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SPX Gains Confirm New U.S. Equity Uptrend

|Includes: Apple Inc. (AAPL)

This morning. With yesterday's gains on stronger volume, U.S. equity markets confirmed the start of a new uptrend, ending a three week long correction. The SPX, DJI, and NYSE composite recaptured their respective 20-day moving averages, while the Nasdaq remains -0.39% off that level. The SPX, DJI, and Nasdaq closed above their 50-day moving averages, while the NYSE composite remains -0.43% off that level. The SPX closed -2.00% 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 12th consecutive day. Shorter-term averages remain above longer term averages. The SPX is in bull market territory, closing up +29.4% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +48.4% in the same period.

In Asia, equity markets closed mixed, with the better strength in Hong Kong. Commentary focused on Fed Chairman Bernanke's remarks in yesterday's press conference, particularly his pledge that the Fed "stands prepared" to do more, if needed. Otherwise, strong 1Q2012 earnings and revenues continue to suggest a stronger than anticipated economic outlook. European equity markets are mixed. The French election run-off is scheduled for May 6th. Also, Greek parliamentary elections are on May 6th. The dollar is mixed. U.S. options markets suggest a bearish short-term outlook. Commodities prices are mostly higher. U.S. Treasury yields are lower, with the 10-year at 1.952%, down from 1.984% the prior day. U.S. repo rates are at 19 bps.

After a fair value adjustment of -0.66 points, June SPX equity futures are at 1382.60, down -1.54 points. The SPX opens at 1390.69, +0.25% and +0.69% above its respective 20- and 50-day moving averages, and +4.36% and +9.18% above its respective 100- and 200-day moving averages. Next resistance is at 1397.34. First support is at 1378.08.

Wednesday. Markets rallied at the open, but were unable to make much additional headway through the day, though they closed near their intraday highs. Most of the session was stymied by FOMC-related events, i.e., the statement at 12:30, governor forecasts at 2:15, and Bernanke's hour long press conference, which began at 2:30. Otherwise, commentary focused on generally strong 1Q2012 earnings reports. Economic news was light. The Nasdaq shined most brightly, rising +2.30% on AAPL's strong earnings, followed by the SPX, NYSE composite, and DJI, which rose +1.36%, 1.04%, and +0.69%, respectively. From its prior 1371.97 close, the SPX opened at 1985 and rose above 1390 before 10:00. Through the session's remainder, the index traded between 1985 to an intraday high of 1391.37. The SPX closed +0.25%% and +0.69% above its 20- and 50-day moving averages. NYSE volume rose +9.32% to 1.02x the 50-day moving average. Market breadth was very positive. All market segments gained at least +0.09%. Leaders were technology, basic materials, and consumer services, which rose at least +1.27%. Financials rose +1.05%. Laggards were utilities, industrials, and telecommunications.

DJ transports outperformed the industrials, rising +0.85% to close at 5291.22, up from 5246.73 the prior day, and -1.45% below its 5368.93 February 3rd closing high. The index closed +0.95% and +1.34% above its respective 20- and 50-day moving averages. The TRAN has not confirmed multiple DJI new highs subsequent to February 3rd. The DJI closed -1.31% below its recent April 2nd high.

Technical indicators improved, as most major indexes (except the Nasdaq) recaptured their respective 20-day moving averages. Only the NYSE composite closed below its 50-day moving average. All closed above their respective 100- and 200-day moving averages. Volatility fell -7.07% with the VIX ending at 16.82 at the close. The CBOE put/call skew rose to 122.53, up +3.52% from 118.36 the prior session, above a 115-120 neutral range.

Immediate SPX support is 1387 (the 20-day moving average), 1381 (the 50-day moving average), then 1375 (a 23.6% Fibonacci retracement), 1357 (the April low), 1348 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1304 (a 61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1397, then 1403, and 1419 (the April high).

Trading desks report a continuation of recent trends. Despite the renewal of the uptrend, conviction remains challenged, with trading dominating investing activity, and a continued focus on Eurozone developments.

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 Hong Kong. Volumes were mixed. Commentary focused on Bernanke's statement that the Fed is "prepared to do more", if needed, and strong 1Q2012 U.S. earnings. In Tokyo, the NKY closed up +0.01% on a +7.59% volume increase. The index closed below 10,000 for the 17th consecutive day. In Hong Kong, the HSI closed up +0.79% on a +4.90% volume increase. In Shanghai, the SHCOMP fell -0.09% on a -12.1% decrease in volume.

In Japan, the NKY closed at 9,561.83, down from 9,561.01 at the prior close. The index opened above 9,600 and traded within the first hour to its 9,630.97 intraday high. The index reversed lower shortly after mid-session, falling to a late session intraday low of 9,531.03. A final minute rally pulled the index back to a modest gain. The index closed -6.76% below its recent March 27th high, and -1.25% and -1.91% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were telecommunications, technology, and consumer goods, which rose at least +0.70%. Financials rose +0.68%. Laggards were consumer services, industrials, and utilities, which fell at least -0.27%.

In China, the Hang Seng closed at 20,809.71, down from 20,646.29 at the prior close. The index closed -4.01% below its February 29th high, but recaptured its 20-day moving average. Volatility fell -2.87% as the VHSI closed -7.41% below its 20-day moving average. The index gapped higher to open above 20,750, but reversed and traded lower to a 20,584.98 late morning intraday low. The index rallied back in the afternoon, with most of the gains coming late in the session, closing shy of the 20,826.91 intraday high. The HSI closed +0.75% above and -0.84% below its respective 20- and 50-day moving averages. All market segments ended at least +0.17% higher. Leaders were technology, consumer goods, and oil and gas, which closed up at least +1.05%. Financials rose +0.74%. Laggards were basic materials, telecommunications, and utilities.

In Shanghai, the SHCOMP closed at 2,404.70, up from 2,406.81 at Wednesday's close. The SHCOMP opened slightly higher, and after trading narrowly through the morning session, reversed low in early afternoon, trading to an intraday low of 2,393.40. The index reversed to reach an intraday high of 2414.67 an hour before the close, but couldn't hold the gains, ending with a small loss on the day. The index closed -2.80% below its recent 2,474.07 March 14th high. The index closed +2.85% and +1.20% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were basic materials, consumer goods, and telecommunications, which closed up at least +0.07%. Financial lost -0.27%. Laggards were utilities, health care, and consumer services, which closed off -0.37%.

In Europe, equities are mixed, with better strength in London. Commentary focuses on a disappointing business climate indicator for April. The Euro Stoxx 50, and DAX are down -0.62% and -0.29%, respectively, while the FTSE 100 is up +0.12%. 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 2,322.91 close, the Euro Stoxx 50 trades at 2,308.98, compared to the 2,299.66 intraday low. The index is -2.86% and -6.61% below its respective 20- and 50-day moving averages. Most market segments are lower. Leaders are consumer services, consumer goods, and basic materials, which are up at least +0.01%. Laggards are utilities, telecommunications, and financials, which are off at least -1.08%.

Libor, LOIS, Currencies, Treasuries, Commodities:
 

  • USD LIBOR is 0.14600%, up from 0.14400% 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%, unchanged from 0.46585% the prior day, but down from the January 4th peak of 0.58250%.
  • The US Libor-OIS (LOIS) spread is 32.49, down from 32.88 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.21 bps, down from 39.90 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 -43.625, up from -44.375 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 19 bps, up from 8 bps the prior day, and compared to an August 2nd high of 33 bps.
  • U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.274% and 1.996%, respectively, compared to 0.266% and 1.974% Wednesday. The yield curve widened to +1.723%, from +1.707% 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 mixed, weaker compared to the euro and British pound, but weaker compared to the Japanese yen. The dollar trades at US$79.023, compared to a US$78.823 intraday low and US$79.012 the prior day, and mixed compared to its US$79.4121 50-day, US$79.669 100-day, and US$78.086 200-day averages. The euro trades at US$1.3208, compared to an intraday high of US$1.3263 and its US$1.3209 close the prior day. The euro compares to its US$1.3210 50-day and $1.3116 100-day averages. In Japan, the dollar trades at ¥80.93, compared to ¥81.34 the day prior. The yen trades better than its 50-day moving average ¥81.70.
  • Commodities prices are mostly higher, with mixed energy, higher precious metals, mixed aluminum and copper, and mixed agriculture prices.


Volatility, Skew:
 

  • The VIX ended at 16.82, down -7.07% from 18.10 at the prior close. The VIX is -4.76% below its 17.60 20-day moving average.
  • The Euro Stoxx 50 volatility index (V2X) is up +1.55% to 27.83, compared to 27.40 at the prior day's close. The V2X index trades +5.16% above its 26.46 20-day moving average, -10.3% below the 31.02 30-day high, and +61.2% above the 17.26 30-day low.
  • The Hang Seng volatility index (VHSI) closed at 18.63, down -2.87% from 19.18 the prior day. The VHSI index trades -7.41% below its 20.12 20-day moving average.
  • CBOE skew rose +3.52% to 122.53, from 118.36 at the prior day's close, and above 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 21 were 388K, compared to 375K survey and 389K revised prior.

· Continuing claims for the week ended April 14, were 3315K, compared to 3293K survey and 3312K revised prior.

Overseas News. Today, Italy sold €8.5 billion of 6-month bills with yields climbing by nearly +80 bps to 1.77% from March's auction. In April, Eurozone economic confidence declined and missed estimates, falling to 92.8 from 94.5 in March and expectations of 92.8. Today's news reports say the Greek government has already held talks with international creditors to push back by one year its medium term deficit goals. In the first quarter, Korea's GDP re-accelerated to a seasonally adjusted annual rate of +3.7% over the prior quarter following three straight quarters of declining growth.

Company News:

· None.

1Q2012 Earnings.

The first quarter's earnings reports have so far exceeded expectations. Of the 211 S&P500 companies that reported earnings to date, 80% (169 out of 211) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +9.3% (versus a historical average of +2%). Aggregate EPS is up +10.7% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 70% 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 all BKX members reporting first quarter earnings, 79% beat operating EPS estimates and 79% 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 13.2x estimated 2012 earnings ($105.06) and 11.8x estimated 2013 earnings ($118.12), compared to 13.1x and 11.6x 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 -3.3%, and +0.3%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.6% and +24.4%, respectively.

Large-cap banks trade at a median 1.39x tangible book value, and 11.5x and 10.1x 2012and 2013 consensus earnings, respectively, compared to 1.38x tangible book value and 11.5x/10.0x 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 bearish. Composite options markets are neutral, index options markets are neutral, and equity options markets are very bearish. The composite put/call ratio closed at 0.73, compared to 0.91 the prior day and below its 5- and 10-period moving averages of 0.86 and 0.90 respectively. The index put/call ratio closed at 1.34, compared to 1.39 the prior day, below the 5- and 10-period moving averages of 1.36 and 1.34, respectively. The equity put/call ratio closed the day at 0.48, compared to 0.68 the prior day, below its 5- and 10-period moving averages of 0.62 and 0.62, 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. Volume rose +9.32% to 822.21 million shares, 1.02x the 50-day moving average, from 752.12 million shares Tuesday. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +1,631 (compared to +1,052 the prior day), or 3.37:1. Up volume led down volume by 3.81:1.

SPX. On higher volume, the SPX rose +18.72 points, or +1.36%, to 1390.69, the 68th straight close above 1300 but the 15th straight close below 1400. Volume rose +3.97% to 633.01 million shares, up from 608.86 million shares Tuesday and above the 621.82 million share 50-day moving average. For the first time in five sessions, the SPX closed above its 50-day moving average (1381.16)and remained above its 200-day moving average (1273.76) for the 82nd time in the past 83 sessions. The SPX closed above its 200-week moving average (1134.23) for the 138th straight session.

From its prior close at 1371.97 and on the back of Apple's strong earnings the prior night, the SPX opened higher to 1383.17, immediately setting the intra-day low. The index broke above 1390 at 9:50 but retraced gains back to 1385 by 11:15 and fluctuated in that range through the close. The intra-day high of 1391.37 came at 3:05 and the index held above 1390 into the bell.

Technical indicators are mostly positive. The SPX closed above 1200 for the 100th straight session, above 1300 for the 66th session, but below 1400 for the 14th 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 first time in 15 sessions, the SPX closed (by +0.25%) above its 20-day moving average (1387.23). The index closed (by +0.69%) above its 50-day moving average for the first time in five sessions. The index closed (by +4.36%) above its 100-day moving average (1332.62) for the 101st straight session. The SPX closed +9.18% above its 200-day moving average for the 82nd time in the past 83 sessions. The directional momentum indicator is negative for the 11th time in 12 sessions, and the trend is weak and increasing. Relative strength rose to 53.15 from 45.75, a neutral range. Next resistance is at 1397.34; next support is at 1378.08.

BKX. On higher volume, the KBW bank index rose +0.50 points, or +1.05%, to 48.33, its 75th straight close above 40 but its 16th straight close below 50. Volume fell -5.02% to 60.56 million shares, down from 63.76 million shares Tuesday and below the 80.35 million share 50-day average. The BKX closed +12.45% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -16.60% and -13.12% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

Financials underperformed the market, and large-cap banks underperformed regional banks. From its prior close of 47.83, the BKX opened higher to 48.15 and rose to the intra-day high of 48.52 at 9:50. Through 11:05, the index retraced gains all the way into negative territory, setting the intra-day low of 47.78 at 11:05. Reversing, the BKX rallied back to 48.40 by 1:00 and fluctuated above 48 into the close to finish at the high end of the day's mostly positive range.

Technical indicators are mostly positive. On a percentage basis, bank stocks have outperformed the broader market's rebound from the October lows, rising +48.43% from the 32.56 October 4th intra-day low compared to a +29.5% 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 80th straight session, the 20-day closed (by +1.07 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +2.57 points) above the 200-day moving average for the 45th straight session, and the gap widened. The 100-day moving average closed (by +2.54 points) above the 200-day moving average for the 27th straight session, and the gap widened. For the 14th straight sessions, the BKX closed -1.23% below its 20-day moving average, which fell for the ninth straight day. The index closed (by +2.02%) above its 50-day moving average for the 85th straight session. The index closed (by +8.97%) above the 100-day moving average for the 86th straight session. The index closed (by +15.60%) above its 200-day moving average for the 68th time in 69 sessions. The directional movement indicator is negative, and the trend is weak and stable. Relative strength rose to 52.25 from 49.10, a neutral range. Next resistance is 48.64; next support at 47.90.