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November 4, 2010 – We Finally Have That Dow Theory Buy Signal!

The yield on the 10-Year yield remains between my annual value level at 2.813 and 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 and my
weekly risky level at $85.08. The euro is trading at a new high for the move following the $600
billion QE2 announced by the FOMC. We have confirmed a Dow Theory Buy Signal, but the
Dow Industrials have annual, semiannual and weekly risky levels at 11,235, 11,296 and 11,374.
The Fed continues its ridiculous monetary policy with $600 billion QE2. I smell Stagflation!
10-Year Note – (2.623) Daily, annual and annual value levels are 2.690, 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 – ($1348.6) Quarterly, semiannual and annual value levels are $1306.4, $1260.8,
$1218.7 and $1115.2 with daily and monthly pivots at $1363.8 and $1373.0, and weekly risky level at
$1396.7.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($85.08) Monthly and annual value levels are $78.51 and $77.05 with semiannual
and weekly pivots at $83.94 and $85.08, and semiannual and annual risky levels at $96.53 and
$97.29.

Courtesy of Thomson / Reuters

The Euro – (1.4135) Daily, quarterly and monthly value levels are 1.3977, 1.3318 and $1.2709 with
weekly and semiannual risky levels at 1.4371 and 1.4733.

Courtesy of Thomson / Reuters

Daily Dow: (11,215) Monthly, semiannual, annual and quarterly value levels are 10,848, 10,558,
10,379 and 8,523 with a daily pivot at 11,186, 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

FOMC Statement and QE2
The crux of the FOMC Statement - Information received since the Federal Open Market Committee
met in September confirms that the pace of recovery in output and employment continues to be slow.
Household spending is increasing gradually, but remains constrained by high unemployment, modest
income growth, lower housing wealth, and tight credit. Business spending on equipment and software
is rising, though less rapidly than earlier in the year, while investment in nonresidential structures
continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be
depressed. Longer-term inflation expectations have remained stable, but measures of underlying
inflation have trended lower in recent quarters.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price
stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are
somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with
its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource
utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
Quantitative Easing Two - To promote a stronger pace of economic recovery and to help ensure that
inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its
holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments
from its securities holdings. In addition, the Committee intends to purchase a further $600 billion
of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about
$75 billion per month. The Committee will regularly review the pace of its securities purchases and
the overall size of the asset-purchase program in light of incoming information and will adjust the
program as needed to best foster maximum employment and price stability.
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and
continues to anticipate that economic conditions, including low rates of resource utilization, subdued
inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the
federal funds rate for an extended period.
The Committee will continue to monitor the economic outlook and financial developments and will
employ its policy tools as necessary to support the economic recovery and to help ensure that
inflation, over time, is at levels consistent with its mandate.
Markets Reactions
US Treasury 10-Year Yield – QE2 appears built into the yield curve already. If yields do not move
lower the $600 billion purchase of longer-dated Treasuries is an unwarranted risk to the US economy
and risks an even higher cost of living on Main Street USA. I would bet that if Americans were given
the opportunity to vote yes or no yesterday, citizens would have voted against QE2!
Nymex Crude Oil – Rising crude oil is a tax on Main Street USA in the form of higher gasoline prices.
Weekly closes above my semiannual pivot at $83.94 targets my semiannual and annual risky levels at
$96.53 and $97.29 as the Fed induces unwanted inflation. This week’s pivot is $85.08. QE2 helps
Wall Street make money on commodity speculation, while Main Street faces increasing cost of living.
The Dow – Even with a Dow Theory Buy Signal I show annual, semiannual and weekly risky levels
at 11,235 (tested October 25th and November 1st), 11,296 and 11,374. With or without this buy signal
the downside is my monthly, semiannual and annual value levels at 10,848, 10,558 and 10,379. It was
the day before Thanksgiving in 2007 when we had a Dow Theory Sell Signal with the Dow
around 13,000. By mid-December the Dow hit 13,780 before the major decline began.

The most likely outcome of QE2 is Stagflation!

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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