This morning. U.S. equity markets are in correction. All the major indexes closed below their respective 20- and 50-day moving averages. The SPX closed -3.67% below its recent April 2nd 1419.04 high. 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 10th consecutive day. Shorter-term averages remain above longer term averages. The SPX is in bull market territory, closing up +27.1% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +45.2% in the same period.
In Asia, equity markets closed mixed, with the best strength in Hong Kong, on speculation of policy support for home prices. In Europe, equity markets are rallying after several consecutive days' weakness. Italian and Spanish auctions were reasonably strong. Moody's reaffirmed the Netherland's AAA-rating despite the change of government there. The French election run-off is scheduled for May 6th. Also, Greek parliamentary elections are on May 6th. The FOMC begins a two day meeting, which concludes with Bernanke's news conference tomorrow. The dollar is mixed. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mostly lower. U.S. Treasury yields are higher, with the 10-year at 1.949%, down from 1.935% the prior day. U.S. repo rates are at 12 bps.
After a fair value adjustment of -0.01 points, June SPX equity futures are at 1363.70, up +1.01 points. The SPX opens at 1366.94, -1.70% and -0.93% below its respective 20- and 50-day moving averages, and +2.82% and +7.36% above its respective 100- and 200-day moving averages. Next resistance is at 1377.38. First support is at 1357.64.
Monday. Economic news was light, and earnings continued to surprise positively, but equity markets opened sharply lower, and while indexes narrowed their losses through the day, they still closed with moderate losses. The NYSE composite lost +1.06%, followed by the Nasdaq, SPX and DJI, which closed off -1.00%, -0.84%, and -0.78%, respectively. From its prior 1378.53 close, the SPX opened just below 1367, and traded by 10:00 to its 1358.79 intraday low. The index subsequently rallied, but modestly so, through the rest of the session on lower, post options expiration volume. The SPX closed -1.70% and -0.93% below its 20- and 50-day moving averages. NYSE volume fell -18.8% to 0.98x the 50-day moving average. Market breadth was negative. All market segments closed at least -0.09% lower. Leaders were oil and gas, utilities, and technology. Financials lost -0.85%. Laggards were consumer goods, basic materials, financials, and consumer services, which fell at least -1.13%.
DJ transports underperformed the industrials, falling -0.93% to close at 5185.81, down from 5234.25 the prior day, and -3.41% below its 5368.93 February 3rd closing high. The index closed -1.09% and -0.69% 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 -2.54% below its recent April 2nd high.
Technical indicators worsened. The DJI closed below its 50-day moving average after having recaptured it the day before. All other major indexes closed below their respective 20- and 50-day moving averages. All closed above their respective 100- and 200-day moving averages. Volatility rose +8.77% with the VIX ending at 18.97 at the close. The CBOE put/call skew fell to 117.19, down -0.73% from 118.05 the prior session, within a 115-120 neutral range.
Immediate support is 1357 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1319 (a 61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1380 (the 50-day moving average), then 1387, 1391 (the 20-day moving average), then 1407, and 1419 (the April high).
Trading desks reported a continuation of recent themes, i.e., the absence of much conviction and reluctance of participants to expand or reduce risk positions despite stronger than expected 1Q2012 earnings. European macro concerns seem to be driving activity, as recession there takes hold, but U.S. GDP estimates rose again yesterday, with JPMorgan now with a +2.9% estimate for 1Q2012. Similarly, Chinese related growth concerns seem to be abating.
On lower volume, the distribution day count was unchanged at 11 on the NYSE composite, 7 on the DJI and Nasdaq and 6 on the SPX. The BKX count rose to 8.
In Asia, equity markets closed mixed, with better strength in China. Volumes rose. Commentary focused on Eurozone growth and debt developments. In Hong Kong, equities rallied on speculation that China would take measures to support home-buying. In Tokyo, the NKY closed down -0.78% on a +4.83% volume increase. The index closed below 10,000 for the 15th consecutive day. In Hong Kong, the HSI closed up +0.26% on a +7.47% volume increase. In Shanghai, the SHCOMP rode +0.01% on a +9.81% increase in volume.
In Japan, the NKY closed at 9,468.04, down from 9,542.17 at the prior close. Following U.S. equity weakness, the index gapped lower to open below 9,450, rallied through the morning session, then weakened early in its afternoon session to an intraday low of 9,423.30, before rallying modestly through the afternoon. The index closed -7.68% below its recent March 27th high, and -2.93% and -2.67% below its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were utilities and oil and gas, which rose at least +0.00%, and technology, which fell -0.35%. Laggards were industrials, consumer services, and financials, which fell at least -0.93%.
In China, the Hang Seng closed at 20,677.16, down from 20,624.39 at the prior close. The index closed -4.63% below its February 29th high. Volatility fell -3.46% as the VHSI closed +2.27% below its 20-day moving average. The index opened lower, but rallied in early morning to its 20,771.79 intraday high, when it reversed and traded down to a mid-session 20,534.13 intraday low. In the afternoon, the index reversed again, rallying back to end with a modest gain, but one sufficient to recapture its 20-day moving average. The HSI closed +0.05% above and -1.51% below its respective 20- and 50-day moving averages. Most market segments ended higher. Leaders were technology, telecommunications, and financials, which rose at least +0.33%. Laggards were consumer services, consumer goods, and basic materials, which closed down at least -0.10%.
In Shanghai, the SHCOMP closed at 2,388.83, up from 2,388.59 at Monday's close. The SHCOMP opened slightly lower, but rallied strongly in early trading to its 20,771.79 intraday high. The index reversed and traded down to a mid-session intraday low before reversing again and rallying modestly by mid-afternoon back to a modest gain. The index closed -3.45% below its recent 2,474.07 March 14th high. The index closed +2.33% and +0.61% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were financials and oil and gas, which closed up at least +0.95%, and utilities, which lost -0.39%. Laggards were health care, telecommunications, and technology, which lost at least -0.75%.
In Europe, equities are selling off and trade near their intraday highs. Commentary focuses on Moody's reaffirmation of the Netherland's AAA credit rating, reasonably strong Italian and Spanish debt auctions, and earnings reports, where revenues have typically been better than earnings. The Euro Stoxx 50, FTSE 100, and DAX are up +1.00%, +0.48%, and +0.69%, respectively. All trade below their 20- and 50-day moving averages. The FTSE 100 also trades below its respective 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 2,244.83 close, the Euro Stoxx 50 trades at 2,265.52, compared to the 2,271.83 intraday high. The index is -5.58% and -8.61% below its respective 20- and 50-day moving averages. All market segments are at least +0.42% higher. Leaders are telecommunications, consumer services, and consumer goods, which are up +1.28%. Financials are up +0.71%. Laggards are oil and gas, basic materials, and utilities.
Libor, LOIS, Currencies, Treasuries, Commodities:
- USD LIBOR is 0.14500%, down from 0.14700% 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 0.46585%, up from 0.46565% the prior day, but down from the January 4th peak of 0.58250%.
- The US Libor-OIS (LOIS) spread is 33.39 bps, up from 33.26 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.55 bps, down from 39.70 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 -47.125 bps, up from -47.50 bps the prior day, and 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 12 bps, compared to an August 2nd high of 33 bps.
- U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.262% and 1.949%, respectively, compared to 0.258% and 1.935% Monday. The yield curve widened to +1.687%, from +1.677% 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 +2.73% on April 25, 2011.
- The U.S. dollar is weaker compared to the euro and British pound, but stronger compared to the Japanese yen. The dollar trades at US$79.314, compared to a US$79.217 intraday low and US$79.420 the prior day, and mixed compared to its US$79.433 50-day, US$79.662 100-day, and US$78.040 200-day averages. The euro trades at US$1.3170, compared to an intraday high of US$1.3210 and its US$1.3156 close the prior day. The euro compares to its US$1.3205 50-day and $1.3119 100-day averages. In Japan, the dollar trades at ¥81.21, compared to ¥81.18 the day prior. The yen trades better than its 50-day moving average ¥81.60.
- Commodities prices are mixed, with lower energy, higher precious metals, lower aluminum and copper, and higher agriculture prices.
- The VIX ended at 18.97, up +8.77% from 17.44 at the prior close. The VIX is +8.98% above its 17.41 20-day moving average.
- The Euro Stoxx 50 volatility index (V2X) is down -3.38% to 28.96, compared to 29.97 at the prior day's close. The V2X index trades +12.2% above its 25.81 20-day moving average, -6.64% below the 31.02 30-day high, and +67.7% above the 17.26 30-day low.
- The Hang Seng volatility index (VHSI) closed at 19.79, down -3.46% from 20.50 the prior day. The VHSI index trades -2.27% below its 20.25 20-day moving average.
- CBOE skew fell -0.73% to 117.19 from 118.05 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:
· February S&P CaseShiller home price index rose to , compared to survey 134.68 and 135.46 prior.
· At 10:00, April consumer confidence, with survey of 69.7 and 70.2 prior.
· April Richmond Fed manufacturing index, with survey of 6 and 7 prior.
Overseas News. In April, French consumer confidence rose to 88, beating expectations of 87. Today, Moody's reaffirmed The Netherlands' AAA rating following that country's political turmoil. Today, Spain and Italy both held debt auctions, with Spain selling 3- and 6-month bills and Italy selling inflation-linked paper and both country's results deemed satisfactory. In March, China's leading economic index rose +0.8% to 230.6, the third straight monthly increase.
· SBNY - reports 1Q12 GAAP and continuing operating EPS of $0.89 and $0.89, beating estimates of $0.86
· RF - reports 1Q12 GAAP and continuing operating EPS of $0.11 and $0.14, beating estimates of $0.08
· SNV - reports 1Q12 GAAP and continuing operating EPS of $0.02 and $0.01, compared to estimates of $0.01
1Q2012 Earnings. The first quarter's earnings reports have so far exceeded expectations. Of the 108 S&P500 companies that reported earnings to date, 83% (90 out of 108) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +8.1% (versus a historical average of +2%). Aggregate EPS is up +5.6% over the prior year. Though challenged in the current operating environment, 70% of companies reported increased revenues over the prior year and 72% beat revenue estimates. 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.
With 23 of the 24 BKX members reporting first quarter earnings, 78% beat operating EPS estimates while 78% beat revenue estimates. 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 13.0x estimated 2012 earnings ($104.86) and 11.6x estimated 2013 earnings ($118.12), compared to 13.1x and 11.7x 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 -3.5%, and +0.3%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.5% and +24.4%, respectively.
Large-cap banks trade at a median 1.37x tangible book value, and 11.4x and 9.8x 2012and 2013 consensus earnings, respectively, compared to 1.37x tangible book value and 11.4x/9.9x 2012/2013 earnings yesterday. 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 0.82, compared to 0.87 the prior day and below its 5- and 10-period moving averages of 0.90 and 0.94 respectively. The index put/call ratio closed at 1.15, compared to 1.24 the prior day, below the 5- and 10-period moving averages of 1.35 and 1.36, respectively. The equity put/call ratio closed the day at 0.60, compared to 0.65 the prior day, below its 5- and 10-period moving averages of 0.62 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. The SPX recorded a weekly price exhaustion signal during the week of its 2012 high in early April. 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 1350 and 46.80, respectively. A breakdown below those support levels may accelerate the reversal. The BKX successfully tested this support at yesterday's open. Short term resistance rests near 1395 and 50.25, respectively.
NYSE Indicators. After Friday's options expiration, volume fell -18.8% to 784.67 million shares, +0.98x the 50-day moving average, from 965.98 million shares Friday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,440 (compared to +947 the prior day), or 0.35:1. Up volume lagged down volume by 0.18:1.
SPX. On lower volume, the SPX fell -11.59 points, or -0.84%, to 1366.94, the 66th straight close above 1300 but the 13th straight close below 1400. Volume fell -27.90% to 626.69 million shares, down from 869.19 million shares on options-expiration Friday and below the 618.44 million share 50-day moving average. For the third straight session, the SPX closed below its 50-day moving average (1379.80)but remained above its 200-day moving average (1273.26) for the 80th time in the past 81 sessions. The SPX closed above its 200-week moving average (1134.11) for the 136th straight session.
From its prior close at 1378.53, the SPX opened lower to 1366 and fell to the intra-day low of 1358.79 at 10:10. The index rallied moderately through the day's end, setting the intra-day high of 1368.28 at 2:35 and trading mostly sideways into the close.
Technical indicators are mostly positive. The SPX closed above 1200 for the 99th straight session, above 1300 for the 65th session, but below 1400 for the 13th 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 13th straight session, the SPX closed (by -1.70%) below its 20-day moving average (1390.55). The index closed (by -0.93%) below its 50-day moving average for the third straight session. The index closed (by +2.82%) above its 100-day moving average (1329.41) for the 99th straight session. The SPX closed +7.36% above its 200-day moving average for the 80th time in the past 81 sessions. The directional momentum indicator is negative for the ninth time in 10 sessions, and the trend is weak and increasing. Relative strength fell to 43.52 from 47.71, a neutral range. Next resistance is at 1377.38; next support is at 1357.64.
BKX. On lower volume, the KBW bank index fell -0.28 points, or -0.59%, to 47.28, its 73rd straight close above 40 but its 14th straight close below 50. Volume fell -19.87% to 77.74 million shares, down from 97.02 million shares Friday and below the 80.49 million share 50-day average. The BKX closed +10.00% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -18.41% and -15.01% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.
Financials performed in-line with the market, and large-cap banks outperformed regional banks. From its prior close of 47.56, the BKX opened lower to 46.90, and fell to the intra-day low of 46.72 at 9:32. Through noon, the index rallied strongly, setting the intra-day high of 47.40 at 11:40. Gains retraced to 47.20 by 12:45, and a small sell-off at 2:00 to the 47.05 level was bought. The index retested its intra-day high at 2:30 but could not break above it. The index traded sideways into the close and finished at the high end of the day's negative range.
Technical indicators are mostly positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +45.2% from the 32.56 October 4th intra-day low compared to a +27.3% rebound in the SPX. However, the BKX has yet to recapture its 2011 high, whereas the SPX did so in February 2012. 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 78th straight session, the 20-day closed (by +1.39 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +5.44 points) above the 200-day moving average for the 43rd straight session, and the gap widened. The 100-day moving average closed (by +2.32 points) above the 200-day moving average for the 25th straight session, and the gap widened. For the 12th straight sessions, the BKX closed -2.77% below its 20-day moving average, which fell for the seventh straight day. The index closed (by +0.09%) above its 50-day moving average for the 83rd straight session. The index closed (by +7.14%) above the 100-day moving average for the 84th straight session. The index closed (by +13.10%) above its 200-day moving average for the 66th time in 67 sessions. The directional movement indicator is negative, and the trend is weak and declining. Relative strength fell to 45.43 from 47.04, a neutral range. Next resistance is 47.55; next support at 46.87.