Gary Townsend's  Instablog

This morning. U.S. equity markets are in correction. All major indexes closed below their respective 20- and 50- moving averages. The NYSE composite also closed below its 100-day moving average. All closed above their respective 200-day moving averages. The SPX closed -4.54% below its recent April 2nd 1419.04 high. The SPX's 20-day moving average is trending lower, and its 50-day moving average closed lower for a 2nd consecutive session. Its 20-day moving average closed below its 50-day moving average for a 5th consecutive day. The 100- and 200-day moving averages continue to trend higher. The SPX is in bull market territory, closing up +26.0% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +42.8% in the same period.

Today's key economic report is the latest week's initial jobless claims, which is accompanied by the March trade report. In Asia, equity markets closed modestly mixed after a disappointing Chinese export report. In Europe, the focus is on Spain, where Bankia's bailout (Spain's largest property lender) was confirmed overnight and the government's bank recapitalization plan will be released tomorrow. In Italy, Unicredit reported better than expected 1Q2012 earnings results. The FT reports that the Bundesbank has signaled acceptance of higher inflation to stimulate European economic growth. Equity markets and the euro are rallying strongly, having reversed earlier losses. The dollar is lower. U.S. options markets suggest a bullish short-term outlook. Commodities prices are lower, but have firmed as European equity markets rallied. U.S. Treasury yields are higher, with the 10-year at 1.888%, up from 1.823% the prior day. U.S. repo rates are at 15 bps.

After a fair value adjustment of +0.28 points, June SPX equity futures are at 1360.20, up +8.92 points. The SPX opens at 1354.58, -2.01% and -2.29% below its respective 20- and 50-day moving averages, and +0.57% and +6.09% above its respective 100- and 200-day moving averages. Next resistance is at 1364.50. First support is at 1343.90.

Wednesday. With Europe on center stage, U.S. equity markets repeated the week's refrain, in which early losses are narrowed by but not reversed by an afternoon rally. The Nasdaq fared best, closing off another -0.39%, followed by the SPX, DJI, and NYSE composite, which closed down -0.67%, -0.75%, and -0.85%, respectively. For a 2nd consecutive day, smaller cap stocks outperformed, with the RTY (Russell 2000) off -0.52%.

NYSE volume rose +4.18%, to +1.15x the 50-day moving average. Market breadth was negative. All market segments closed at least -0.04% lower. Leaders were technology, utilities, and consumer services. Laggards were health care, industrials, and financials, which fell at least -0.92%.

The SPX gapped lower to open at 1353 and trended lower to a 1343.13 intraday low at 10:30. In a change, the day's rally didn't wait for the 11:30 European close, when the SPX had already rebounded to 1355. By mid-afternoon, the SPX reached its 1363.73 intraday high and threatened a positive reversal, but the upside momentum could not be sustained and the index trended lower again into the close. The SPX closed -2.01% and -2.29% below its respective 20- and 50-day moving averages.

The DJ transports underperformed the industrials, falling -1.43% to close at 5159.33, down from 5234.19 the prior day, and -2.51% below its 5368.93 February 3rd closing high. The index closed -1.71% and -1.42% 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 -3.35% below its recent May 1st high.

Technical indicators weakened as all the major averages closed below their respective 20- and 50-day moving averages. For a 2nd consecutive day, the NYSE composite closed below its 100-day moving average. All others are above their respective 100- and 200-day moving averages. Volatility rose +5.41%, with the VIX ending at 20.08, its first close above 20 since April 11th. The CBOE put/call skew fell to 115.05, down -1.86% from 117.23 the prior session, and within a neutral 115-120 range.

Immediate SPX support is 1343 (the March low), then 1327 (a -61.8% Fibonacci retrace), 1325 (the February low), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1365, then 1374, 1382 (the 20-day moving average), then 1386 (the 50-day moving average), and 1419 (the April high).

Trading desks reported a volatile session in which "macro" factors ruled the day, as earnings season has largely concluded and the more important economic data is still weeks away. Early selling pressure was seen as an opportunity to cover shorts and pick up bargains. Selling pressure was never particularly acute. Market focus remains on economic growth prospects and European sovereign developments, including new Greek elections and Spanish government moves to bolster bank capital levels. Economic reports suggest a decline in economic momentum in April, so markets are now focused on indications of how momentum may develop in May.

The distribution day count rose on the SPX, DJI, and NYSE composite, with a count of 3 on the Nasdaq, 4 on the DJI, and 5 on the SPX and NYSE composite. The BKX count rose to 5.

In Asia, equity markets closed mixed, with slightly better strength in Shanghai. Volumes were mixed. Commentary focused on disappointing Chinese exports and European sovereign debt developments with a focus on Spain. In Japan, the NKY closed off -0.39% on a +7.52% increase in volume. In Hong Kong, the HSI fell -0.51% on a -4.28% decrease in volume. In Shanghai, the SHCOMP rose +0.07%, on a -11.2% decrease in volume. Economic reporting was light.

In Japan, the NKY closed at 9,009.65, down from 9,045.06 at the prior close and its lowest close since early February. The index opened below 9,020, and traded to an early session 8,985.90 intraday low. The index then rallied to a mid-day 9,075.63 intraday high, but weakened into the afternoon, when it traded narrowly through the close. The index closed -12.2% below its recent March 27th high, and -4.76% and -7.42% below its respective 20- and 50-day moving averages. Market segments were mixed. Leaders were utilities, financials, and basic materials, which fell at least -0.13%. Laggards were consumer goods, consumer services, and telecommunications, which closed off at least -0.67%.

In China, the Hang Seng closed at 20,227.28, down from 20,330.64 at the prior close. The index opened slightly above 20,300 and traded narrowly, setting a mid-morning 20,375.04 intraday high. The index sold off sharply on the Chinese trade report to a mid-day 20,091.68 intraday low, but subsequently narrowed the day's loss with a modest rally through the afternoon session. The index closed -6.70% below its February 29th high. Volatility rose +1.12% as the VHSI closed +12.3% above its 20.12 20-day moving average. The HSI closed -2.45% and -3.23% below its respective 20- and 50-day moving averages. Most market segments closed lower. Leaders were consumer goods, telecommunications, and utilities, which closed at least +0.01% higher. Financials lost -0.46%. Laggards were industrials, basic materials, and oil and gas, which lost at least -1.01%.

In Shanghai, the SHCOMP closed at 2,410.23, up from 2,408.59 at the prior close. The index opened slightly higher and rallied to a late morning 2,419.02 intraday high, then reversed and sold off after the disappointing Chinese trade report. The index found support at 2,402.47 in early afternoon, reversed high to 2,416, reversed lower back to 2,405 late in the session, and rallied to end with the day's modest gain. The index closed -2.58% below its recent 2,474.07 March 14th high. The index closed +0.83% and +0.99% above its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were health care, telecommunications, and basic materials, which rose at least +0.55%. Financials rose +0.16%. Laggards were industrials, consumer services, and oil and gas, which fell at least -0.26%.

In Europe, equity markets are mixed, with strong gains in Spain, more modest gains in Germany, and modest losses in the United Kingdom and France. The Spanish IBEX 35 is up +2.02%, in anticipation of the government's bank recapitalization proposals tomorrow. The Euro Stoxx50 and DAX are up +0.52% and +0.60%, respectively, while the CAC and FTSE 100, are down -0.08% and -0.10%, respectively. Commentary focused on today's BOE actions, largely that the current benchmark rate was held at +0.5%, as expected. Greece. Compared to its prior 2,225.63 close, the Euro Stoxx50 opened higher, but reversed lower late in the morning session to a 2,206.41 intraday low. The index reversed again, and currently traded at a 2,243.52 intraday high. The index trades -2.41% and -7.45% below its respective 20- and 50-day moving averages. The FTSE100, CAC, Euro Stoxx50, and DAX all trade below their respective 20-, 50-, and 100-day moving averages. Only the DAX trades above its 200-day moving average.

Libor, LOIS, Currencies, Treasuries, Commodities:

• USD LIBOR is 0.14800%, up 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 0.46685%, unchanged from 0.46685% the prior day, but down from the January 4th peak of 0.58250%.
• The US Libor-OIS (LOIS) spread is 31.69, down from 32.19 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 37.72 bps, down from 38.80 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 improved to -45.375 bps, from -48.210 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 15 bps, compared to an August 2nd high of 33 bps.
• U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.254% and 1.865%, respectively, compared to 0.254% and 1.823% Wednesday. The yield curve widened to +1.611%, from +1.569% 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 slightly stronger compared to the euro and Japanese yen, but weaker compared to the British pound. The dollar trades at US$80.142, compared to a US$80.190 intraday high and US$80.080 the prior close, and mixed compared to its US$79.516 50-day, US$79.609 100-day, and US$78.345 200-day averages. The euro trades at US$1.2929, compared to an intraday low of US$1.2925 and its US$1.2929 close the prior day. The euro compares to its US$1.3168 50-day and $1.3118 100-day averages. In Japan, the dollar trades at ¥79.66, compared to ¥79.64 at the prior close. The yen trades better than its 50-day moving average ¥81.62.
• Commodities prices are mixed, with lower energy, mixed precious metals, lower aluminum and copper, and higher agriculture prices.

Volatility, Skew:

• The VIX ended at 20.08, up +5.41% from 19.05 at the prior close. The VIX is +11.2% above its 18.05 20-day moving average.
• The Euro Stoxx 50 volatility index (V2X) is down -1.50% to 30.74 from 31.21 at the prior day's close. The V2X index trades +8.66% above its 28.29 20-day moving average, -7.63% below the 33.28 30-day high, and +50.2% above the 20.46 30-day low.
• The Hang Seng volatility index (VHSI) closed at 22.60, up +1.12% from 22.35 the prior day. The VHSI index trades +12.3% above its 20.12 20-day moving average.
• CBOE skew fell -1.86% to 115.05 from 117.23 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:

· Initial jobless claims for the week ended May 5 were 367K, compared to 368K survey and 368K revised prior.

· Continuing claims for the week ended April 28 were 3229K, compared to 3275K survey and 3290K revised prior.

· The March trade balance was -$51.8 billion, compared to -$50.0 billion survey and -$45.4 billion revised prior.

Overseas News. Press reports indicate the German Bundesbank may allow for lower European Central Bank rates and higher inflation than previous policy stances. In March, Italy's industrial production rose more than expected, climbing +0.5% over the prior month compared to +0.1% estimates. Last evening, the Spanish government injected capital into Bankia, the largest property lender in Spain, and now controls a 45% stake in the company. In April, Chinese merchandise exports rose a weaker-than-expected +4.9% over last year's level, missing estimates for a +8.5% rise. Today, the Bank of England left its benchmark interest rate and accommodation portfolio unchanged.

Company News:

· Unicredit - reports 1Q2012 net income of €914 million beating estimates of €832 million

1Q2012 Earnings.

The first quarter's earnings reports have so far exceeded expectations. Of the 449 S&P 500 companies that reported earnings to date, 70% (315 out of 449) 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 +6.9% over the prior year. Though challenged in the current operating environment, 72% 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% increase, respectively, and beat consensus estimates by +19.5%.

Valuation. The SPX trades at 12.9x estimated 2012 earnings ($105.20) and 11.4x estimated 2013 earnings ($118.66), compared to 13.0x and 11.5x 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 -3.2%, and +0.7%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.6% and +24.9%, respectively.

Large-cap banks trade at a median 1.44x tangible book value, and 11.1x and 9.7x 2012and 2013 consensus earnings, respectively, compared to 1.47x tangible book value and 11.2x/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 $4.59 per share, compared to $4.22 and $3.13 in 2011 and 2010, a +7.2% and +46.2% increase, respectively.

Options. Options markets are bullish. Composite options markets are neutral, index options markets are neutral, and equity options markets are bullish. The composite put/call ratio closed at 0.99, compared to 1.13 the prior day, in between its 5- and 10-period moving averages of 1.01 and 0.95 respectively. The index put/call ratio closed at 1.31, compared to 1.41 the prior day, above the 5- and 10-period moving averages of 1.26 and 1.28, respectively. The equity put/call ratio closed the day at 0.83, compared to 0.98 the prior day, in between its 5- and 10-period moving averages of 0.91 and 0.80 respectively.

Price Exhaustion/Trend Reversal. 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 and during yesterday's sell-off. The SPX rebounded off the 1350 support level yesterday. Upward resistance rests near 1412 and 50.25, respectively, a level on the SPX which reversed May 1st's rally. On May 7th, the SPX recorded a downward price exhaustion reading on an hourly basis, signaling a potential short term positive bias.

NYSE Indicators. Volume rose +4.18% to 940.15 million shares, 1.15x the 50-day moving average, from 902.47 million shares, 1.11x the 50-day moving average, the prior day. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,080 (compared to -613 the prior day), or 0.47:1. Up volume lagged down volume by 0.46:1.

SPX. On higher volume, the SPX fell -9.14 points, or -0.67%, to 1354.58, the 76th straight close above 1300 but the 22nd close below 1400 in the last 25 sessions. Volume rose +5.82% to 714.55 million shares, up from 675.26 million shares Tuesday and above the 621.28 million share 50-day moving average. For the fourth straight session, the SPX closed below its 50-day moving average (1386.28)but remained above its 200-day moving average (1276.85) for the 92nd time in the past 93 sessions. The SPX closed above its 200-week moving average (1135.40) for the 148th straight session.

From its prior close at 1363.72, the SPX opened lower to 1352 and fell to the intra-day low of 1343.13 at 10:30, below its 100-day moving average. Through 11:45, the index rallied back to 1360 before pausing, then resumed its rally at 12:45 to set the intra-day high just above the break-even line at 1363.73 at 1:50. The rally lost momentum and the index fell to 1360 at 2:00 and further to 1355 by 3:15, near where the index closed.

Technical indicators are mostly positive. The SPX closed above 1200 for the 110th straight session, above 1300 for the 76th session, but below 1400 for the 22nd time in the last 25 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. Bearishly, the 20-day moving average crossed below the 50-day on May 2nd, the first negative cross since December 15th, 2011. The 20-day moving average fell for the 21st time in 22 sessions, and the 50-day moving average fell for the second straight session after remaining positively sloped since November 29th, 2011. For fourth straight session, the SPX closed (by -2.01%) below its 20-day moving average (1382.32). The index closed (by -2.29%) below its 50-day moving average for the third straight session. The index closed (by +0.57%) above its 100-day moving average (1346.91) for the 111st straight session. The SPX closed +6.09% above its 200-day moving average for the 92nd time in the past 93 sessions. The directional momentum indicator is negative for the fourth straight session, and the trend is weak and increasing. Relative strength fell to 37.88 from 40.91, the lower end of a neutral range. Next resistance is at 1364.50; next support is at 1343.90.

BKX. On higher volume, the KBW bank index fell -0.74 points, or -1.57%, to 46.50, its 85th straight close above 40 but its 26th straight close below 50. Volume rose +17.04% to 74.81 million shares, up from 63.92 million shares Tuesday but below the 76.64 million share 50-day average. The BKX closed +8.19% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -19.8% and -16.4% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

Financials were the market's worst performing sector, and large-cap banks underperformed regional banks. From its prior close of 47.24, the BKX opened lower to 46.80 and fell to the intra-day low of 46.11 at 10:30. From 11:00 through 11:45, the index rallied strongly, retaking the opening level before momentum reversed. Through 12:45, the index fell and reached 46.35, setting a higher low. Another rally at 1:00 to the index to the intra-day high of 46.86 at 1:50. The rally lost momentum, and the index sold off into the bell, falling to 45.60 at 3:00 and closing at 46.50, 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 +42.8% from the 32.56 October 4th intra-day low compared to a +26.1% rebound in the SPX. However, the BKX has yet to recapture its 2011 high, whereas the SPX did so in February 2012 and the index is below its 20- and 50-day moving averages. Moving average alignment is bullish, though the 20-day moving average fell and crossed under the 50-day moving average for the first time since December 1st, 2011. 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. The 20-day closed (by -0.03 points) below the 50-day, and the gap widened. The 50-day moving average closed (by +6.11 points) above the 200-day moving average for the 55th straight session, and the gap widened. The 100-day moving average closed (by +3.43 points) above the 200-day moving average for the 37th straight session, and the gap widened. For the fourth straight session, the BKX closed (by -3.01%) below its 20-day moving average. The index closed (by -3.06%) below its 50-day moving average for the fourth straight session. The index closed (by +2.66%) above the 100-day moving average for the 96th straight session. The index closed (by +11.07%) above its 200-day moving average for the 78th time in 79 sessions. The directional movement indicator is negative for the fourth straight session, and the trend is weak and increasing. Relative strength fell to 40.06 from44.36, a neutral range. Next resistance is 46.87; next support at 46.12.

This morning. U.S. equity markets are in correction. All major indexes closed below their respective 20- and 50- moving averages, but above their 100- and 200-day moving averages. The SPX closed -3.90% below its recent April 2nd 1419.04 high. The SPX's 20-day moving average rose, but for only the 2nd time in the past 20 trading days. Its 50-day moving average closed lower for the first time since last October. Its 20-day moving average closed below its 50-day moving average for a 3rd consecutive day. The 100- and 200-day moving averages continue to trend higher. The SPX is in bull market territory, closing up +26.8% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +45.1% in the same period.

U.S. economic reporting is light and unlikely to move markets today. In Asia, equity markets closed moderately lower on mixed volume. Commentary focused on Eurozone sovereign debt developments. In Europe, equity markets are again moderately lower, with less weakness in Germany. The dollar is mixed. U.S. options markets suggest a bullish short-term outlook. Commodities prices are lower. U.S. Treasury yields are lower, with the 10-year at 1.816%, down from 1.840% the prior day. U.S. repo rates are at 17 bps.

After a fair value adjustment of -1.62 points, June SPX equity futures are at 1346.50, down -10.38 points. The SPX opens at 1363.72, -1.40% and -1.65% below its respective 20- and 50-day moving averages, and +1.36% and +6.81% above its respective 100- and 200-day moving averages. Next resistance is at 1372.67. First support is at 1351.26.

Tuesday. U.S. equity markets resume their recent downward trend, though the day's retreat was narrowed sharply after equities rallied through the afternoon. The Nasdaq fared best, closing off -0.39%, followed by the SPX, DJI, and NYSE composite, which closed down -0.43%, -0.59%, and -0.77%, respectively. In an encouraging development, smaller cap stocks outperformed, with the RTY (Russell 2000) off only -0.09%.

NYSE volume rose +19.6%, to +1.11x the 50-day moving average. Market breadth was negative. Market segments were mixed. Leaders were utilities and health care, which rose at least +0.16%, and telecommunications, which fell -0.17%. Laggards were financials, consumer services, and basic materials, which fell at least -0.69%.

The SPX gapped lower to open below 1364 and trended lower through the European close at 11:30, to a 1347.75 intraday low. The index rallied immediately and traded back to 1355 at mid-day, but weakened again to test support at 1350. The rally strengthened after 2:00, with the SPX rising to 1365 in the minutes prior to the close. The SPX closed -1.40% and -1.65% below its respective 20- and 50-day moving averages.

The DJ transports outperformed the industrials, falling -0.21% to close at 5234.19, down from 5245.26 the prior day, and -2.51% below its 5368.93 February 3rd closing high. The index closed -0.26% below and +0.01% 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 -2.61% below its recent May 1st high.

Technical indicators weakened as all the major averages closed below their respective 20- and 50-day moving averages. The NYSE composite closed below its 100-day moving average. All others are above their respective 100- and 200-day moving averages. Volatility rose +0.58%, with the VIX ending at 19.05 at the close. The CBOE put/call skew rose to 117.23, up +0.47% from 116.68 the prior session, and within a neutral 115-120 range.

Immediate SPX support is 1358 (a -38.2% Fibonacci retrace), then 1357 (the April low), 1343 (the March low), 1325 (the February low), 1321 (a -61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1373, then 1383 (the 20-day moving average), then 1386 (the 50-day moving average), and 1419 (the April high).

Trading desks reported a "macro" day with few fundamental drivers, in which selling pressure was never particularly acute. The morning's sharp downward leg provided an opportunity for short-sellers to cover, helping to drive the afternoon's upward leg. Market focus remains on economic growth prospects and European election results, which are particularly muddled in Greece. Economic reports suggest a decline in economic momentum in April, so markets are now focused on indications of how momentum may develop in May.

The distribution day count was unchanged, with a count of 2 on the DJI and Nasdaq, 3 on the SPX and NYSE composite, since April 24th confirmation reset. The BKX count is 3.

In Asia, equity markets closed lower. Volumes were mixed, falling in Shanghai. Commentary focused on Eurozone developments. In Japan, the NKY closed off -1.49% on a +17.1% increase in volume. In Hong Kong, the HSI fell -0.75% on a +21.5% increase in volume. In Shanghai, the SHCOMP fell -1.65%, on a -6.18% decrease in volume. Economic reporting was light.

In Japan, the NKY closed at 9,045.06, down from 9,181.65 at the prior close. The index opened at 9,110 and trended lower through the morning session to an early afternoon 9021.20 intraday low. The index rallied modestly through most of the afternoon before weakening again in the final half hour. The index closed -11.8% below its recent March 27th high, and -4.70% and -7.16% below its respective 20- and 50-day moving averages. Most market segments fell. Leaders were telecommunications, which rose +0.79%, and consumer goods and health care, which fell at least -0.62%. Laggards were financials, oil and gas, and technology, which closed off at least -2.41%.

In China, the Hang Seng closed at 20,330.64, down from 20,484.75 at the prior close. The index also gapped lower to open at 20,360 and traded narrowly through the rest of the session, testing support at 20,257.61 and finding resistance at 20371.66. The index closed -6.22% below its February 29th high. Volatility rose +5.28% as the VHSI closed +11.4% above its 20.07 20-day moving average. The HSI closed -1.96% and -2.83% below its respective 20- and 50-day moving averages. Market segments closed mixed. Leaders were telecommunications, which closed up +0.091%, and financials and utilities, which closed at least -0.61% lower. Laggards were oil and gas, basic materials, and technology, which lost at least -1.59%.

In Shanghai, the SHCOMP closed at 2,408.59, down from 2,448.88 at the prior close. The index gapped lower to open below 2,435 and trended lower through the session to close just above its 2,407.81 intraday low. The index closed -2.65% below its recent 2,474.07 March 14th high. The index closed +1.02% and +0.93% above its respective 20- and 50-day moving averages. All market segments closed at least +1.15% lower. Leaders were financials, utilities, and health care. Laggards were consumer services, basic materials, and telecommunications, which fell at least -2.16%.

In Europe, equity markets are selling off and presently trade near their intraday lows. Weakness is most pronounced on the Spanish IBEX 35, which is off -3.52%. Commentary there focuses on government estimates that it will require €30 billion for extra credit provisions. The DAX, CAC, FTSE 100, and Euro Stoxx50 are down -0.53%, -1.11%, -1.15%, and -1.29%, respectively. Commentary in these markets focuses on Greece. Compared to its prior 2,236.11 close, the Euro Stoxx50 traded briefly higher to a 2,248.37 intraday high, but reversed lower to 2,203.89 by mid-day. The index seems to have found some support and has rallied modestly to 2,211.09. The index trades -3.85% and -8.79% below its respective 20- and 50-day moving averages. The FTSE100, CAC, Euro Stoxx50, and DAX all trade below their respective 20-, 50-, and 100-day moving averages. Only the DAX trades above its 200-day moving average.

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 0.46685%, up from 0.46585% the prior day, but down from the January 4th peak of 0.58250%.
• The US Libor-OIS (LOIS) spread is 31.79, down from 31.88 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 37.87 bps, down from 38.10 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 -46.625 bps, up from -46.945 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 17 bps, compared to an August 2nd high of 33 bps.

• U.S. Treasury yields are lower, with 2- and 10-year maturities yielding 0.254% and 1.816%, respectively, compared to 0.254% and 1.840% Tuesday. The yield curve narrowed to +1.562%, from +1.586% 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 and British pound, and weaker compared to the Japanese yen. The dollar trades at US$80.022, compared to a US$80.034 intraday high and US$79.738 the prior close, and mixed compared to its US$79.488 50-day, US$79.606 100-day, and US$78.319 200-day averages. The euro trades at US$1.2975, compared to an intraday low of US$1.2965 and its US$1.3005 close the prior day. The euro compares to its US$1.3176 50-day and $1.3119 100-day averages. In Japan, the dollar trades at ¥79.62, compared to ¥79.87 at the prior close. The yen trades better than its 50-day moving average ¥81.65.
• Commodities prices are mostly lower, with lower energy, precious metals, aluminum and copper, and agriculture prices.

Volatility, Skew:

• The VIX ended at 19.05, up +0.58% from 19.05 at the prior close. The VIX is +5.54% above its 18.05 20-day moving average.
• The Euro Stoxx 50 volatility index (V2X) is up +2.41% to 32.08 from 31.32 at the prior day's close. The V2X index trades +13.5% above its 28.26 20-day moving average, -0.00% below the 32.08 30-day high, and +56.8% above the 20.46 30-day low.
• The Hang Seng volatility index (VHSI) closed at 22.35, up +5.28% from 21.23 the prior day. The VHSI index trades +11.4% below its 20.00 20-day moving average.
• CBOE skew rose +0.47% to 117.23 from 116.68 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:

· MBA mortgage applications for the week ending May 4th rose +1.7% compared to +0.1% prior.

· At 10:00, March wholesale inventories, with +0.6% survey and +0.9% prior.

Overseas News. In March, Germany's current account balance rose more than expected, climbing to €19.8 billion, compared to €11.7 billion prior and €18.0 billion estimates. Today's Spanish news stories report the Spanish government will force banks to reserve an extra €45 billion of credit provisions for performing loan portfolios when the government's bank recapitalization plan is announced Friday. Today, the European Commission, the European Central Bank, and the IMF (collectively, the "Troika") canceled their May mission to Greece following the political turmoil after this past weekend's elections.

Company News:

· XL - reports 1Q12 GAAP and operating earnings of $0.56 and $0.52, compared to estimates of $0.41.

· AIG - upgraded to buy at Goldman Sachs.

1Q2012 Earnings. The first quarter's earnings reports have exceeded expectations. Of the 442 S&P 500 companies that reported earnings to date, 70% (309 out of 442) 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 +6.6% over the prior year. Though challenged in the current operating environment, 71% 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% increase, respectively, and beat consensus estimates by +19.5%.

Valuation. The SPX trades at 13.0x estimated 2012 earnings ($105.20) and 11.5x estimated 2013 earnings ($118.66), compared to 13.0x 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 -3.2%, and +0.7%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.6% and +24.9%, respectively.

Large-cap banks trade at a median 1.47x tangible book value, and 11.2x and 9.9x 2012and 2013 consensus earnings, respectively, compared to 1.47x tangible book value and 11.4x/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 $4.59 per share, compared to $4.22 and $3.13 in 2011 and 2010, a +7.2% and +46.2% increases, respectively.

Options. Options markets are bullish. Composite options markets are neutral, index options markets are neutral, and equity options markets are bullish. The composite put/call ratio closed at 1.13, compared to 0.90 the prior day and above its 5- and 10-period moving averages of 1.01 and 0.92 respectively. The index put/call ratio closed at 1.41, compared to 1.19 the prior day, above the 5- and 10-period moving averages of 1.26 and 1.28, respectively. The equity put/call ratio closed the day at 0.98, compared to 0.85 the prior day, above its 5- and 10-period moving averages of 0.93 and 0.77 respectively.

Price Exhaustion/Trend Reversal. 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 and during yesterday's sell-off. The SPX rebounded off the 1350 support level yesterday. Upward resistance rests near 1412 and 50.25, respectively, a level on the SPX which reversed May 1st's rally. On May 7th, the SPX recorded a downward price exhaustion reading on an hourly basis, signaling a potential short term positive bias.

NYSE Indicators. Volume rose +19.6% to 902.47 million shares, 1.11x the 50-day moving average, from 754.30 million shares Monday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -613 (compared to +252 the prior day), or 0.66:1. Up volume lagged down volume by 0.38:1.

SPX. On higher volume, the SPX fell -5.86 points, or -0.43%, to 1363.72, the 75th straight close above 1300 but the 21st close below 1400 in the last 24 sessions. Volume rose +16.97% to 675.26 million shares, up from 577.28 million shares Monday and above the 618.73 million share 50-day moving average. For the third straight session, the SPX closed below its 50-day moving average (1386.64)but remained above its 200-day moving average (1276.76) for the 91st time in the past 92 sessions. The SPX closed above its 200-week moving average (1134.95) for the 147th straight session.

From its prior close at 1369.58, the SPX opened lower to 1363, tested 1360 through 10:00, and broke through that support at 10:00 and fell sharply to the intra-day low of 1347.75 at 11:15. A reversal recaptured 1355 by 11:55 but the index retested 1350 at 1:00 before beginning a rally into the close. The afternoon rally took the index back to the intra-day high of 1365.74 at 3:40 and the market closed at the top end of the day's negative range.

Technical indicators are mostly positive. The SPX closed above 1200 for the 109th straight session, above 1300 for the 75th session, but below 1400 for the 21st time in the last 24 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 rose for the first time in 21 sessions, joining other major moving averages. For third straight session, the SPX closed (by -1.40%) below its 20-day moving average (1383.02). The index closed (by -1.65%) below its 50-day moving average for the third straight session. The index closed (by +1.36%) above its 100-day moving average (1345.48) for the 110th straight session. The SPX closed +6.81% above its 200-day moving average for the 91st time in the past 92 sessions. The directional momentum indicator is negative for the third straight session, and the trend is weak and increasing. Relative strength fell to 40.91 from 42.94, a neutral range. Next resistance is at 1372.67; next support is at 1351.26.

BKX. On higher volume, the KBW bank index fell -0.39 points, or -0.82%, to 47.24, its 84th straight close above 40 but its 25th straight close below 50. Volume rose +12.96% to 63.92 million shares, up from 56.59 million shares Monday but below the 76.39 million share 50-day average. The BKX closed +9.91% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -18.5% and -15.1% 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' gains. From its prior close of 47.63, the BKX opened lower to 47.30, rose to the intra-day high of 47.53 at 9:45, but then set lower lows and lower highs on a sell-off that persisted through 1:00 to set the intra-day low of 46.78. Reversing quickly at that important support level, the index turned high, testing 47.00 at 2:00 and retaking the opening 47.30 level just prior to the close. The index closed towards the higher 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 +45.1% from the 32.56 October 4th intra-day low compared to a +27.0% 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 89th straight session, the 20-day closed (by +0.06 points) above the 50-day, but the gap shrank and will likely cross after tonight's close. The 50-day moving average closed (by +6.08 points) above the 200-day moving average for the 54th straight session, and the gap widened. The 100-day moving average closed (by +3.34 points) above the 200-day moving average for the 36th straight session, and the gap widened. For the third straight session, the BKX closed (by -1.60%) below its 20-day moving average. The index closed (by -1.48%) below its 50-day moving average for the third straight session. The index closed (by +4.50%) above the 100-day moving average for the 95th straight session. The index closed (by +12.83%) above its 200-day moving average for the 77th time in 78 sessions. The directional movement indicator is negative for the third straight session, and the trend is weak and increasing. Relative strength fell to 44.36 from 46.82, a neutral range. Next resistance is 47.59; next support at 46.84.

This morning. After Friday's sharp sell-off, the U.S. equity market is again in correction, end the brief uptrend that began on April 25th. All major indexes closed below their respective 20- and 50- moving averages, but above their 100- and 200-day moving averages. The SPX closed -3.52% below its recent April 2nd 1419.04 high. The SPX's 20-day moving average moved lower, as it has in 18 of the past 19 trading days, and closed below its 50-day moving average for a 2nd consecutive day. The 50-, 100-, and 200-day moving averages continue to trend higher. The SPX is in bull market territory, closing up +27.3% above the 1074.77 October 4th intraday low. Financial stocks have outperformed, with the BKX up +44.9% in the same period.

There are no scheduled U.S. economic reports. In Asia, equity markets closed mixed with better strength in mainland China. Commentary focused on Friday's U.S. equity sell-off and Sunday's French and Greek elections, which raise new doubts with respect to Eurozone sovereign debt management. In Europe, equity markets are mixed after narrowing or erasing large losses early in their session. London is closed. The dollar is mixed. U.S. options markets suggest a bullish short-term outlook. Commodities prices are mixed. U.S. Treasury yields are lower, with the 10-year at 1.858%, down from 1.879% the prior day. U.S. repo rates are at 19 bps.

After a fair value adjustment of +2.85 points, June SPX equity futures are at 1357.30, down -8.05 points. The SPX opens at 1369.10, -1.03% and -1.26% below its respective 20- and 50-day moving averages, and +1.96% and +7.25% above its respective 100- and 200-day moving averages. Next resistance is at 1384.42. First support is at 1360.87.

Friday. April's U.S. employment report disappointed, and equities opened lower, with the SPX opening at 1385, down from 1391.57 at Thursday's close. The lower trend persisted into early afternoon, as the SPX finally found support at 1370 and testing and retesting that level through the close. Despite the -0.1% decline in the unemployment rate, the report's soft underbelly was difficult to disguise and suggested that the recent stronger economic rebound was again moderating. At the close, the Nasdaq lost -2.25%, followed by the SPX, NYSE composite, and DJI, which traded off -1.61%, -1.45%, and -1.27%, respectively. Perhaps the best news was that NYSE volume fell -2.24%, to +1.02x the 50-day moving average, and indication that the sell-off lacked wide participation. The SPX closed -1.03% and -1.26% above its respective 20- and 50-day moving averages. Market breadth was negative. Market segments were mixed. Leaders were utilities, which rose +0.06%, and telecommunications and consumer goods, which fell at least -0.92%. Financials dropped -1.53%. Laggards were consumer services, oil and gas, and technology, which fell at least -1.72%.

The DJ transports outperformed the industrials, falling -1.07% to close at 5227.64, down from 5284.33 the prior day, and -2.63% below its 5368.93 February 3rd closing high. The index closed -0.20% and -0.05% 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 -1.82% below its recent May 1st high.

Technical indicators weakened as the SPX lost its 20- and 50-day moving averages. All 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 +9.11%, with the VIX ending at 19.16 at the close. The CBOE put/call skew fell to 115.83, down -0.30% from 116.18 the prior session, and within a neutral 115-120 range.

Immediate SPX support is 1360, then 1357 (the April low), 1357 (a -38.2% Fibonacci retrace), 1343 (the March low), 1325 (the February low), 1318 (a -61.8% Fibonacci retrace), 1297 (the January 12th high), and 1293 (the October 27th high). Immediate resistance is 1383 (the 20-day moving average), then 1387 (the 50-day moving average), then 1399, and 1419 (the April high).

Trading desks focused on absence of any rebound during Friday's sell-off to the bottom of the recent 1370-1400 SPX range, but noted the unexceptional volume and generally quiet trade after the initial early trade off.

(click to enlarge)

The distribution day count rose on the SPX and DJI, with a count of 2 on the DJI and Nasdaq, 3 on the SPX and NYSE composite, since April 24th confirmation reset. The BKX count is 3.

In Asia, most equity markets sold off sharply on increased volume, though responding to Friday's disappointing U.S. employment report and European election results. Japanese equity markets reopened after a two day holiday and sold off -2.62% on a +40.7% increase in volume. In Hong Kong, the HSI fell -2.78% on a 61.0% increase in volume. In Shanghai, the SHCOMP was unchanged, down -0.07 points, on a +6.11% increase in volume. Commentary focused on weekend polls in France and Greece, with views that they "fuel" debt crisis concerns. European economic reports were mixed, with better than expected German March factory orders, but accompanied by a disappointing Eurozone investor confidence report.

In Japan, the NKY closed at 9,119.14, down from 9,380.25 at the prior close, its lowest close since mid-February. The index gapped lower to open at 9,200, but quickly sold off to 9,100, and traded narrowly between 9,160 and 9,110 through the rest of the day. The index closed -11.1% below its recent March 27th high, and -4.57% and -6.53% below its respective 20- and 50-day moving averages. Only utilities closed higher, up +0.83%. Other leaders were telecommunications, and health care, which closed off at least -1.11%. Laggards were financials, consumer goods, and oil and gas, which closed at least -3.56% lower.

In China, the Hang Seng closed at 20,536.65, down from 21,086.00 at the prior close. The index gapped lower to open just above 20,650 and traded narrowly through the session's remainder, finding support at 20,500. The index rallied modestly into the close. The index closed -5.27% below its February 29th high. Volatility rose +18.6% as the VHSI closed +12.5% above its 19.81 20-day moving average. The HSI closed -1.05% and -2.04% below its respective 20- and 50-day moving averages. All market segments closed at least -0.95% lower. Leaders were telecommunications, utilities, and consumer goods. Financials lost -2.65%. Laggards were consumer services, oil and gas, and technology, which lost at least -3.36%.

In Shanghai, the SHCOMP erased early losses and closed at 2,451.95, down just -0.07 points from 2,452.01 at the prior close. The index gapped lower to open at 2,440 and traded narrowly through early afternoon, then weakened to find support at the mid-afternoon 2,433.34 intraday low, and rallied strongly through the close. The index closed -0.89% below its recent 2,474.07 March 14th high. The index closed +3.47% and +2.88% above its respective 20- and 50-day moving averages. Most market segments closed higher. Leaders were health care, utilities, and technology, which closed up at least +0.84%. Laggards were financials, oil and gas, and telecommunications, which fell at least -0.35%.

In Europe, equity markets have rallied off their early morning lows and are modestly mixed. London is closed. The Euro Stoxx50 and CAC 40 reversed early, sharp losses and presently trade higher at their intraday highs. Spanish and Italian equity indexes are up about one percent, after reversing early session losses of nearly -2..0%. Commentary focuses on this weekend's elections in France and Greece and their sovereign debt implications. The Euro Stoxx50 and CAC are up +0.06% and +0.12%, respectively. The DAX is down -0.51%, narrowing early session losses of more than -2.0%. Compared to its prior 2,248.34 close, the Euro Stoxx50 gapped lower to open below 2,230 and dropped quickly to the 2,204.73 intraday low, set minutes later. The rally ensued immediately, with the index fully reversing losses by early afternoon. The index trades -4.57% and -6.53% below its respective 20- and 100-day moving averages. The FTSE100, CAC, Euro Stoxx50, and DAX all traded below their respective 20-, 50-, 100-, and 200-day moving averages. Only the FTSE100 and DAX trade above their 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 32.08, unchanged from 32.08 bps the prior day, and compares to the recent January 6th high of 50.05 bps. Euribor-OIS is 37.90 bps, unchanged from 37.90 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 -41.50, unchanged from -41.50 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 19 bps, compared to an August 2nd high of 33 bps.

• U.S. Treasury yields are mixed, with 2- and 10-year maturities yielding 0.262% and 1.858%, respectively, compared to 0.254% and 1.879% Friday. The yield curve narrowed to +1.596%, from +1.625% 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 stronger compared to the euro, and slightly weaker compared to the Japanese yen and British pound. The dollar trades at US$79.685, compared to a US$80.034 intraday high and US$79.498 the prior close, and mixed compared to its US$79.434 50-day, US$79.608 100-day, and US$78.264 200-day averages. The euro trades at US$1.3026, compared to an intraday low of US$1.3192 and its US$1.3199 close the prior day. The euro compares to its US$1.3192 50-day and $1.3121 100-day averages. In Japan, the dollar trades at ¥79.82, compared to ¥79.85 at the prior close. The yen trades better than its 50-day moving average ¥81.70.
• Commodities prices are mixed, with mixed energy, lower precious metals, lower aluminum, and copper, and mixed agriculture prices.

Volatility, Skew:

• The VIX ended at 19.16, up +9.11% from 17.56 at the prior close. The VIX is +5.79% above its 18.11 20-day moving average.
• The Euro Stoxx 50 volatility index (V2X) is up +2.44% to 30.10 from 29.38 at the prior day's close. The V2X index trades +8.18% above its 27.82 20-day moving average, -4.54% below the 31.53 30-day high, and +47.1% above the 20.46 30-day low.
• The Hang Seng volatility index (VHSI) closed at 18.63, up +12.5% from 18.79 the prior day. The VHSI index trades -0.27% below its 22.35 20-day moving average.
• CBOE skew fell -0.30% to 115.83 from 116.18 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: There are no scheduled economic reports.

Overseas News. This weekend, Socialist candidate Francois Hollande defeated incumbent Nickolas Sarkozy for the French Presidency. Also this weekend, Greece's two major political parties, which both supported the EU/IMF bailout, suffered material setbacks during elections, putting a ruling coalition in jeopardy and risking new elections next month. In March, German factory orders increased more than expected, rising +2.2% over the prior month compared to +0.5% estimates. In May, Eurozone investor confidence declined more than forecast, falling to -24.5 from -14.7 and compared to estimates of -15.3.

Company News: None.

1Q2012 Earnings. The first quarter's earnings reports have exceeded expectations. Of the 422 S&P 500 companies that reported earnings to date, 70% (295 out of 422) 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 +6.5% over the prior year. Though challenged in the current operating environment, 72% of companies reported increased revenues over the prior year and 67% 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% increase, respectively, and beat consensus estimates by +19.5%.

Valuation. The SPX trades at 13.0x estimated 2012 earnings ($105.05) and 11.6x estimated 2013 earnings ($118.36), compared to 13.2x and 11.8x respective 2011-12 earnings Friday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2012, analysts changed 2012 and 2013 earnings estimates by -3.4%, and +0.5%, respectively. Analysts expect 2012 and 2013 earnings to exceed 2011 earnings ($94.97) by +10.6% and +24.6%, respectively.

Large-cap banks trade at a median 1.45x tangible book value, and 11.2x and 9.9x 2012and 2013 consensus earnings, respectively, compared to 1.44x tangible book value and 11.5x/10.1x 2012/2013 earnings Friday. 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 bullish. Composite options markets are neutral, index options markets are neutral, and equity options markets are very bullish. The composite put/call ratio closed at 1.02, compared to 1.01 the prior day and above its 5- and 10-period moving averages of 0.96 and 0.89 respectively. The index put/call ratio closed at 1.43, compared to 1.12 the prior day, above the 5- and 10-period moving averages of 1.32 and 1.28, respectively. The equity put/call ratio closed the day at 0.90, compared to 0.98 the prior day, above its 5- and 10-period moving averages of 0.83 and 0.71 respectively.

Price Exhaustion/Trend Reversal. 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, with the SPX level reversing May 1st's rally.

NYSE Indicators. Volume fell -2.24% to 825.24, 1.02x the 50-day moving average, from 825.24 million shares Thursday. Market breadth was negative, and up volume lagged down volume. Advancing stocks lagged decliners by -1,545 (compared to -1,194 the prior day), or 0.32:1. Up volume lagged down volume by 0.17:1.

SPX. On higher volume, the SPX fell -22.47 points, or -1.61%, to 1369.10, the 75th straight close above 1300 but the 19th close above 1400 in the last 22 sessions. Volume rose +0.63% to 585.40 million shares, up from 581.76 million shares Thursday but below the 614.57 million share 50-day moving average. For the first time in eight sessions, the SPX closed below its 50-day moving average (1386.64)but remained above its 200-day moving average (1276.54) for the 89th time in the past 90 sessions. The SPX closed above its 200-week moving average (1134.82) for the 145th straight session.

From its prior close at 1391.57, the SPX opened lower to 1385, immediately setting the intra-day high. Through 12:40, the market continued declining, reaching 1368. The index traded mostly flat through the close, setting the intra-day low of 1367.96 at 2:45 and closing under the 1370 level.

Technical indicators are positive. The SPX closed above 1200 for the 107th straight session, above 1300 for the 73rd session, but below 1400 for the 19th time in the last 22 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 19th straight session. For first time in eight sessions, the SPX closed (by -1.03%) below its 20-day moving average (1383.40). The index closed (by -1.26%) below its 50-day moving average for the first time in eight sessions. The index closed (by +1.96%) above its 100-day moving average (1342.77) for the 108th straight session. The SPX closed +7.25% above its 200-day moving average for the 89th time in the past 90 sessions. The directional momentum indicator switched to negative for the first time in seven sessions, and the trend is weak and declining. Relative strength fell to 42.73 from 51.20, a neutral range. Next resistance is at 1384.42; next support is at 1360.87.

BKX. On higher volume, the KBW bank index fell -0.96 points, or -1.99%, to 47.18, its 82nd straight close above 40 but its 23rd straight close below 50. Volume rose +6.82% to 61.35 million shares, up from 57.43 million shares Thursday but below the 76.57 million share 50-day average. The BKX closed +9.77% above its August 30, 2010, closing low of 42.98, the trough of the 2010's correction, but -18.5% and -15.2% below its April 23, 2010 (the post-2008 high point), and February 14, 2011 (the most recent high point) respective closes.

Financials outperformed the market, and regional banks outperformed large-cap banks. From its prior close of 48.14, the BKX opened lower to 47.90 and set the intra-day high of 48.00 at 9:32. Through 11:40, the index declined to the intra-day low of 47.06. A small rebound to 47.30 by 1:20 lost momentum, and the index traded mostly flat through the close to finish at the low 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 +44.9% from the 32.56 October 4th intra-day low compared to a +27.5% 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 87th straight session, the 20-day closed (by +0.15 points) above the 50-day, but the gap shrank and will likely cross by Wednesday. The 50-day moving average closed (by +5.98 points) above the 200-day moving average for the 52nd straight session, and the gap widened. The 100-day moving average closed (by +3.14 points) above the 200-day moving average for the 34th straight session, and the gap widened. For the first time in seven sessions, the BKX closed (by -1.72%) below its 20-day moving average, which fell for the 16th straight day. The index closed (by -1.41%) below its 50-day moving average for the first time in 92 sessions, since December 20th, 2011. The index closed (by +4.81%) above the 100-day moving average for the 93rd straight session. The index closed (by +12.67%) above its 200-day moving average for the 75th time in 76 sessions. The directional movement indicator switched to negative for the first time in three days, and the trend is weak and stable. Relative strength fell to 43.46 from 49.67, a neutral range. Next resistance is 47.77; next support at 46.83.