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

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November 3, 2010 – Transports Signal Dow Theory Buy, Will Industrials Follow?

For the 10-Year yield my annual value level is 2.813 with weekly, monthly, quarterly and
semiannual risky levels at 2.498, 2.380, 2.265 and 2.249. Gold remains below my monthly pivot
at $1373.0. Crude oil is above my semiannual pivot at $83.94 with weekly risky level at $85.08.
The euro is flirting with 1.40 once again. The Dow Transports closed above its May 3rd closing
high of 4801.1, which is a Dow Theory Buy without confirmation from the Dow Industrials,
which needs to close above its April 26th closing high at 11,205.03. Additional details on Dow
Theory and other US Capital Markets.
10-Year Note – (2.596) Daily, annual and annual value levels are 2.698, 2.813 and 2.999 with weekly,
monthly, quarterly and semiannual risky levels at 2.498, 2.380, 2.265 and 2.249.

Courtesy of Thomson / Reuters

Comex Gold – ($1356.6) Quarterly, semiannual and annual value levels are $1306.4, $1260.8,
$1218.7 and $1115.2 with daily and monthly pivots at $1363.6 and $1373.0, and weekly risky level at
$1396.7.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($83.97) Monthly and annual value levels are $78.51 and $77.05 with semiannual
and daily pivots at $83.94 and $84.51, and weekly risky level at $85.08.

Courtesy of Thomson / Reuters

The Euro – (1.4031) Quarterly and monthly value levels are 1.3318 and $1.2709 with a daily pivot at
$1.3928, and weekly and semiannual risky levels at 1.4371 and 1.4733.

Courtesy of Thomson / Reuters

Daily Dow: (11,189) Monthly, semiannual, annual and quarterly value levels are 10,848, 10,558,
10,379 and 8,523 with a daily pivot at 11,147, and annual, semiannual and weekly risky levels at
11,235, 11,296 and 11,374. My annual risky level at 11,235 was tested at the November 1st,
October 25th and April 26th highs of 11,244.27, 11,247.60 and 11,258.01.

Courtesy of Thomson / Reuters

A Dow Theory Buy Signal requires closes above the April 26th closing high of 11,205.03 on
Industrials, with the Dow Transports closing above its May 3rd closing high at 4806.1.
Keep in mind that a buy or sell signal based upon Dow Theory is a late cycle signal. With a Dow
Theory Buy Signal traders and investors become clearly in a Buy Weakness mode. Subscribers to my
ValuTrader Model Portfolio and my weekly ETF Report already know that I have been in a “Buy and
Trade” mode focusing on the Buy Weakness side of the strategy.
• The “Suttmeier Says” column has read “Buy at Value” in the ETF Weekly Report since
September 20th in anticipation of a Republican victory.
• The ValuTrader Model Portfolio has not been short any specific stocks since June 20th. We are
up 31.5% year to date in a model portfolio that has both longs and shorts. Currently the shorts
are in Diamonds (DIA), NASDAQ 100 Shares (QQQQ) and S&P 500 SPDRS (SPY).
• Despite a longer-term market call “Dow 8,500 before Dow 11,500”, I projected that the Dow
Industrial Average would get to my annual risky level at 11,235 by Election Day and so far that’s
been correct with tests of 11,235 on October 25th and November 1st.
• With Transports having a close above 4806.1 we are operating under a Dow Theory Buy Non-
confirmation. Dow Industrials must follow.
The yield on the 10-Year note traded as low as 2.334 on October 8th in anticipation of a QE2
announcement on November 3rd. My prediction is that QE2 is already factored into the US Treasury
yield curve and at best the 10-Year yield can decline to my quarterly and semiannual risky levels at
2.265 and 2.249. A weekly close above my annual pivot at 2.813 will warn that QE2 will not work.
The Federal Reserve has blundered monetary policy since the beginning of the new millennium; first
with a 1% funds rate set in June 2003 on fears of Deflation. This failed policy resulted in the Housing
Bubble and what I called “The Great Credit Crunch” on March 2007. The Federal Reserve failed us
again with the ridiculous zero percent policy we are currently victims of. I have opined all decade long
that the Federal Reserve should never take the funds rate below 3.0%. The zero percent policy and
now QE2 encourages commodity speculation, which has already fueled a higher cost of living on Main
Street USA.
If you look at a monthly chart of Comex Gold you can clearly see that the rise in price has gone
parabolic, and these patterns, when they break are not pleasant for investors who buy too high. Gold
traded as high as $1388.1 the Troy ounce on October 14th and this trade appears crowded. I am not
saying that gold prices are set to plunge anytime soon as in any parabolic you just don’t know how
high the price can go. I show a quarterly value level at quarterly value level at $1306.4, a monthly pivot
at $1373.0, and a risky level for this week at $1396.7.
Nymex crude oil set a trading range back in May. The May 3rd high was $87.15 and the May 25th low
was $67.15 and right in the middle is my annual pivot at $77.05. This month’s value level is $78.51
with my semiannual pivot at $83.94 and weekly risky level at $85.08.
The euro remains the wild card with my quarterly value level at 1.3318 and this week’s risky level at
1.4371. Strength helps commodities and stocks, while weakness does not. The high was 1.4154 set
on October 15th.
If we do not get a Dow Theory Buy Signal this week, then the Republican victory on Tuesday and the
QE2 announcement by the FOMC on Wednesday will be deemed factored into stock market strength
in September, October, and the first few days of November.
Conclusion for the Dow – Without a Dow Theory Buy Signal Confirmation the risk is to my monthly
value level at 10,848, with semiannual and annual value levels are 10,558 and 10,379. Given a Dow
Theory Buy Signal the Dow should be above annual and semiannual risky levels at 11,235 and 11,296
with this week’s risky level is 11,374.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576
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