliners by -285 (compared to +579 the prior day), or 0.83:1. Up volume led down volume by 1.24:1.

SPX. On higher, quad-witching volume, the SPX rose +1.57 points, or +0.11%, to 1404.17, the 42nd straight close above 1300 and the second straight close above 1400. Volume rose +102.70% to 1.343 billion shares, up from 662.68 million shares Thursday and above the 634.24 million share 50-day moving average. For the 59th consecutive day, the SPX closed above its 50-day moving average (1340.32) and remained above its 200-day moving average (1261.05) for the 55th time in the past 56 sessions. The SPX closed above its 200-week moving average (1132.89) for the 110th straight session.

From its prior close at 1402.60, the SPX opened higher to 1404, traded nearly to 1406, then fell to the intra-day low of 1401.47, in negative territory, by 10:20. Through 12:45, the index rallied and set the intra-day high of 1405.88. The index traded in a narrow and positive band through day's end, and closed in the middle of the session's range.

Technical indicators are positive. The SPX closed above 1200 for the 74th straight session, above 1300 for the 42nd session, and above 1400 for the second straight session. The 50-day moving average crossed above the 100-day moving average on December 6th, having been below that average since July 11th. After peaking on June 6th at 1317.97, the 100-day moving average crossed below the 200-day average on September 7th. On December 22nd, the 100-day set a low at 1202.28, and began an upward trend. The 200-day moving average has troughed and is increasing. The 50-day moving average climbed above the 200-day moving average on January 31st, having been below that average since August 11th. For the seventh straight session, the SPX closed (by +2.40%) above its 20-day moving average. The index closed (by +4.76%)above its 50-day moving average for the 60th straight session. The index closed (by +8.86%) above its 100-day moving average (1289.83) for the 74th straight session. The SPX closed +11.35% above its 200-day moving average for the 55th time in the past 56 sessions. All moving averages increased. The directional momentum indicator is positive for the seventh straight session, and the trend is strong and steady. Relative strength rose to 71.54 from 71.09, an overbought range. Next resistance is at 1406.21; next support is at 1401.80.

BKX. On higher, quad-witching volume, the KBW bank index rose +0.32 points, or +0.65%, to 49.74, its 50th straight close above 40 and its highest close since May 31, 2011. Volume rose +54.09% to 189.76 million shares, up from 123.15 million shares Thursday and above the 82.18 million share 50-day average. The BKX closed +15.73% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -14.17% and -10.59% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

Financials outperformed the market, and large-cap banks outperformed regional banks. From its prior close of 49.42, the BKX opened at 49.70 and rose to the intra-day high of 49.90 at 9:32. By 10:00, gains retraced back to break-even, and the index fell to the intra-day low of 49.27, slightly in negative territory. A rally through 11:10 took the index back to 49.85, and the BKX traded fairly flat and in a positive range through the close.

Technical indicators are positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +52.76% from the 32.56 October 4th intra-day low compared to a +30.74% rebound in the SPX. However, the BKX is still -10.6% below its 2011 high, compared to the SPX which is +3.0% above its 2011 peak. On February 22nd, the 50-day moving average crossed above the 200-day moving average for the first time in 176 sessions, or since June 15th. Moving average alignment is mostly positive. Only the 100-day moving average (41.56) is below the 200-day moving average (41.63), though a bullish cross will occur tomorrow. The 20-day (45.88) is above all moving averages and the 50-day (44.50) is above the 100- and 200-day moving averages. For the 55th time in the past 56 sessions, the 20-day closed (by +1.39 points) above the 50-day, and the gap expanded. The 50-day moving average closed (by +2.87 points) above the 200-day moving average for the 19th straight session, and the gap widened. The 100-day moving average closed (by -0.07 points) below the 200-day moving average for the 171st straight session, but the gap is narrowing. The BKX closed +8.40% above its 20-day moving average for the seventh straight session. The index closed (by +11.78%) above its 50-day moving average for the 58th straight session. The index closed (by +19.67%) above the 100-day moving average for the 59th straight session. The index closed (by +19.49%) above its 200-day moving average for the 41st time in 42 sessions. The index closed below 50.0 for the 200th straight session but above 40.0 for the 52nd straight session. The directional movement indicator is positive for the sixth straight session, and the trend is weak. Relative strength rose to 73.92 from 72.96, an overbought range and the highest level since January 5, 2011. Next resistance is 50.00; next support at 49.37.