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May 25, 2010 – The Dow May Not Bounce From the Next Dip Below 10,000

Low US Treasury yields get a test today with the auction of $42 billion in 2-Year notes. Gold,
crude oil and the euro have established trading ranges. The daily chart for the Dow shows lack
of support on another break below 10,000. Existing Home Sales were strong, but an improving
trend is unlikely. Be cautious when reacting to Consumer Confidence Tuesday morning. Only
one bank was closed on Bank Failure Friday.
US Treasury Yields – Wall Street had the call for higher yields wrong so far this year. Their bet was to
short the 10-Year note, but that yield is down 61.6 basis points year to date. Supply is put to the test the
next three days, and that begins today with $42 billion in 2-Year notes with that yield near its 52-week
low of 0.612%. On Wednesday $40 billion in 5-Year notes are auctioned and on Thursday $31 billion 7-
Year notes ends the $113 billion deluge. The daily chart for the 10-Year shows a weekly pivot at 3.32
with the 52-week low yield at 3.10. This has pulled down the 30-Year fixed rate mortgage to 4.87
according to Bankrate.com, but the spread has widened from inside of 100 over the 10-Year to
165 basis points over. This is really muted help for struggling homeowners.

Courtesy of Thomson / Reuters

Comex Gold – has become currency of last resort primarily on euro weakness, but we have seen a
sell-off since the peak of $1249.7 on May 14th. The 50-day simple moving average is support at $1157.

Courtesy of Thomson / Reuters

Nymex Crude Oil – has become oversold and in a trading range between $67.90 and $73.28.

Courtesy of Thomson / Reuters

The Euro – has formed a trading range around my quarterly pivot at 1.2450 with this week’s resistance
at 1.2690. The euro is no longer oversold.

Courtesy of Thomson / Reuters

Daily Dow: The daily chart of the Dow is negative with the average below the 21-day, 50-day and 200-
day simple moving averages at 10,715, 10,843 and 10,267. It seems that the April 26th high at 11,258
ends the bear market rally since March 2009. Today’s support is 9,854.

Courtesy of Thomson / Reuters

Existing Home Sales rose 7.6% in April to an annual rate of 5.77 million units. 33% of sales were
foreclosure sales or short sales, 49% were first time home buyers, and 26% paid for a home with cash.
Remember that there are just two more months of closings for those first time home buyers. The
perception that housing is stabilizing is questioned by the increased homes available for sale, which
rose 11.5% to just above four million.
The Conference Board releases its Consumer Confidence reading for May this morning. This
measure has been improving in recent months but keep in mind that a reading of 60 would be an
improvement, but would be way below the neutral zone for the series which is 90 to 120.
Bank Failure Friday – Only one very small community bank was closed by the FDIC on Friday. The
total cost to the Deposit Insurance Fund is now $9.93 billion in the second quarter. The cumulative loss
year to date is $30.6 billion.
• Only 25 banks failed in 2008, as the FDIC was slow closing community and regional banks.
• There were 140 bank failures in 2009 with a peak of 50 in the third quarter.
• In the first quarter of 2010 there were 41 failures, and so for in Q2 the total is 32 for a year to
date total of 73.
• At this pace bank closures in 2010 will be at the high end of my 150 to 200 estimate.
• Since the end of 2007, the FDIC has closed 237 banks.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
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