This morning. U.S. equity markets are in correction, but posted strong gains yesterday, ending 5 consecutive lower closes. All major indexes closed below their respective 20-day moving averages. Only the Nasdaq closed above its 50-day moving average. The SPX closed -3.55% below its recent April 2nd high of 1419.04. All major indices are above their respective 100- and 200-day moving averages. Most moving averages are trending higher, though the SPX 20-day moving average fell for a 2nd consecutive day. Shorter-term averages remain above longer term averages. The SPX is in bull market territory, closing Wednesday up +27.4% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, up +46.8% in the same period.
In Asia, Tokyo and Hong Kong equity markets rallied strongly in the afternoon session, closing with moderate to strong gains. Shanghai closed higher, its 3rd consecutive advance and closed above its 20-day moving average. In Europe, equity markets are modestly mixed, unable to extend the prior day's rebound. Commentary focused on the Fed Beige Book, which indicated moderate growth in most districts. French elections are scheduled for April 22nd, with a May 6th run-off, as required. Also, Greek parliamentary elections are on May 6th. The dollar is mixed. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mixed. U.S. Treasury yields are higher, with the 10-year at 2.033%, up from 2.035% the prior day. U.S. repo rates are at 18 bps.
After a fair value adjustment of +0.41 points, June SPX equity futures are at 1367.20, up +2.79 points. The SPX opens at 1368.71, -2.22% and -0.33% below its respective 20- and 50-day moving averages, and +4.10% and +7.69% above its respective 100- and 200-day moving averages. Next resistance is at 1375.95. First support is at 1360.22.
Wednesday. Equity markets rebounded after 5 consecutive lower closes, rallying sharply, but unable to recapture important technical benchmarks lost in the prior day's sell-off. From its prior 1358.59 close, the SPX rallied strongly at the open and posted its 1374.71 intraday high by mid-morning. The index trended modestly lower through the European close, and trended back to 1373 by mid-afternoon, but trended lower again through the end of the session. NYSE volume fell -18.7% to 0.98x the 50-day moving average. The NYSE composite gained +0.90%, followed by the Nasdaq, SPX, and DJI, which gained +0.84%, +0.74%, and +0.70%, respectively. Market breadth was positive. All market segments closed at least +0.02% higher. Leaders were financials, telecommunications, and consumer services, which rose at least +1.16%. Laggards were health care, utilities, and oil and gas.
DJ transports outperformed the industrials, rising +0.90% to close at 5134.40, from 5088.13 the prior day, and -4.37% off its 5368.93 February 3rd closing high. The index closed -2.40% and -1.93% below its respective 20- and 50-day moving averages. The TRAN has not confirmed multiple DJI new highs subsequent to February 3rd. The DJI closed -3.46% below its recent April 2nd high.
Technical indicators show continued deterioration. Major exchanges closed below their respective 20-day moving averages, and only the Nasdaq closed above its 50-day moving average. All closed above their respective 100- and 200-day moving averages. Volatility fell as the VIX closed at 20.02, down -1.81% from 20.39 the prior day. The CBOE put/call skew fell to 118.43, down -0.70% from 119.27 the prior session, within a 115-120 neutral range.
Trading desks report that despite yesterday's gains, the rally didn't seem especially strong, coming on lower volume and ending well off the intraday highs. Traders attributed the rally to AA earnings Tuesday night and to a rhetorical campaign in Europe to assuage concerns regarding Spanish and Italian governmental solvency. The president's Buffett Tax campaign did nothing to settle markets, of course.
Immediate support is 1360, then 51 (a -38.2% Fibonacci retrace), and then 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1372 (the 50-day moving average, then 1401 (the 20-day moving average), and 1419 (the April high).
The distribution day count fell as the March 6th distribution grew stale. The count numbers 8 for the NYSE composite, 5 on the DJI and 3 on the Nasdaq and SPX. The BKX count is 5.
In Asia, equity markets started slow, but rallied through the afternoon to close higher on greater volume. Commentary focused on views that China would ease monetary and other fiscal policies. Citigroup upgraded Asian industrials. In Tokyo, the NKY closed up +0.70% on a -13.5% volume decrease, ending a string of 7 consecutive losses. The index closed below 10,000 for the 7th consecutive day. In Hong Kong, the HSI closed up +0.93% on a +19.0% volume increase. In Shanghai, the SHCOMP rose +1.82% on a +30.2% increase in volume. After its 3rd consecutive gain, the SHCOMP recaptured its 20-day moving average.
In Japan, the NKY closed at 9,524.79, up from 9,458.74 at the prior close. The index opened near 9,490, but lost ground through the first hour, touching the 9,449.49 intraday low before finding support at 9,460. After trading narrowly through most of the early afternoon, the index rallied in the final hour to the 9,541.04 intraday high, then gave ground into the close. The index closed -7.12% below its recent March 27th high, and -4.42% and -1.05% below its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were basic materials, industrials, and oil and gas, which rose at least +1.28%. Laggards were financials, health care, and utilities, which closed down at least -0.18%.
In China, the Hang Seng closed at 20,324.32, up from 20,140.67 at the prior close. The index closed -6.24% below its February 29th high. Volatility fell -3.89% and closed +2.77% above its 20-day moving average. The index opened slightly higher and traded narrowly, but higher, through the morning session. The index rallied steadily through most of the afternoon to a final hour 20,360.48 intraday high. The HSI closed -2.52% and -3.11% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were technology, oil and gas, and financials, which rose at least +1.04%. Laggards were industrials and utilities, which rose at least +0.35%, and consumer services, which closed off -0.92%.
In Shanghai, the SHCOMP closed at 2,350.86, up from 2,308.93 at Wednesday's close and its 3rd consecutive increase. The SHCOMP closed -4.98% below its recent March 14th high. The SHCOMP opened at 2,310, and traded narrowly through the morning session. The rally began after mid-day, and the index closed at its intraday high. The index is -4.98% below its recent March 14th high. The index closed +0.13% above and -0.57% below its respective 20- and 50-day moving averages. All market segments closed at least +1.01% higher. Leaders were basic materials, health care, and financials, which rose at least +1.97%. Laggards were oil and gas, utilities, and telecommunications.
In Europe, equities are mixed. Commentary focused on yesterday's Fed Beige Book, which reported moderate economic growth in most districts. The Euro Stoxx 50, FTSE 100, and DAX are mixed, -0.16%, -0.02%, and +0.56%, respectively. All trade below their respective 20- and 50-day moving averages. The FTSE 100 also trades below its 100-day moving average. The Euro Stoxx 50 and CAC also trade below their 100- and 200-day moving averages. Compared to the prior day's 2,341.36 close, the Euro Stoxx 50 trades at 2,337.73, off the 2,355.12 intraday high. The index is -6.58% and -6.62% below its respective 20- and 50-day moving averages. Market segments are mixed. Leaders are basic materials, industrials, and consumer goods, which are up at least +0.91%. Financials are off -0.23%. Laggards are utilities, telecommunications, and oil and gas, which are down at least -1.14%.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.15000%, down from 0.15100% the prior day. The recent low was 0.13850% on March 1st, down from the December 30th 0.15400% high. USD 3-month LIBOR is 0.46665%, down from 0.46865% the prior day, and down from the January 4th peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 32.77 bps, up from 32.47 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 40.60 bps, down from 40.90 the prior day and the December 27th high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
- The Euro 3-month basis swap is -52.00 bps, up from -55.25 bps the prior day, but up from a trough of -147.00 bps on December 14th. A normal range is between -10 bps and -40 bps.
- The U.S. government overnight repo rate is 22 bps, compared to an August 2nd high of 33 bps.
- U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.290% and 2.039%, respectively, compared to 0.290% and 2.035% Wednesday. The yield curve widened to +1.749%, from +1.745% 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 +2.75% on April 12, 2011.
- The U.S. dollar is mixed, weaker compared to the euro and British pound, but stronger compared to the Japanese yen. The dollar trades at US$79.592, compared to a US$79.511 intraday low and US$79.795 the prior day, and mixed compared to its US$79.349 50-day, US$79.610 100-day, and US$77.878 200-day averages. The euro trades at US$1.3168, compared to an intraday high of US$1.3171 and its US$1.3110 close the prior day. The euro compares to its US$1.3214 50-day and $1.3136 100-day averages. In Japan, the dollar trades at ¥80.99, compared to ¥80.86 the day prior. The yen compares at its 50-day moving average ¥80.99.
- Commodities prices are mixed, with mixed energy, lower precious metals, but higher aluminum and copper, and higher agriculture prices.
- The VIX ended at 20.02, down -1.81%, from 20.39 at the prior close. The VIX is +24.6% above its 16.07 20-day moving average.
- The Euro Stoxx 50 volatility index (V2X) is down -0.06% to 29.472, compared to 29.49 at the prior day's close. The V2X index trades +30.5% above its 22.58 20-day moving average, -4.97% below the 31.02 30-day high, and +70.7% above the 17.26 30-day low.
- The Hang Seng volatility index (VHSI) closed at 20.98, down -3.89% from 21.83 the prior day. The VHSI index trades +2.77% above its 20.41 20-day moving average.
- CBOE skew fell -0.70% to 118.43, from 119.27 at the prior day's close, and within a neutral (115-120) range. Spikes in excess of 130 (as on March 12, 15, and 16) 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:
· Initial jobless claims for the week ended April 7 were 380K, compared to 355K survey and 367K revised prior.
· Continuing claims for the week ended March 31 were 3251K, compared to 3335K survey and 3349K revised prior.
· The February trade balance was -$46.0 billion, compared to survey -$51.8 billion and revised prior of -$52.5 billion.
Overseas News. Today, Italy sold €2.88 billion in 3-year bonds with yields rising +113 basis points over March's auction to +3.89%, but the total sold was near the maximum target. In the first quarter, Greece's deficit beat its target, coming in at -€7.3 billion compared to a -€8.6 billion goal. In February, India's industrial production rose +4.1%, missing estimates for a +6.6% increase.
· BLK - initiated at neutral at BMO
4Q2011 Earnings. First quarter earnings reports began with Alcoa, which reported EPS of $0.10 compared to estimates of -$0.04. In the first quarter, analysts estimate the SPX will earn $23.88 per share, compared to $24.68 and $23.03 per share in 4Q11 and 1Q11, a -3.2% and +3.7% change, respectively.
JPMorgan Chase and Wells Fargo kick of bank earnings tomorrow, April 13th. In the first quarter, analysts estimate the BKX will earn $0.97 per share, compared to $1.20 and $0.96 per share in 4Q11 and 1Q11, a -19.2% and +1.0% change, respectively.
Valuation. The SPX trades at 13.1x estimated 2012 earnings ($104.43) and 11.6x estimated 2013 earnings ($117.94), compared to 13.0x and 11.5 respective 2011-12 earnings yesterday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -3.9%, and +0.1%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.0% and +24.2%, respectively.
Large-cap banks trade at a median 1.41x tangible book value, and 11.2x and 9.6x 2012and 2013 consensus earnings, respectively, compared to 1.39x tangible book value and 11.1x/9.5x 2012/2013 earnings Thursday. These compare to the 10-year average median multiples of 2.90x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.31 per share, compared to $4.30 and $2.96 in 2011 and 2010, a +0.2% and +45.5% increase, respectively.
Options. Options markets are neutral. Composite options markets are neutral, index options markets are neutral, and equity options markets are neutral. The composite put/call ratio closed at 1.08, compared to 1.00 the prior day and above its 5- and 10-period moving averages of 0.99 and 0.98 respectively. The index put/call ratio closed at 1.60, compared to 1.27 the prior day, above the 5- and 10-period moving averages of 1.38 and 1.40, respectively. The equity put/call ratio closed the day at 0.66, compared to 0.69 the prior day, above its 5- and 10-period moving averages of 0.66 and 0.64, 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 2011, and repeatedly through February with the most recent reading on March 26st on the SPX and March 21st and 16th on the BKX. On April 4th, the SPX closed below the lowest level in the previous four days and followed through with lower trading the next day, signaling a potential reversal's initiation. April 11th's rebound in the SPX and BKX came off important support levels near 1345 and 46.80, respectively. A breakdown below those support levels may accelerate the reversal. Short term resistance rests near 1395 and 50.25, respectively.
NYSE Indicators. Volume fell -18.7% to 790.20 million shares, 0.98x the 50-day moving average, from 972.15 million shares Tuesday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,684 (compared to -2,133 the prior day), or 3.47:1. Up volume led down volume by 4.12:1.
SPX. On lower volume, the SPX rose +10.12 points, or +0.74%, to 1368.71, the 58th straight close above 1300 but the fifth straight close below 1400. Volume fell -19.01% to 585.30 million shares, down from 722.67 million shares Tuesday and below the 618.11 million share 50-day moving average. For the second straight session, the SPX closed below its 50-day moving average (1373.29)butremained above its 200-day moving average (1271.01) for the 72nd time in the past 73 sessions. The SPX closed above its 200-week moving average (1133.36) for the 127th straight session.
From its prior close at 1358.59, the SPX opened higher to 1370 and rose to the intra-day high of 1374.71 at 10:35. The index fluctuated at the 1370 level through the close and set the intra-day low of 1367.28 at 3:50.
Technical indicators are mostly positive. The SPX closed above 1200 for the 91st straight session, above 1300 for the 57th session, but below 1400 for the fifth 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, and climbed above the 200-day moving average on January 31st, having been below that average since August 11th. The 100-day moving average crossed above the 200-day moving average February 23rd, having been below that average since September 7, 2011. The 20-day moving average declined. For the fifth straight session, the SPX closed (by -2.22%) below its 20-day moving average (1399.72). The index closed (by -0.33%)below its 50-day moving average for the second straight session. The index closed (by +4.10%) above its 100-day moving average (1314.78) for the 91st straight session. The SPX closed +7.69% above its 200-day moving average for the 72st time in the past 73 sessions. The directional momentum indicator is negative for the third straight day, and the trend is moderate and stable. Relative strength rose to 42.12 from 36.99, a neutral range. Next resistance is at 1375.95; next support is at 1360.22.
BKX. On lower volume, the KBW bank index rose +0.97 points, or +2.07%, to 47.80, its 65th straight close above 40 but its sixth straight close below 50. Volume fell -34.57% to 64.55 million shares, down from 98.66 million shares Tuesday and below the 80.28 million share 50-day average. The BKX closed +11.21% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -17.52% and -14.08% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.
Financials were the market's best performing sector, and large-cap banks outperformed regional banks. From its prior close of 46.83, the BKX opened higher to 47.39, immediately setting the intra-day low. A rally to 47.80 by 9:45 was sold nearly back to opening low by 9:50, but the index recovered at 10:00 and rallied back to 47.80 by 10:15. The index climbed through 2:00, setting the intra-day high of 47.95 then. A 2:30 sell-off dropped the index back to 47.65 by 3:25, but the index rallied into the close to retake 47.80 at the bell.
Technical indicators are mostly positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +46.81% from the 32.56 October 4th intra-day low compared to a +27.44% rebound in the SPX. However, the BKX is still -14.1% below its 2011 high, compared to the SPX which recovered is 2011 peak. Moving average alignment is fully bullish, as shorter term moving averages are above longer term moving averages and are increasing more rapidly. On February 22nd, the 50-day moving average crossed above the 200-day moving average for the first time since June 15th. On March 20th, the 100-day moving average crossed above the 200-day moving average for the first time since July 18th, 2011. For the 72nd time in the past 73 sessions, the 20-day closed (by +2.61 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +4.85 points) above the 200-day moving average for the 35th straight session, and the gap widened. The 100-day moving average closed (by +1.39 points) above the 200-day moving average for the 17th straight session, and the gap widened. The BKX closed -3.00% below its 20-day moving average for the fourth straight session. The index closed (by +2.43%) above its 50-day moving average for the 75th straight session. The index closed (by +10.63%) above the 100-day moving average for the 76th straight session. The index closed (by +14.30%) above its 200-day moving average for the 58th time in 59 sessions. The directional movement indicator is negative for the third straight session, and the trend is moderate and declining. Relative strength rose to 48.08 from 41.34, a neutral range. Next resistance is 48.17; next support at 47.22.