This morning. On April 25th, U.S. equity markets confirmed a new uptrend, ending a three week long correction. Yesterday, all major indexes closed above their respective 20-, 50-, 100-, and 200-day moving averages. The SPX closed -1.18% below its recent April 2nd 1419.04 high. The SPX's 20-day moving average moved lower, as it has in 16 of the past 17 trading days, and closed below its 50-day moving average for the first time since December 23rd. The 50-, 100-, and 200-day moving averages are trending higher. The SPX is in bull market territory, closing up +30.5% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +50.3% in the same period.
In Asia, Japan is closed for a two day holiday. In China, equity markets closed mixed, with slightly better strength in Shanghai. Commentary focused on a slightly weaker non-manufacturing PMI report and monetary easing speculation. In Europe, equity markets are rallying and continued strong earnings reports. A worse than expected April ADP employment report took markets lower and brought U.S. equity futures lower as well. The French election run-off is scheduled for May 6th. Also, Greek parliamentary elections are on May 6th. The dollar is stronger. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mostly lower. U.S. Treasury yields are slightly lower, with the 10-year at 1.924%, down from 1.928% the prior day. U.S. repo rates are at 13 bps.
This morning's weekly initial jobs claims number beat expectations. After a fair value adjustment of +0.91 points, June SPX equity futures are at 1401.50, up +3.11 points. The SPX opens at 1405.82, +1.45% and +1.50% above its respective 20- and 50-day moving averages, and +5.02% and +10.2% above its respective 100- and 200-day moving averages. Next resistance is at 1407.23. First support is at 1395.65.
Wednesday. Equities moved lower on disappointing April ADP employment and March factory orders, but proved resilient yet again and closed mixed on slightly better NYSE volume. At the close, the Nasdaq gained +0.31%, reversing an early -0.70% loss. The DJI, SPX, and NYSE composite closed off -0.08%, -0.25%, and -0.49%, respectively. NYSE volume rose +1.13% to +0.97x the 50-day moving average. The SPX closed +1.23% and +1.19% above its respective 20- and 50-day moving averages. Market breadth was negative. Market segments were mixed. Leaders were consumer goods, consumer services, and technology, which rose at least +0.18%. Laggards were basic materials, financials, and oil and gas, which fell at least -0.70%.
The DJ transports outperformed the industrials, rising +0.92% to close at 5334.50, up from 5285.97 the prior day, and -1.55% below its 5368.93 February 3rd closing high. The index closed +0.88% and +1.24% 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 +0.11% above its previous April 2nd high.
The SPX opened below 1400 and traded by 10:30 to its 1393.92 intraday low. Finding support, the SPX reversed course and traded back through 1400 shortly after noon, and traded above 1403 late in the session. Technical indicators weakened at the SPX' 20-day moving average closed below its 50-day moving average. All major indexes closed above their respective 20- and 50-day moving averages for a 6th consecutive day. Also, all closed above their respective 100- and 200-day moving averages. Volatility rose +1.69%, with the VIX ending at 16.88 at the close. The CBOE put/call skew fell to 119.94, down -0.20% from 120.18 the prior session, and within a neutral 115-120 range.
Immediate SPX support is 1395, then 1386 (the 50-day moving average), 1385 (the 20-day moving average), 1373 (a -23.6% Fibonacci retracement), 1357 (the April low), 1344 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1297 (a -61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1407, then 1412, and 1419 (the April high).
Trading desks focused on yesterday's rebound in light of negative news. Homebuilders, transports, and small caps performed well, and weaker segments (e.g., financials) narrowed intraday losses materially by the close. For a 2nd consecutive day, the SPX closed above the recent 1370-1400 range. Despite the current uptrend, conviction remains challenged, with trading dominating investing activity, and a continued focus on Eurozone and economic strength developments.
Since the April 24th confirmation of a new market uptrend, the distribution day count is 1 on the Nasdaq, SPX, and 2 NYSE composite. The BKX count is one.
In Asia, Japanese equity markets were closed for holiday and will remain closed through May 4th. Hong Kong and Shanghai closed modestly mixed on mixed volume. Commentary focused on a drop in China's non-manufacturing purchasing managers' index to 56.1 in April from 58 the prior month. The HSI fell -0.28% on a +358.8% increase in volume. The SHCOMP rose +0.07 on a -20.6% volume decrease.
In Japan, the NKY closed Tuesday at 9,380.25, up from 9,350.95 at the prior close. The index gapped higher to open at 9,400, but weakened through the morning session to a 9,332.79 mid-session intraday low. The index rallied through most of the afternoon, posting a 9,472.25 late-session intraday high before weakening in the session's final 20 minutes. The index closed -8.30% below its recent March 27th high, and -2.18% and -3.88% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were oil and gas, financials, and industrials, which rose at least +0.76%. Laggards were consumer services, technology, and utilities, which fell at least -0.26%.
In China, the Hang Seng closed at 21,249.53, down from 21,309.08 at the prior close. The index gapped lower to open just above 21,200 and traded narrowly through the day, finding resistance at 21,250 and support at 21,150. The index rallied modestly into the close. The index closed -1.99% below its February 29th high. Volatility fell -1.17% as the VHSI closed -7.28% below its 20-day moving average. The HSI closed +2.69% and +1.31% above its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were telecommunications, technology, and industrials, which rose at least +0.20%. Financials lost -0.59%. Laggards were oil and gas, consumer goods, and consumer services, which lost at least -0.84%.
In Shanghai, the SHCOMP closed at 2,440.08, down from 2,438.44 at the prior close. The index also traded narrowly, from a mid-day intraday low of 2,427.83 to a mid-afternoon 2,441.95 intraday high. The index closed -1.37% below its recent 2,474.07 March 14th high. The index closed +3.80% and +2.54% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were health care, consumer goods, and technology, which closed up at least +0.22%. Laggards were financials, utilities, and oil and gas, which closed off at least -0.04%.
In Europe, equity markets are rallying despite rising sovereign debt yields in Spain and Italy. Commentary focuses on positive earnings reports, including a solid beat by Soc Gen. Also the JPM global manufacturing PMI rose 0.3 points to 51.0, after drifting lower in the prior two months. The Euro Stoxx50, FTSE 100, CAC, and DAX are up +1.48%, +0.63%, +1.40%, and +1.06%, respectively, and are trading just below their intraday highs. The Euro Stoxx50 rallied in early trading and trended higher to a mid-day 2,327.08 intraday high. The index trades -0.20% and -5.09% below its respective 20- and 100-day moving averages. The CAC recaptured its 20-day moving average, now +0.73%. The DAX trades +0.75% above its 20-day moving average. All trade below their respective 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 32.19, up from 32.18 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 39.07 bps, down from 39.40 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 -43.50, up from -45.00 the prior day, and 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 13 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 1.931%, respectively, compared to 0.262% and 1.928% Wednesday. The yield curve widened to +1.669%, from +1.666% 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 stronger compared to the euro, British pound, and Japanese yen. The dollar trades at US$79.251, compared to a US$79.132 intraday low and US$79.132 the prior close, and mixed compared to its US$79.390 50-day, US$79.622 100-day, and US$78.209 200-day averages. The euro trades at US$1.3135, compared to an intraday high of US$1.3123 and its US$1.3158 close the prior day. The euro compares to its US$1.3206 50-day and $1.3120 100-day averages. In Japan, the dollar trades at ¥80.83, compared to ¥80.14 at the prior close. The yen trades better than its 50-day moving average ¥81.73.
- Commodities prices are mostly lower, with lower energy, lower precious metals, aluminum, and copper, and mixed agriculture prices.
- The VIX ended at 16.88, up +1.69% from 16.60 at the prior close. The VIX is -5.87% below its 17.93 20-day moving average.
- The Euro Stoxx 50 volatility index (V2X) is down -4.26% to 26.82 from 28.01 at the prior day's close. The V2X index trades -1.19% above its 27.14 20-day moving average, -13.5% below the 31.02 30-day high, and +41.0% above the 19.02 30-day low.
- The Hang Seng volatility index (VHSI) closed at 18.51, down -1.17% from 18.73 the prior day. The VHSI index trades -7.28% below its 19.96 20-day moving average.
- CBOE skew fell -0.20% to 119.94 from 120.18 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:
· April Challenger job cuts rose +11.2% year over year, compared to -8.8% prior.
· 1Q2012 nonfarm productivity fell -0.5%, compared to -0.6% survey and +1.2% prior. Unit labor costs were 2.0%, compared to survey 2.7% and 2.7% prior.
· The latest week's initial jobless claims were 365K, compared to 379K survey and 392K revised prior.
· Continuing claims for the week ending April 21 were 3276K, compared to survey 3311K and 3329K prior.
· At 10:00, the April non-manufacturing ISM, with survey at 55.3 and prior of 56.0.
Overseas News. Today, the European Central Bank left the 1.0% benchmark interest rate unchanged. In April, the U.K.'s services purchasing managers index fell more than expected to 53.3 from, 55.3 in March and disappointing estimates of 54.1. Today, Spain sold €2.52 billion in 3-year debt, higher than the targeted €2.5 billion, with yields rising +140 bps over March's auction to +4.04%, but below the market's yield at +4.08%.
· NLY - reports 1Q12 operating EPS of $0.54 compared with estimates of $0.48 and book value of $16.18, up from $16.06 last quarter
The first quarter's earnings reports have so far exceeded expectations. Of the 391 S&P 500 companies that reported earnings to date, 71% (278 out of 391) beat operating EPS estimates, versus the historical average of 62%. In aggregate, companies beat EPS expectations by an average of +6.4% (versus a historical average of +2%). Aggregate EPS is up +5.8% over the prior year. Though challenged in the current operating environment, 73% of companies reported increased revenues over the prior year and 68% 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 ($105.29) and 11.8x estimated 2013 earnings ($118.36), compared to 13.3x and 11.8x 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 -3.1%, and +0.5%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.9% and +24.6%, respectively.
Large-cap banks trade at a median 1.42x tangible book value, and 11.6x and 10.2x 2012and 2013 consensus earnings, respectively, compared to 1.43x 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 very bullish. Composite options markets are neutral, index options markets are neutral, and equity options markets are extremely bullish. The composite put/call ratio closed at 1.00, compared to 0.90 the prior day and above its 5- and 10-period moving averages of 0.89 and 0.88 respectively. The index put/call ratio closed at 1.34, compared to 1.51 the prior day, above the 5- and 10-period moving averages of 1.23 and 1.27, respectively. The equity put/call ratio closed the day at 0.95, compared to 0.68 the prior day, above its 5- and 10-period moving averages of 0.70 and 0.66, 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, a level on the SPX which stopped May 1st's rally.
Hill Townsend Capital. On the day, HTC lost -$310.4 thousand, -0.88% after leverage adjustment. We underperformed the SPX (-0.25%), XLF (-0.80%), and KRX (+0.00%), but outperformed the BKX (-0.92%). Our common equity positions fell -0.89%. Our warrant positions fell -1.70%. Our option positions fell -23.3%. Our preferreds rose +0.08%. Our short ETF fell -1.44%.
In May, we have a market value gain of +$106.5 thousand, or +0.31%. We have outperformed the SPX (+0.31%), XLF (+0.23%), and KRX (-0.05%), but underperformed the BKX (+0.33%). In 2012, we have a market gain of +$4.588 million, or +14.2%. We have outperformed the SPX (+11.5%) and KRX (+12.4%), but lag the XLF (+19.0%) and BKX (+23.0%).
Our NAV ended at $35.078 million, compared to $35.389 million the prior day and $35.017 million at the end of April. Our cash position is -$261.4 thousand, -0.75% of NAV, compared to -$261.4 thousand, -0.74% of NAV the prior day.
NYSE Indicators. Volume rose +1.13% to 780.19 million shares, 0.97x the 50-day moving average, from 771.45 million shares Tuesday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -377 (compared to +908 the prior day), or 0.78:1. Up volume lagged down volume by 0.49:1.
SPX. On lower volume, the SPX fell -3.51 points, or -0.25%, to 1402.31, the 73rd straight close above 1300 and the 3rd close above 1400 in the last 5 sessions. Volume fell -3.42% to 546.38 million shares, down from 565.75 million shares Tuesday and below the 613.88 million share 50-day moving average. For the sixth straight session, the SPX closed above its 50-day moving average (1385.85)and remained above its 200-day moving average (1276.00) for the 87th time in the past 88 sessions. The SPX closed above its 200-week moving average (1134.99) for the 143rd straight session.
From its prior close at 1405.82, the SPX opened lower to 1399 and fell to an intra-day low of 1393.92 at 10:30. Through 2:30, the index rebounded, rallying through 1400 at 12:15 and reaching the intra-day high of 1403.39 at 2:30. The SPX fluctuated at 1400 into the close but held that level at the bell and finished at the top end of the day's negative range.
Technical indicators are positive. The SPX closed above 1200 for the 105th straight session, above 1300 for the 71st session, and above 1400 for the 3rd time in the last 5 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 the 17th straight session. For sixth straight session, the SPX closed (by +1.23%) above its 20-day moving average (1385.21). The index closed (by +1.19%) above its 50-day moving average for the sixth straight session. The index closed (by +4.65%) above its 100-day moving average (1340.05) for the 106th straight session. The SPX closed +9.90% above its 200-day moving average for the 87th time in the past 88 sessions. The directional momentum indicator is positive for the fifth session, and the trend is weak and stable. Relative strength fell to 56.14 from 57.83, a neutral range. Next resistance is at 1407.23; next support is at 1395.65.
BKX. On lower volume, the KBW bank index fell -0.45 points, or -0.92%, to 48.44, its 80th straight close above 40 but its 21st straight close below 50. Volume fell -12.01% to 47.34 million shares, down from 53.80 million shares Tuesday and below the 76.61 million share 50-day average. The BKX closed +12.70% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -16.41% and -12.92% 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' losses underperformed regional banks' break-even day. From its prior close of 48.89, the BKX opened lower to 48.60 and fell to the intra-day low of 48.06 at 10:05. From 10:15 through 2:30, a rally took the index back to the opening level and set the intra-day high of 48.64. By 3:10, the BKX retraced its rally back to 48.40 and traded mostly flat into the close to finish in the middle 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 +48.77% from the 32.56 October 4th intra-day low compared to a +30.57% 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 85th straight session, the 20-day closed (by +0.39 points) above the 50-day, but the gap shrank. The 50-day moving average closed (by +5.88 points) above the 200-day moving average for the 50th straight session, and the gap widened. The 100-day moving average closed (by +2.97 points) above the 200-day moving average for the 32nd straight session, and the gap widened. For the fifth straight session, the BKX closed (by +0.64%) above its 20-day moving average, which fell for the 14th straight day. The index closed (by +1.46%) above its 50-day moving average for the 90th straight session. The index closed (by +8.05%) above the 100-day moving average for the 91st straight session. The index closed (by +15.71%) above its 200-day moving average for the 73rd time in 74 sessions. The directional movement indicator is positive for the second straight day, and the trend is weak and stable. Relative strength fell to 51.82 from 55.14, a neutral range. Next resistance is 48.74; next support at 48.10.