Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

U.S. Futures Advance Modestly As May Day Closes Most Overseas Markets

|Includes: ACE Limited (ACE), TRV

This morning. U.S. equity market confirmed uptrend began on April 25, after a three week long correction. In April, the DJI gained +0.01%, while the Nasdaq, NYSE composite, and SPX closed down -1.46%, -1.07%, and -0.75%, respectively. All major indexes ended April above their respective 20- and 50-day moving averages. All major indices are above their respective 100- and 200-day moving averages. The SPX closed -1.49% below its recent April 2nd 1419.04 high. The SPX's 20-day moving average moved lower Monday, as it has in 14 of the past 15 trading days. The 50-, 100-, and 200-day moving averages are trending higher. Shorter-term averages are above longer term averages. The SPX is in bull market territory, closing up +30.1% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +48.3% in the same period.

In Asia, equity markets closed lower in Tokyo, while markets in Hong Kong and Shanghai were closed for holiday. Commentary focused on Eurozone developments and corporate earnings. In Europe, only United Kingdom equity markets are open on May 1st. 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 neutral short-term outlook. Commodities prices are lower. U.S. Treasury yields are largely unchanged, with the 10-year at 1.914%, unchanged from 1.914% the prior day. U.S. repo rates are at 26 bps.

After a fair value adjustment of +0.26 points, June SPX equity futures are at 1394.10, up +0.24 points. The SPX opens at 1403.36, +0.83% and +0.99% above its respective 20- and 50-day moving averages, and +4.54% and +9.63% above its respective 100- and 200-day moving averages. Next resistance is at 1402.78. First support is at 1393.52.

Monday. Equities extended the month lower on higher volume. Economic news was mixed as several manufacturing indices were lighter than expected and personal spending in April came in light. Otherwise, commentary focused on Eurozone developments and generally strong 1Q2012 earnings reports. The DJI declined -0.11%, followed by the SPX, NYSE composite and Nasdaq, which fell -0.39%, -0.40%, and -0.74%, respectively. Indexes moved lower at the open, found support modestly lower by mid-morning and traded narrowly through the end of the session. Though volume rose, participation was never particularly strong as European markets prepared for today's holiday. The SPX closed +0.83% and +0.99% above its respective 20- and 50-day moving averages. NYSE volume rose +8.14% to 1.06x the 50-day moving average. Market breadth was negative. Most market segments fell. Leaders were telecommunications, oil and gas, and utilities, which rose at least +0.17%. Laggards were financials, industrials, and technology, which closed off at least -0.59%.

The DJ transports underperformed the industrials, falling -0.71% to close at 5230.24, down from 5267.39 the prior day, and -2.58% below its 5368.93 February 3rd closing high. The index closed -0.18% below and +0.17% 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 -0.38% below its recent April 2nd high.

Technical indicators are mixed. The SPX ended March at 1408.47, and April at 1397.91, down -0.75%, its first monthly decline since November and implying greater likelihood of downward follow through in May. On the other hand, all major indexes closed above their respective 20- and 50-day moving averages for a 3rd consecutive day. Also, all closed above their respective 100- and 200-day moving averages. Volatility rose +5.09% with the VIX ending at 17.15 at the close. The CBOE put/call skew fell to 119.83, down -0.21% from 120.08 the prior session, and within a neutral 115-120 range.

Immediate SPX support is 1386 (the 20-day moving average), 1384 (the 50-day moving average), 1374 (a -23.6% Fibonacci retracement), 1357 (the April low), 1345 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1300 (a -61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1402, then 1408, 1417, and 1419 (the April high).

Trading desks report continued investor caution, with stocks range-bound within 1370 and 1400 on the SPX. Economic data will heavy up Wednesday with the release of April ADP employment change, followed by the latest weekly jobless claims Thursday, and the April change in non-farm payrolls Friday. Despite the current uptrend, conviction remains challenged, with trading dominating investing activity, and a continued focus on Eurozone and economic strength developments.

The distribution day count rose to 1 on the Nasdaq, SPX, and NYSE composite. The BKX count rose to one.

In Asia, Tokyo reopened after a holiday, but closed -1.78% lower on -28.7% decrease in volume. The index closed at a 10-week low. Commentary focused on Eurozone developments, a stronger yen, and earnings estimates. Equity markets in Hong Kong and Shanghai are closed for holiday.

In Japan, the NKY closed at 9,350.95, down from 9,520.89 at the prior close. The index closed -8.82% below its recent March 27th high, and -2.87% and -4.18% below its respective 20- and 50-day moving averages. Most market segments closed lower. Utilities rose +0.23%. Other leaders were telecommunications and health care, which closed off at least -0.60%. Laggards were industrials, technology, and financials, which fell at least -2.02%.

In China, the Hang Seng closed Monday at 21,094.24, up from 20,741.45 at the prior close, its best close since March 27th. Commentary focused on strong quarterly earnings. The index closed -2.70% below its February 29th high, but it recaptured its 50-day moving average closed above its 20-day moving average for a 3rd consecutive day. Volatility fell -0.78% as the VHSI closed -5.24% below its 20-day moving average. The HSI closed +2.17% and +0.54% above its respective 20- and 50-day moving averages. All market segments closed at least +0.69% higher. Leaders were technology, basic materials, and telecommunications, which rose at least +2.24%. Financials gained +1.66%. Laggards were utilities, consumer services, and consumer goods.

In Shanghai, the SHCOMP closed Friday at 2,396.32, down from 2,404.70 at Thursday's close. The index closed -3.14% below its recent 2,474.07 March 14th high. The index closed +2.38% and +0.80% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were consumer goods and utilities, which closed up at least +0.28%, and oil and gas, which lost -0.05%. Financials fell -0.42%. Laggards were consumer services, industrials, and telecommunications, which closed off at least -0.89%.

In Europe, only United Kingdom markets are open, with other equity markets are closed for the May 1st holiday. Commentary focuses on 1Q2012 earnings. The FTSE 100 is up +0.32% and trades near its intraday high. The FTSE 100 trades recaptured its 20- and 100-day moving averages Friday, but remains -1.21% below its 50-day moving average. The DAX trades +0.27% above its 20-day moving average. The Euro Stoxx 50 and CAC trade below their respective 20- and 50-day moving averages. The Euro Stoxx 50 and CAC also trade below their 100- and 200-day moving averages.

Libor, LOIS, Currencies, Treasuries, Commodities:
 

  • USD LIBOR is 0.14700%, unchanged 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%, unchanged from 0.46585% the prior day, but down from the January 4th peak of 0.58250%.
  • The US Libor-OIS (LOIS) spread is 32.31, up from 31.54 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.00 bps, down from 39.50 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 -45.00, unchanged from -45.00 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 26 bps, compared to an August 2nd high of 33 bps.
  • U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.258% and 1.914%, respectively, compared to 0.256% and 1.914% Monday. The yield curve narrowed to +1.656%, from +1.658% 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 +2.74% on July 4, 2011.
  • The U.S. dollar is mixed, slightly weaker compared to the euro, but weaker compared to the British pound and Japanese yen. The dollar trades at US$78.751, compared to a US$78.622 intraday low and US$78.776 the prior close, and mixed compared to its US$79.381 50-day, US$79.646 100-day, and US$78.158 200-day averages. The euro trades at US$1.3254, compared to an intraday high of US$1.3278 and its US$1.3239 close the prior day. The euro compares to its US$1.3213 50-day and $1.3117 100-day averages. In Japan, the dollar trades at ¥79.89, compared to ¥79.82 at the prior close. The yen trades better than its 50-day moving average ¥81.73.
  • Commodities prices are lower, with lower energy, precious metals, mixed aluminum and copper, and lower agriculture prices.


Volatility, Skew:
 

  • The VIX ended at 17.15, up +5.09% from 16.32 at the prior close. The VIX is -3.78% below its 17.82 20-day moving average.
  • The Euro Stoxx 50 volatility index (V2X) is up +5.78% to 26.95, compared to 25.48 at the prior day's close. The V2X index trades +0.30% above its 26.87 20-day moving average, -13.1% below the 31.02 30-day high, and +56.1% above the 17.26 30-day low.
  • The Hang Seng volatility index (VHSI) closed at 18.98, down -0.78% from 19.13 the prior day. The VHSI index trades -5.27% below its 20.04 20-day moving average.
  • CBOE skew fell -0.21% to 119.83 from 120.08 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:

· At 10:00, April ISM manufacturing, with survey of 53.0 and 53.4 prior.

Overseas News. In April, the U.K. manufacturing purchasing managers index (PMI) declined more than expected, falling to 50.5 from 52.1 in March and compared to expectations of 51.5. In April, China's manufacturing PMI increased less than forecast, rising to 53.3 from 53.1 compared to estimates of 53.6, but showed contracting growth in small enterprises compared to accelerating growth in large and mid-sized companies.

Company News:

· ACE - upgraded to neutral at Bernstein, $73 price target

· TRV - upgraded to neutral at Bernstein, $62 price target

1Q2012 Earnings.

The first quarter's earnings reports have so far exceeded expectations. Of the 290 S&P500 companies that reported earnings to date, 74% (214 out of 290) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +6.8% (versus a historical average of +2%). Aggregate EPS is up +6.2% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 66% 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, the BKX earned $1.18 per share, compared to $0.77 and $0.99 per share in 4Q11 and 1Q11, a +54.1% and +18.6% change, respectively, and beat consensus estimates by +19.5%.

Valuation. The SPX trades at 13.3x estimated 2012 earnings ($105.12) and 11.8x estimated 2013 earnings ($118.36), compared to 13.4x and 11.9x 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 +0.5%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.7% and +24.6%, respectively.

Large-cap banks trade at a median 1.41x tangible book value, and 11.6x and 10.2x 2012and 2013 consensus earnings, respectively, compared to 1.42x tangible book value and 11.7x/10.2x 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 $4.58 per share, compared to $4.22 and $3.13 in 2011 and 2010, a +7.1% and +46.1% 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 0.88, compared to 0.84 the prior day and above its 5- and 10-period moving averages of 0.84 and 0.87 respectively. The index put/call ratio closed at 1.18, compared to 1.25 the prior day, below the 5- and 10-period moving averages of 1.26 and 1.28, respectively. The equity put/call ratio closed the day at 0.65, compared to 0.59 the prior day, above its 5- and 10-period moving averages of 0.61 and 0.61, 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 a reversal. The BKX successfully tested this support on April 23rd's open. Upward resistance rests near 1412 and 50.25, respectively.

NYSE Indicators. Volume rose +8.14% to 851.91 million shares 1.06x the 50-day moving average, from 787.79 million shares Friday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -665 (compared to +1,005 the prior day), or 0.64:1. Up volume lagged down volume by 0.53:1.

SPX. On higher volume, the SPX fell -5.45 points, or -0.39%, to 1397.91, the 71st straight close above 1300 and the 17 close below 1400 in the last 18 sessions. Volume rose +5.76% to 607.57 million shares, up from 574.49 million shares Friday but below the 621.05 million share 50-day moving average. For the fourth straight session, the SPX closed above its 50-day moving average (1384.15)and remained above its 200-day moving average (1275.06) for the 85th time in the past 86 sessions. The SPX closed above its 200-week moving average (1134.29) for the 141st straight session.

From its prior close at 1403.36, the SPX opened lower to 1401, immediately setting the intra-day high. By 10:00, the index reached 1396 and traded mostly sideways between 1394 and 1398 through the close. The index finished at the top end of that band, but in the middle of the overall day's negative range.

Technical indicators are positive. The SPX closed above 1200 for the 103rd straight session, above 1300 for the 69th session, but below 1400 for the 17 time in the last 18 sessions. 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 fell. For fourth straight session, the SPX closed (by +0.83%) above its 20-day moving average (1386.43). The index closed (by +0.99%) above its 50-day moving average for the fourth straight session. The index closed (by +4.54%) above its 100-day moving average (1337.17) for the 104th straight session. The SPX closed +9.63% above its 200-day moving average for the 85th time in the past 86 sessions. The directional momentum indicator is positive for the third sessions, and the trend is weak and declining. Relative strength fell to 54.99 from 57.47, a neutral range. Next resistance is at 1402.78; next support is at 1393.52.

BKX. On higher volume, the KBW bank index fell -0.56 points, or -1.15%, to 48.28, its 78th straight close above 40 but its 19th straight close below 50. Volume rose +18.68% to 61.55 million shares, up from 51.86 million shares Friday but below the 78.99 million share 50-day average. The BKX closed +12.33% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -16.69% and -13.21% 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 regional banks underperformed large-cap banks. From its prior close of 48.84, the BKX opened lower to 48.76, immediately setting the intra-day high. Through 10:55, the index declined on a consistent trajectory, reaching 48.10 before finding support. Through 12:30, the index rallied back to 48.40 but lost its positive momentum. A second sell-off took the index to its intra-day low of 47.99 at 2:40. The 48.0 level held, and the index rallied into the close. The index finished in the bottom half 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 +48.28% from the 32.56 October 4th intra-day low compared to a +30.16% 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 83rd straight session, the 20-day closed (by +0.64 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +5.78 points) above the 200-day moving average for the 48th straight session, and the gap widened. The 100-day moving average closed (by +2.81 points) above the 200-day moving average for the 30th straight session, and the gap widened. For the third straight session, the BKX closed (by +0.04%) above its 20-day moving average, which fell for the 12th straight day. The index closed (by +1.39%) above its 50-day moving average for the 88th straight session. The index closed (by +8.13%) above the 100-day moving average for the 89th straight session. The index closed (by +15.40%) above its 200-day moving average for the 71st time in 72 sessions. The directional movement indicator switched back to negative, and the trend is weak and declining. Relative strength fell to 51.20 from 55.34, a neutral range. Next resistance is 48.70; next support at 47.92.