The Stock Rally since March 2009 tracks the decline in Initial Jobless Claims, but claims are above the Recession Threshold. The S&P 500 tested my annual resistance at 1179 on Thursday. The rise in yields stopped with a successful 7-Year auction, but higher yields loom longer term. The Dollar Index is in a solid up trend, which puts pressures on gold and crude oil. I show daily Key Reversals for the Housing Sector Index and the America’s Community Bankers Index.

The Recession Threshold for weekly Initial Jobless Claims is 350,000, and this week’s reading of 442,000 remains above this level. If the economy was creating jobs, claims would be trending below 350,000. Looking back to 2005, almost all week’s were below 350,000, but after the Home Builders peaked in mid-2005, claims provided an early warning of pending recession with readings above 350,000 between September 16th and October 7, 2005.

Jobless Claims stayed below 350,000 for all of 2006 as the Housing Bubble inflated and as community and regional banks issued toxic mortgages and increased exposures to C&D and CRE loans. Remember that community banks peaked at the end of 2006 and that regional banks peaked in February 2007. Despite these early warnings Jobless Claims stayed below 350,000 until December 2007, which is when the National Bureau of Economic Research (NBER) time-stamped the beginning of Recession from their rear view mirror a year later.

A sustained trend above 350,000 did not begin until March 2008, and since then Jobless Claims have been above that threshold. The low since peaking at 651,000 in March 2009 is this week’s reading of 442,000, which fueled the rally to new cycle highs for some of the major equity averages.

Nonetheless this key statistic is not close to sustaining a trend below 350,000, which to me would be a signal that the recession is over.

The Stock Rally was thus led by the down trend in Jobless Claims, but now the major averages are entering their zones of semiannual and annual resistances.
· The Dow Industrials remain below annual and semiannual resistances at 11,235 and 11,442.
· The S&P 500 tested its annual resistance at 1179 on Thursday with semiannual resistance at 1195.



· The NASDAQ tested its monthly resistance at 2430 on Thursday.
· The Dow Transports are above my annual pivot at 4324, but below semiannual resistance at 4488.
· The Russell 2000 is above my semiannual pivot at 673.50, but below annual resistances at 723.54 and 748.99.
· The SOX is between my semiannual pivot at 358.89 and monthly resistance at 379.97.

The rise in yields stopped with the successful 7-Year note auction. The US Treasury sold $32 billion in 7-Year notes at 3.374, which held after the auction results were announced. The bid-to-cover was a bit low at 2.61, but the Indirect Bid was above 40% at 42%. My overall rating was a “B” for this auction.

For the 10-Year yield, as long as weekly closes are cheaper than my semiannual pivot at 3.675, I show risk to semiannual support at 4.25.

For Comex Gold, as long as weekly closes are below my annual pivot at $1115.2 the risk is to my annual support at $938.7.

For Nymex Crude Oil, the risk is a return to my annual pivot at $77.05 as the $82 to $84 range remains the ceiling.

For the Dollar Index, holding my quarterly pivot at $80.23 keeps the greenback MOJO going. Note the solid up-channel on the daily chart.

A “Rolling Next Six FOMC Meetings” is my definition of record low rates for an “extended period.”

While some day that robust GDP growth is upon us, Fed Chief Ben Bernanke told Congress on Thursday that a zero percent funds rate will be needed for an “extended period” to rev up the economic recovery. My definition of “extended period” is a “rolling six FOMC meetings”. In other words as long as the Fed Statement reads “extended period” the FOMC will keep the funds rate at zero for the next six FOMC meetings.

The Fed Chief mistakenly stated that inflation remains low giving the FOMC leeway to keep the funds rate next to zero. His Fixx is the theme, “Saved By Zero”. Following a GDP of 5.9% in Q4 2009, Bernanke described economic conditions as still fragile, and the stock market applauded this opinion!

What Can Go Wrong? It’s all about the Housing and Jobs markets on Main Street USA. Housing is set for a double-dip, which will continue the stress in the banking system. Without job creation, Main Street cannot follow the successes on Wall Street. States are running on empty budgets, which will lead to further job losses, and more defaults and foreclosures. This could make 2010 and repeat of 2007.

Thursday was Key Reversal Days for HGX and ABAQ.

The Housing Sector Index (HGX) shows a clear Key Reversal Day, which will be confirmed by lower closes today and Monday. The high was shy of that set on September 17, 2009. The 200-day simple moving average is major support at 99.92.

The America’s Community Bankers Index (ABAQ) also shows a Key Reversal Day. If confirmed by lower closes today and on Monday indicates risk to the 200-day simple moving average at 148.28.

That’s today’s Four in Four. Have a great day.


Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com

Serious delinquencies for single-family mortgages continued to rise in January. Tracking the S&P 500! New home sales declined again in February. Yields rise on a second weak US Treasury auction with the 7-Year note on the docket today. Gold tests my quarterly pivot, Crude Oil approaches my monthly pivot yet again, and the euro breaks below 1.34.

The Federal Housing Finance Agency (FHFA) shows that serious single-family mortgage delinquencies increased again in January.

Subprime ARMS delinquencies rose to 42.7% from 40.8% in January vs December
Subprime Loans rose to 30.6% from 28.7
FHA Loans rose to 9.4% from 8.7%
All Loans rose to 9.7% from 8.9%
Prime Loans rose to 7.0% from 6.3%
Fannie Mae Loans rose to 5.4% in December from 5.3% in November
Freddie Mac Loans rose to 4.0% in January from 3.9% in December

It is difficult to be positive about the economy and the markets when the mortgage market remains under these statistical stresses. This is a sign that we face a double-dip recession led by housing and financials, as was the case with the peak in the home builders in mid-2005, community banks at the end of 2006, and the regional banks in February 2007.

Stocks peaked in October 2007, and the S&P 500 dropped 57.7% to its March 6, 2009 low. The rebound one year later has been 76%, which keeps the S&P 25.9% below that October 2007 high.

New Home Sales declined to a record low in February to an annual rate of 308,000 units. Sure the weather was a factor, but of equal importance is the ongoing weak jobs market on Main Street, USA.

I say the main reasons for weakening housing market is that home prices remain 50% higher since the end of the twentieth century, tightening lending standards, and uncertainty that deals can go to contract by April 30 and to closing by June 30 for those looking at the $8,000 first time home buyer tax credit, or the $6,500 move up tax credit.

Those touting a housing bottom cite pent-up demand, but that demand will be met by the growing inventory of foreclosed and short sale homes resulting from the above delinquencies on homes where owners can not be saved. This is expected to be 3 to 3.5 million in 2010. I also question pent-up demand as children move in with parents, or other forms of multi-generational households.

With regard to new homes, some builders cannot get construction loans, and material costs are on the rise. Low interest rates have caused commodity speculation including lumber futures and other materials used in home construction. This makes it difficult to build a home cheaper than the prices of foreclosed or short sale existing homes.

This ZERO percent funds rate policy may have helped Wall Street, but it has caused pain on Main Street. Wall Street speculates on commodities pushing building materials costs higher, while Main Street citizens on a fixed income get ZERO in money markets. If Main Street had some interest income, perhaps spending can increase.

The TARP Inspector General was critical of the $50 billion programs to help home owners stay put. It appears that the loan modification programs are delaying foreclosures rather than preventing them. Instead of helping three to four million homeowners, as promised by the White House, only 170,000 have received mortgage relief.

Today’s 7-Year Auction comes in the aftermath of a mediocre 2-Year auction on Tuesday, and a weak 5-Year auction on Wednesday. I do not have a support for the 7-Year other than 3.457, which was the high yield at the end of 2009. The 21-day, 50-day and 200-day simple moving averages are converged resistances at 3.107, 3.120 and 3.105.

Comex Gold tested my quarterly pivot at $1084.9 on Wednesday. The 200-day simple moving average is support at $1047.0. The last time gold approached its 200-day was last April when that level was around $900. My annual support is $938.7 with my annual pivot at $1115.2.

Nymex Crude Oil has met resistance in the $82 to $84 range since last October. If this tendency continues, look for another test of its 200-day simple moving average at $73.85. Meanwhile my monthly pivot at $80.05 and $81.84 have been magnets since last Friday. Annual support remains $77.05.

The euro broke below 1.34 with my weekly support at 1.3156. The November 2009 low was just above 1.2300. The 21-day simple moving average is resistance at 1.3609.

That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at 1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com

The Senate Banking Committee passes Financial Overhaul. The future of Fannie Mae and Freddie Mac is under discussion, again. The yield on the 10-Year moves above the key 3.675 on a “so-so” 2-Year auction; the 5-Year is bid today. Commodities are range-bound as the euro dips below 1.34. The major equity averages press longer term resistances on stressed Valuations.

Unnecessary Financial Overhaul Approved by the Senate Banking Committee. The Dodd bill is a dud, as it just sets up additional layers of regulators that will only be ignored or bent just as the current guidelines have been. Reshaping rules governing the financial sector is a waste of time and money, considering that our existing regulators and regulations were ignored. Establishing a new bureau within the Federal Reserve is a joke when Fed Policy was a major cause of “The Great Credit Crunch”.

The Federal Reserve will write and enforce rules to protect consumers. A council of regulators will survey threats to the financial system. If implemented and controlled, the Dodd Dud Bill will bring complex derivatives under government oversight. There will also be a mechanism to unwind and shut down big financial firms if they face collapse. The control of derivatives is necessary, and the Big Four Banks should be whittled down to under 10% of total assets in the banking system.

If Fed Chief Bernanke cannot tell the public what the $29 billion Bear Stearns collateral is worth how can you have oversight for derivatives, which have expanded 29.6% or $48.8 trillion to $213.6 trillion since “the Great Credit Crunch” began at the end of 2007. One would have thought that our banking regulators would have required the big banks to reduce the notional amount of derivative contracts outstanding rather that increase them by such a staggering amount. Tic Toc on the Clock!

Treasury Secretary Geithner is threatening the big banks that he will impose stricter rules on the banking industry such as higher capital requirements. Why not just accelerate the FASB market-to-market accounting rules, rather than allowing banks to stretch them out through 2012?

Why is it that when regulators fail to abide by their own guidelines, they blame it on the need for tougher and additional regulation? I guess it’s called covering one’s buttocks.

Meanwhile Fannie Mae & Freddie Mac, who should have begun liquidation two years ago, are being kept on life support at a growing cost to taxpayers. So far the cost to taxpayers $126 billion and will be rising by an unlimited amount each quarter through 2012.

Under Conservatorship Fannie and Freddie are government backed but off balance sheet. Even the Federal Housing Administration (FHA) a direct Government entity is also running out of cash. Instead of relying less on Fannie and Freddie, 70% of all home mortgages are backed by these GSEs. The bigger they get the tougher it will be to unwind them. The Government has had a program to back the mortgage market called Ginnie Mae, which is backed by the full faith and credit of Uncle Sam. Back in May 2008 I suggested the unwinding of Fannie and Freddie and expanding Ginnie Mae as the primary mortgage generator.

There also remains the confusion as to the current backing of Fannie and Freddie. This is a thin line of interpretation that should be clarified. Under Conservatorship the debt and mortgages of Fannie & Freddie are backed by the US government, that’s what the law states. Yet today, some say that this backing does not have the same level of government backing as US Treasuries. On Christmas Eve, Geithner put the time stamp on US backing to the end of 2012 and beyond.

Today’s 5-Year Auction comes in the aftermath of a mediocre 2-Year auction and with the 10-Year on the “supply concern” side of its semiannual pivot at 3.675. The 5-Year set a trading range of 1.95 to 2.76 between Thanksgiving and the end of 2009. My semiannual support is 2.529 with a weekly pivot at 2.396.

Comex Gold is above my quarterly support at $1084.9 just days before the first quarter comes to an end. The 200-day simple moving average becomes key support at $1047.1. The last time gold approached its 200-day was last April when that level was around $900. My annual support is $938.7 with my annual pivot at $1115.2.

Nymex Crude Oil has met resistance in the $82 to $84 range since last October. If this tendency continues, look for another test of its 200-day simple moving average at $73.85. Meanwhile may monthly pivot at $80.05 and $81.84 have been magnets since last Friday.


Dow – Annual support is 10,379 with annual and semiannual resistances are 11,235 and 11,442.

S&P 500 – Weekly support is 1138.8 with annual and semiannual resistances at 1179.0 and 1194.69.

NASDAQ – Semiannual and annual supports are 2258, 2250 with a semiannual pivot at 2392.

Dow Transports – My annual pivot is 4324 with semiannual resistance at 4488.

Russell 2000 – My semiannual pivot is 673.50 with semiannual and annual resistances at 717.69, 723.54 and 748.99.

The ValuEngine Universe consists of over 4500 US, foreign, and ADR tickers traded on US markets. “Normal” ranges for universe over and undervaluation typically run between 35-65%. Of course, readings in excess of this range are no guarantee that a correction is imminent and extreme conditions may persist for a very long time.

That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at 1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com

Stress in the banking system continues unabated. Subscribe to the ValuEngine Quarterly FDIC Report, which will be updated in early April. Statistics for the failed banks that were included in the ValuEngine List of Problem Banks. Comptroller of the Currency John Dugan says that the banking agencies will issue new and tougher standards. Today I look at the weekly charts for the Housing and Banking Indices.

Stress in the banking system continues unabated. On Monday, I wrote about the 74 Deadbeat Banks that reneged on their February 16th TARP dividend payments. Today, I present statistics about these Deadbeat banks that are publicly-traded, took TARP funds, failed to make dividend payments, and are overexposed to Construction & Development loans and / or Commercial Real Estate loans. These are the banks that should have never received taxpayer money in the first place, but they did because the US Treasury, Federal Reserve and FDIC ignored their own regulatory guidelines and shirked their fiduciary responsibilities.

Candidates for the ValuEngine List of Problem Banks are the publicly-traded banks that are overexposed to C&D and CRE loans. At ValuEngine we update this list both quarterly and monthly adding in the ValuEngine data points including ratings, and those rated SELL or STRONG SELL make up the primary ValuEngine List of Problem Banks.

At the end of the third quarter of 2009 there were 749 publicly traded FDIC-insured financial institutions overexposed to C&D and / or CRE loans. These banks had $151.9 billion in assets, $16.5 billion in C&D loans, and have a pipeline that’s 78.1% funded. Of these, 35 were Deadbeat Banks including two that failed. This group of banks had assets of $71.6 billion, $9.9 billion in C&D loans and a loan pipeline that was 83.9% funded. Remember that a 60% pipeline is considered normal or healthy.

At the end of the fourth quarter of 2009 there were 748 publicly traded FDIC-insured financial institutions overexposed to C&D and / or CRE loans. In total these banks have $165.4 billion in assets, $16.9 billion in C&D loans, and have a pipeline at 78.2% funded. Of these, 48 were Deadbeat Banks. This group of banks have assets of $87.5 billion, $9.5 billion in C&D loans and a loan pipeline that is 84.2% funded. It is clear to me that the Deadbeat Banks should not have received taxpayer money in the first place.

Failed Publicly-Traded Banks that were on the ValuEngine List of Problem Banks – At the end of the third quarter 2009 there were 38 bank failures that were on the ValuEngine List of Problem Banks. Total assets were $92.4 billion with $17.9 billion in C&D loans and a pipeline at 91% funded. At the end of March 2010 this list has increased to 42 bank failures with $93.8 billion in assets, $18 billion in C&D loans and a pipeline at 91% funded.

Comptroller of the Currency John Dugan says that the banking agencies will issue new and tougher standards. This seems to be a day late and billions of dollars short.

New regulatory guidelines being considered include; tougher loan concentration caps, increased capital requirements, and tougher underwriting standards. In a speech in Orlando, Florida, Mr. Dugan stated, "While the concentration guidance we issued in 2006 was necessary — even though it was opposed by many parts of the industry — in retrospect, it has obviously not worked as well as we would have liked." They didn’t work because the US Treasury, Federal Reserve and FDIC ignored the guidelines.

CRE lending including C&D loans is the leading cause of bank failures as I predicted way back in April 2006, well before the December 2006 regulatory guidelines were finalized. CRE loans account for more than a third of the loans on the books of troubled community banks. When you slice and dice the smaller banks with $500 billion to $2 billion in assets these loans are about have the books of business.

Community bank failures do matter, not only in the cost of bank failures, but also they hurt Main Street with job losses, reduced incomes, lost local tax revenues, drains on the Deposit Insurance Fund, and higher costs to other banks through assessments to replenish the insurance fund.

Continued weak housing data and strong demand for US Treasuries will frame an economic backdrop that shows lack of follow-through to the Q4 GDP growth of 5.9%. With stocks overvalued and indices overbought on daily charts, the Dow is due for a stumble. This is why my longer-term prediction is Dow 8,500 before 11,500.

Housing Sector Index (HGX) has a positive weekly chart with the index up 9.1% year to date. HGX is approaching weekly resistance at $112.41 in front of the existing and new home sales data out today and tomorrow. The five-week modified moving average is $106.49 with monthly resistance at $120.36.

America’s Community Bankers’ Index (ABAQ) has a positive but overbought weekly chart with the index up 14.0% year to date. ABAQ is above my monthly pivot at $160.62 with semiannual and annual resistances at $181.00 and $195.07. This strength is not justified by the data I presented yesterday and today.

The Regional Banking Index (BKX) has a positive but overbought weekly chart with the index up 21.1% year to date. BKX is above weekly support at $49.56 with monthly resistance at $53.72.

Just because the Housing index is 61.8% below its mid-2005 high is no reason to buy. The same can be said for ABAQ and BKX at 46.4% below the December 2006 high and the February 2007 high, respectively.

That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at 1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com

Yields are on my key pivot as we await next week’s US Treasury auctions. Because of the low interest rate policy of the Federal Reserve and speculation by Wall Street, we have had unwarranted strength in Comex Gold and Nymex Crude Oil. The dollar continues to form a bottoming pattern, as the euro rebound fades. Equities have rallied to new year-to-date and cycle highs, but resistances loom, as daily charts are overbought and stocks are overvalued.

10-Year Note – No nearby supports with semiannual, daily and weekly pivots at 3.675, 3.669 and 3.642, and monthly resistance at 3.477. Semiannual support is 4.250. The US Treasury auctions $44 billion 2-Year notes next Tuesday, $42 billion 5-Year notes Wednesday and $32 billion 7-Year notes on Thursday.

Comex Gold – Daily, quarterly and weekly supports are $1110.3, $1084.9 and $1070.5 with my annual pivot at $1115.2. Semiannual and monthly resistances are $1139.7, $1186.5 and $1195.4. The bubble caused by overly easy Fed policy has popped, but the 200-week simple moving average remains the bullish long term up trend.

Nymex Crude Oil – Annual, weekly and quarterly supports are $77.05, $76.87 and $67.22 with monthly and daily pivots at $80.05 and $81.61, and quarterly, annual and semiannual resistances at $85.21, $97.29 and $97.50. The 200-day simple moving average is $73.58 with a zone of chart resistance between $82 and $84.

The Euro – Weekly support is 1.3094 with a daily pivot at 1.3722, and quarterly and monthly resistances at 1.4327 and 1.4504. The trading range is 1.345 to the 50-day at 1.385


Dow – Annual and weekly supports are 10,379 and 10,034 with a daily pivot at 10,778. Quarterly support is 6,705 with annual, monthly and semiannual resistances are 11,235, 11,461, 11,442 and 11,949. The 50-day is 10,400 with the Dow extremely overbought.

S&P 500 – Weekly support is 1077.2 with daily and annual resistances at 1171.3 and 1179.0. Annual and quarterly supports are 1014.2, 701.8 and 681.7 with semiannual and monthly resistances at 1194.6 and 1212.9.

NASDAQ – Semiannual, annual and weekly supports are 2258, 2250 and 2206 with a semiannual pivot at 2392, and daily and monthly resistances at 2412 and 2430. Annual support is 1659.

Dow Utilities – Weekly support is 351.38 with a daily pivot at 382.30, and monthly resistance at 391.82. Quarterly support is 280.79 with annual and semiannual resistances at 456.73, 471.95 and 492.05.

Dow Transports – Weekly support is 3971 with my annual pivot at 4324, and daily and semiannual resistances at 4484 and 4488. Quarterly supports are 3386 and 3225 with monthly resistance at 4513. Annual and semiannual resistances are 4955 and 5218.

Russell 2000 – Weekly support is 629.20 with semiannual and monthly pivots at 673.50 and 682.85, and daily resistance at 688.35.

The SOX – Weekly support is 331.57 with semiannual and daily pivots at 358.89 and 364.05, and monthly resistance at 379.97. Semiannual, annual and quarterly supports are 271.90, 259.45, 241.05 and 207.69.

Valuations are stretched according to ValuEngine – Ten of eleven sectors are overvalued with Consumer Durables by 16.0%, Basic Industries by 13.9% and Energy by 10.6%.

That’s today’s Four in Four. Have a great day.

Check out the latest Main Street versus Wall Street on Forex TV Live each day at 1:30 PM. The next broadcast is Monday, March 8, 2010.

http://www.forextv.com/Forex/custom/LiveVideo/Player.jsp

Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com