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

Futures Improve Ahead Of Bernanke Testimony, After Goldman Sachs' Beat

|Includes: BAC, Comerica Inc. (CMA), GS, MS

This morning. The U.S. equity market uptrend, confirmed on June 29th, remains under pressure, having closed lower on 7 of the past 8 trading days. The Nasdaq closed below its 20-day moving average. The SPX, DJI, and NYSE composite closed above their respective 20-day moving average. All closed above their respective 50-day moving averages. The SPX closed -4.61% below its recent April 2nd 1419.04 high, but up +7.64% in 2012. The SPX's 20- and 200-day moving averages are moving higher. Its 20-day moving average closed above its 50-day moving average for a 6th consecutive day. The SPX is +26.0% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +40.8% in the same period, though financial stocks have underperformed since the April 3rd market top.

Economic headlines focus on Bernanke's Senate testimony this morning, 2Q2012 earnings, policy stimulus probabilities, and LIBOR inquiries. In Europe, equity markets are mostly higher, though moderately lower in London. Spanish and Italian 10-year debt yields are 6.86% and 6.13%, respectively. The dollar is mixed, weaker compared to the Euro, but stronger against the Japanese yen. U.S. options markets suggest a neutral short-term outlook. Commodities prices are mixed. U.S. Treasury yields slightly higher, with the 10-year at 1.481%, up from 1.472% the prior day. U.S. repo rates are at 22 bps, up from 18 bps the prior day.

In pre-market futures trading, September SPX equity futures have traded narrowly between 1352.00 and 1354.50. After a fair value adjustment of +1.19 points, September SPX equity futures are at 1352.80, up +43.21 points. The SPX opens at 1356.787, +0.85%, +1.74%, and +3.77% above its respective 20-, 50-, and 200-day moving averages, but -0.22% below its 100-day moving average. Next resistance is at 1364.72. First support is at 1341.83.

Monday. On lower volume, equity markets started the week with a modestly lower close. The Nasdaq lost -0.40%, followed by the DJI, SPX, and NYSE composite, which lost -0.39%, -0.23%, and -0.20%, respectively. Market breadth was negative, with gainers 0.82x the day's losers. Most SPX market segments closed lower. Leaders were oil and gas, telecommunications, and health care, which rose at least +0.18%. Financials shed -0.17%, but outperformed the broader market on yet another "not bad" earnings report, this time from Citigroup. Laggards were consumer services, industrials, and basic materials, which fell at least -0.57%. Small cap stocks underperformed, as the Russell 2000 (RTY) closed down -0.54%.

Futures indicated a moderately lower open on weakness in China and mixed European markets, but the day's tone was set by June advance retail sales, which fell -0.5%, compared to survey +0.2% and -0.2% prior. A better than expected Empire manufacturing report may have mitigated the poor retail report somewhat, by markets opened lower and sank quickly to moderate intraday losses. From its prior 1353.64 close, the SPX gapped lower to open below 1355 and fell to 1348.51 shortly after 10:00. The index rallied back to 1357.26 at the time of the European close, but drifted narrowly between 1352 and 1356 through the close.

Transports underperformed the industrials and closed at 5,150.10, down -0.80% from 5,191.65 the prior day. The TRAN closed -4.08% below its 5368.93 February 3rd closing high. The index closed +0.98%, +1.92%, +0.62%, and +2.89% above its respective 20-, 50-, 100-, and 200-day moving averages. The TRAN has not confirmed multiple DJI new highs (the most recent May 2nd) subsequent to February 3rd. The DJI closed -4.16% below its recent May 1st high.

Technical factors improved markedly, as the SPX recaptured its 20-day moving average and closed higher on the week. The SPX, DJI, and NYSE composite closed above their respective 20-, 50-, and 200-day moving averages, though all remain below their 100-day moving averages. Fundamentals remain adverse, as 2nd quarter earnings and particularly forward earnings guidance seem poised to disappoint. Volatility fell -8.67%, as the VIX closed at 16.74, down from 18.33 at the prior close. The CBOE put/call skew rose +2.58% to 119.13, from 116.13 the prior day, and within a neutral 115-120 range.

Trading desks reported another quiet session during which Bernanke anticipation (he appears tomorrow before the Senate Banking Committee and Wednesday before the House Financial Services Committee) offset anxiety over Washington's stalemate, Chinese anxiety, and endless Eurozone dithering. Banks have dominated 2Q2012 earnings reports, and their relatively strong earnings performance helped spur Friday's rally and helped sustain Monday's mixed action.

Immediate SPX support is 1345 (the 20-day moving average), 1334 (the 50-day moving average), 1310 (the May close), 1308 (the 200-day moving average), 1304 (a 50% retrace from the 1267 June 4th low), 1278 (June's low close), 1267 (the 30-day intraday low), and 1223 (the October 27th high). Immediate resistance is 1360 (the 100-day moving average), then 1364 (the June high), 1374 (the July 2nd high), and 1395 and 1419 (the respective April and 2012 high).

Distribution day count. Distributions number 4 on the Nasdaq, 3 on the NYSE composite, 2 on the DJI and SPX. The BKX count is 2.

In Asia, on decreased volume, Asian equity markets closed mixed, with modest gains in Hong Kong and a sell-off in Shanghai. The NKY, HIS, and SHCOMP are in correction, -14.6%, -10.3%, and -12.7%, respectively, below recent highs. Commentary focused on Chinese stimulus probabilities. In Japan, the NKY reopened after Monday's holiday and closed up +0.35% on a -8.79% volume decrease. In Hong Kong, the HSI rose +1.75% on a +27.4% volume increase. In Shanghai, the SHCOMP rose +0.62% on a -18.6% volume decrease. The NKY closed above its 50-day moving average. The HSI closed above its 20- and 50-day moving averages.

In Japan, the NKY closed at 8,755.00, up from 8,724.12 at Friday's close and its 6th consecutive close below 9,000. The index closed down -14.6% from its March 27th high, but closed up +3.54% in 2012. The index traded narrowly at the open, but rallied strongly after the first hour to a mid-session 8,808.87 intraday high. The index eased in the final hour. The gain was sufficient to recapture its 50-day moving average. Market segments closed mixed. Leaders were consumer services, health care, and financials, which closed up at least +1.65%. Laggards were basic materials, utilities, and oil and gas, which closed down at least -1.17%.

In China, the Hang Seng closed at 19,455.33, up from 19,121.34 at the prior close. The index has closed above 19,000 since June 28th. The index last closed above 20,000 on May 10th. The index closed -10.3% below its February 29th high, but +5.54% higher in 2012. The index gapped higher to open above 19,350 and trended higher through the day's remainder to a late session 19,479.28 close. Volatility fell -2.67%, as the VHSI closed at 18.94, -8.39% below its 20.67 20-day moving average. The HSI closed -+0.63% and +1.31%above its respective 20- and 50-day moving averages. All market segments closed at least +0.49% higher. Leaders were oil and gas, financials, and industrials, which rose at least +1.92%. Laggards were telecommunications, consumer services, and consumer goods.

In Shanghai, the SHCOMP rose for the 5th time in the past 6 sessions, closing at 2,161.19, up from 2,147.96 at the prior close. The index closed -12.7% below its 2,474.07 March 14th high, and down -1.74% in 2012. The index opened at the 2,142.43 intraday low, but rallied sharply through the morning session to it 2,165.26 intraday high. The index traded back to 2,150 by mid-afternoon, but rallied into the close. The SHCOMP closed -2.63% and -6.04% below its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were financials, technology, and industrials, which closed up at least +0.90%. Laggards were telecommunications, which closed up +0..26%, and consumer goods and health care, which fell at least -0.54%.

In Europe, equity indexes are mixed, with moderate weakness in London. Commentary focuses on the probability of policy stimulus. The Euro Stoxx50, CAC 40, and DAX are up +0.47%, +0.42%, and +0.34%, respectively, while the FTSE 100 is off -0.39%. All trade above their 20- and 50-day moving averages. The FTSE 100 is -0.24% below and +1.17% above its respective 100- and 200-day moving averages. All others remain below their 100-day moving averages. The DAX is +3.88% above its 200-day moving average. In 2012, the Euro Stoxx50 and CAC 40 is down -2.30%, while the FTSE 100, CAC 40, and DAX are up +1.33%, +1.06%, and +11.7%, respectively.

From its prior 2,251.96 closed, the Euro Stoxx50 opened above 2,256 and traded to a mid-session 2,269.45 intraday high. The index subsequently eased back to 2,260, but then trended higher to 2,262.28 at present. Most market segments are higher. Leaders are telecommunications, utilities, and financials, which are at least +0.79% higher. Laggards are consumer services, industrials, and technology, which are down at least -0.01%.

Libor, LOIS, Currencies, Treasuries, Commodities:

  • USD LIBOR is 0.16900%, unchanged 0.16900% the prior day, and near the highest levels since August 2011. USD 3-month LIBOR is 0.45510%, unchanged from 0.45510% the prior day, but down from the January 4th peak of 0.58250%.
  • The US Libor-OIS (LOIS) spread is 30.01 bps, down from 30.31 bps the prior day, and compares to the January 6th high of 50.05 bps. Euribor-OIS is 37.20 bps, down from 37.25 bps the prior day, and down from the December 27th high of 98.80 bps. Moves in the LOIS indicate changes in intra-bank lending risk premiums.
  • The 3-month Euro basis swap fell to -47.340 bps, from -49.608 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.
  • Spanish 10-year debt yields are 6.86%, up from 6.82% the prior day. Italian debt yields rose to 6.13% from 6.11% the prior day. German 10-year debt yields are 1.25%, unchanged.
  • The U.S. government overnight repo rate is 22 bps, up from 18 bps the prior day, but near their highest levels since November 2008.
  • U.S. Treasury yields are higher, with 2- and 10-year maturities yielding 0.226% and 1.481%, respectively, compared to 0.226% and 1.472% Monday. The yield curve widened to +1.255%, from +1.247% the prior day. In the past year, the 2- and 10-year spread varied from a low of +1.206% on June 1, 2012, to a high of +2.61% on July 21, 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$83.039, compared to a US$82.911 intraday low and US$83.098 at the prior close, and better compared to its US$82.175 50-day, US$80.815 100-day, and US$79.825 200-day averages. The euro trades at US$1.2289, compared to an intraday high of US$1.2317 and US$1.2273 the prior day. The euro trades worse than its US$1.2543 50-day and $1.2863 100-day averages, and compares to a multi-year low of US$1.1923 on June 7, 2010. In Japan, the dollar trades at ¥79.01, compared to ¥78.87 at the prior close. The yen trades better than its 50-day moving average ¥79.46.
  • Commodities prices are mixed, with higher energy, higher precious metals, mixed aluminum and copper, and lower agriculture prices.

Volatility, Skew:

  • The VIX rose +2.21% to 17.11, from 16.74 at the prior close. The VIX is -5.82% below its 18.17 20-day moving average.
  • The Euro Stoxx 50 volatility index (V2X) is down -3.02% to 21.50 from 22.17 at the prior day's close. The V2X index trades -15.3% below its 25.39 20-day moving average, -38.8% below the 35.11 30-day high, and +0.41% above the 21.41 30-day low.
  • The Hang Seng volatility index (VHSI) closed at 18.94, down -2.67% from 19.46 the prior day. The VHSI index trades -8.39% below its 20.67 20-day moving average.
  • CBOE skew fell -3.39% to 115.09, from 119.13 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:

· Bernanke testifies before the Senate Banking Committee, where he is likely to discuss QE intentions, LIBOR reporting, and Eurozone economic and debt crises.

· June consumer prices rose +0.2%, compared to +0.2% survey and +0.2% prior.

· At 9:15, June industrial production, with survey of +0.3% and -0.1% prior.

· Capacity utilization, with survey of 79.2% and 79.0% prior.

· Manufacturing production, compared to -0.4% prior.

Overseas News:

· European bank bonds - politicians balk at suggestions that losses could be imposed on senior bond holders.

· Portugal - the IMF on Mon approved the disbursement of EU1.5B to Portugal as part of the country's existing aid program.

· Italy - Italian banks bought ~50% of the Italian gov't bond auction Fri following pressure from the gov't according to an overnight newspaper report. DJ

· Spain - the country sold EU3.56B worth of 12 and 18m bills during Tuesday's auction, more than planned. Yields fell vs. the prior sale.

· Spain - Madrid will sign a MOU for its bank bailout package this Friday.

· Hungary - int'l creditors start negotiations w/Hungarian officials over a EU15B precautionary line of credit.

· Greece - the country is preparing EU11.7B worth of new budget measures. Greece will present the plans to troika officials next week.

Company Ratings/News:

· Goldman Sachs (NYSE:GS) reports $1.78 adjusted EPS and revenues of $6.63 billion, beating consensus $1.18 adjusted EPS and $6.255 billion revenues.

· Comerica (NYSE:CMA) reports $0.76 adjusted EPS, revenues of $646.0 million, compared to $0.62 EPS and $638.44 million consensus.

· Wednesday, Bank of America (NYSE:BAC), with consensus $0.15 EPS and $22.712 billion revenues.

· Thursday, Morgan Stanley (NYSE:MS), with consensus $0.37 EPS and $7.578 billion revenues.

2Q2012 Earnings. The 2nd quarter's earnings reports are mixed, beating on EPS, but falling short on sales/revenues. Of the 32 S&P 500 companies that have reported earnings to date, 65.6% (21 of 32) beat operating EPS estimates, compared to the historical average of 62%. Only 12 companies, or 37.5%, beat on sales/revenues. In aggregate, companies beat EPS expectations by an average of +8.87% (versus a historical average of +2%), led by financials with a 14.9% surprise. In the quarter, analysts estimate the SPX will earn $24.94 per share, compared to $24.24 and $23.03 per share in 1Q2012 and 2Q11, respectively, a +2.89% and +5.10% change.

Valuation. The SPX trades at 12.9x estimated 2012 earnings ($103.83) and 11.5x estimated 2013 earnings ($116.25), compared to 12.9x and 11.4x respective 2011-12 earnings yesterday. The 10-year average median price/earnings multiple is 15.9x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -4.48%, and -1.30%, respectively. Analysts expect 2012 and 2013 earnings to exceed actual 2011 earnings ($94.97) by +9.33% and +22.4%, respectively.

Large-cap banks trade at an average 1.37x tangible book value, and 10.4x and 9.54x 2012and 2013 consensus earnings, respectively, compared to 1.40x tangible book value and 11.5x/9.73x 2012/2013 earnings yesterday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. In 2012, analysts expect the BKX to earn $4.32 per share, compared to $4.48 and $2.57 in 2011 and 2010, respectively, a -3.57% and +12.3% increase.

Options. Options markets are bearish to neutral. Composite options markets are neutral, index options markets are bullish, and equity options markets are neutral. The composite put/call ratio closed at 1.00, compared to 0.98 the prior day, above its 5- and 10-period moving averages of 1.01 and 0.99, respectively. The index put/call ratio closed at 1.41, compared to 1.07 the prior day, above the 5- and 10-period moving averages of 1.08 and 1.09, respectively. The equity put/call ratio closed the day at 0.85, compared to 0.93 the prior day, and above its 5- and 10-period moving averages of 0.98 and 0.95, respectively.

Price and Selling Exhaustion/Trend Reversal. The SPX signaled buying exhaustion the week on March 30th, when it perfected an upward countdown on its higher 1408.47 daily and weekly close. The SPX signaled selling exhaustion the week ended June 8th, during which the SPX traded to an intraday low 1266.74 on June 4th, with a completed downward weekly setup on the 8th. The countdown is an unperfected 5. Subsequently, the SPX rebounded to close at 1374.02 on July 2nd, but closed -0.55% lower on the week. After weakening in the first 4 trading days of the week ended July 13th, the SPX rallied strongly to end up +0.16% on the week, extending its weekly setup count to 5. The SPX's next downward support level is 1202.37. The upward SPX price exhaustion target is 1415.32, +11.7% above the June 4th low.

Similarly, the BKX closed at 41.00 on June 4, with completion of a downward weekly setup and simultaneous perfection of a downward daily countdown. On June 19th, the index closed at 44.65 and completed a upward daily setup. The daily countdown remains unperfected. The index closed Friday at 45.91, up +1.59% on the week. On a weekly basis, the BKX upward countdown is 5. The upward BKX price exhaustion target is 48.89, +19.7% above its 40.86 June 4th intraday low. Support is at 42.21, a decline of -8.06%.

NYSE Indicators. Volume fell -11.9% to 60.207 million shares, +0.73x the 50-day moving average, compared to 683.00 million shares the prior day. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -306 (compared to +2,044 the prior day), or 0.82:1. Up volume lagged down volume by 0.61:1.

BKX. On impressive volume, the KBW bank index fell -0.06 points, or -0.13%, to close at 45.85, down from 45.91 the prior day. On the day, financials outperformed the SPX's -0.23% loss, trading narrowly to a mid-morning 46.16 intraday high and 45.68 early afternoon intraday low. A mid-afternoon rally carried the index to better than 46.00, but the index faded the final hour. Large-cap banks outperformed regional banks, as the KRX fell -0.50%.

The BKX fell for the 7th time in the past 9 sessions, but closed above 45.80 for a 2nd consecutive session. The BKX last closed above 50 on April 2nd. It has closed above 40 since January 3rd. Volume fell -21.8% to 48.9 million shares, compared to 62.5 million shares the prior day and 0.88x the 55.5 million share 50-day average. The BKX closed -20.9% below its April 23, 2010 close (the post-2008 high point), and -17.6% below its February 14, 2011 (the most recent high point) close, but +40.8% above 2011's low of 32.56 on October 4th. Large-cap bank stocks have outperformed the broader market's rebound, which is up 26.0% in the same period. However, the SPX is only -4.61% below its 2012 high (and new four-year high), while the BKX is -8.77% below its 2012 high mark, which failed to set a 52-week high. The BKX is up +16.4% in 2012, compared to a +7.64% rise in the SPX.

Technical indicators markedly improved, as the BKX closed +1.92%, and +2.88% above its respective 20- and 50-day moving averages, after closing below those levels the prior day. For a 3rd consecutive day, the 20-day moving average remained above the 50-day moving average. The index closed below its 100-day moving average for a 6th consecutive day, while it held above its 200-day moving average. The 20- and 200-day moving averages are moving higher. The 50-day moving average declined, while the 100-day moving average ended unchanged. The index closed +1.92% and +2.88% above its respective 20- and 50-day moving averages, but -0.59% below its 100-day moving average. The index closed +6.61% above its 200-day moving average. The directional movement indicator switched to positive, for the first time since July 6th. Relative strength rose to 56.42 from 47.58 the prior day, in a neutral range. Next resistance is 46.40; next support at 44.98.

As to moving average alignment, the 20-day moving average crossed above the 50-day on July 12th, though the 50-day moving average moved below the 100-day moving average on June 13th. All remain above the 200-day moving average. The 20-day closed (by +0.42 points) above the 50-day. The 50-day moving average closed (by +1.56 points) above the 200-day moving average for the 95th straight session, but the gap narrowed. The 100-day moving average closed (by +3.12 points) above the 200-day moving average for the 76th straight session, and the gap narrowed.