Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

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February 10, 2011 – Housing and Banking Issues Remain Problematic

With the average 30-Year fixed rate mortgage up to 5.13% from 4.81% last week, mortgage
applications continue to slide. The overall Mortgage Application Index declined 5.5% this week led by
a 7.7% decline in the Refinance Index with the Purchase Index down 1.4%. A major negative factor
has been significantly higher US Treasury yields. The yield on the 10-Year US Treasury was at 2.334
in October in anticipation of QE2, and on Wednesday this yield touched 3.770 up 143.6 basis points.
The main purpose of QE2 is to push longer term US Treasury yields lower so this policy has
been a failure.
As a result of this failed monetary policy the percentage of homes that are underwater versus their
mortgages outstanding has risen to 27%, which feeds on projecting even lower home prices as the
supply of existing homes for sale continues to rise. This in turn puts more pressure on banks to make
costly mortgage modifications, and write-down more commercial real estate loans. These are the
problems that originally emerged in mid-2005 for the homebuilders, at the end of 2006 for
community banks and in March 2007 for regional banks including those considered “too big to
fail.” Remember, toxic assets are still around and the larger banks are being asked by the FDIC to
increase contributions to the FDIC Deposit Insurance Fund beginning April 1st.
According to Zillow home values posted their largest quarterly decline of 2.6% in the fourth quarter,
down 5.9% year over year.
On the labor front, the Labor Department reported that employers posted fewer jobs openings in
December, a drop of 140,000 to 3.1 million jobs, the lowest since September. Nearly 14.5 million
Americans were out of work in December with 4.7 people competing for each job available. A healthy
reading is 2 to 1. Key to the housing market and Main Street USA are construction jobs and job
openings fell sharply to 28,000 in December from 91,000 in November.
Wednesday’s closes were above all of this week’s pivots at 12,142 Dow Industrial Average, 1316.2
S&P 500, 2770 NASDAQ, 5077 Dow Transports, and 800.13 Russell 2000. The S&P 500 tested and
held its weekly pivot at 1316.2. The Dow Transport Average remains below its 50-day simple moving
average at 5098 and my annual pivot at 5179.
• The Dow Industrial Average (12,240) – My monthly value level is 11,759 with this week’s pivot
at 12,142, Wednesday’s high at 12,254.23 with daily and annual risky levels at 12,399 and
13,890.
• The S&P 500 (1320.9) – My quarterly value level is 1262.5 with this week’s pivot at 1316.2, and
 Tuesday’s high at 1324.87 and today’s risky level at 1346.1.
• The NASDAQ (2789) – My monthly value level is 2611 with a weekly pivot at 2770 and daily
and quarterly risky levels at 2843 and 2853.
• Dow Transports (5096) My monthly value level is 4962 with a weekly pivot at 5077, the 50-day
simple moving average at 5098 and daily and annual pivots at 5145 and 5179. Transports lag
its January 18th high at 5256.80.
• The Russell 2000 (809.27) My annual and quarterly value levels are 784.16 and 765.50 with a
weekly pivot at 800.13 and Tuesday’s high at 813.69 and daily risky level at 828.06.
We are still trading under a ValuEngine Valuation Warning - 16 of 16 sectors overvalued with only
34.28% of all stocks undervalued on Wednesday, below the 35% threshold by this measure. This also
means that 65.72% of all stocks are overvalued. Why does Wall Street think stocks are cheap?
The US Treasury 10-Year Yield – (3.646) Tested 3.770 on Wednesday versus my annual value
level at 3.791. My annual value level is 3.791 with a weekly risky level at 3.525. The 10-Year auction
helped stabilize the US Treasury market with an auction level at 3.665, a strong 3.23 bid to cover, and
an aggressive 71% indirect bid.
Comex gold – ($1363.7) My quarterly, weekly and annual pivots are $1331.3, $1342.8 and $1356.5
with monthly, quarterly and semiannual risky levels are $1412.4, $1441.7 and $1452.6. Gold remains
below its 50-day simple moving average at $1375.0.
Nymex crude oil – ($86.85) My semiannual pivot at $87.52 remains a magnet between a trading
range between the January 28th low at $85.11 and its January 31st high at $92.84. My semiannual
pivot is $87.52 has become a magnet with weekly and monthly pivots at $91.62 and $91.83. The 200-
day simple moving average is $80.75.
The euro – (1.3728) My quarterly value level is 1.3227 with a weekly pivot at 1.3511 and monthly risky
level at 1.4225.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com, (800) 381-5576
Send your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visit
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and
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