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

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covers over 7,000 stocks every day.

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January 24, 2011 – Continued Weakness in the Housing Market and Community Banks

Existing home sales fell to the lowest level in thirteen years in 2010. My reasons to project lower home
prices in 2011 include high unemployment, a record number of foreclosures and concern by potential
home buyers that prices have not reached a bottom. Another problem is that the 30-year fixed rate
mortgage has risen to 4.74 up from a 40-year low set in November at 4.17 percent. Keep in mind that
QE2 was supposed to lower consumer rates and the opposite has occurred.
With regard to new homes, builders began work on fewer homes than projected in December. The
recent report on Housing Starts showed a decline of 4.3% to an annual rate of 529,000. Increasing
foreclosures and the lack of construction loans could discourage home building in 2011. Some say that
foreclosure filings could climb 20% this year.
Bank Failure Friday – The FDIC close four banks last Friday and two were publicly traded.
• The FDIC closed a total of 157 banks in 2010; 41 in the first quarter, 45 in the second quarter,
41 in the third quarter and 30 in the fourth quarter.
• 25 banks failed in 2008
• 140 banks failed in 2009 with a peak of 50 in the third quarter
• 157 banks failed in 2010
• 7 banks have failed year to date in 2011
• 329 banks have failed since the end of 2007
• I still predict 500 to 800 bank failures in total by the end of 2012 into 2013.
There were two publicly-traded banks that failed last Friday; Bank of Ashville (WFSC) and United
Western Bank (UWBK) and both were on the ValuEngine List of Problem Banks.
All four closed banks were overexposed to both C&D and CRE loans by 165.6% to 842.3% for C&D,
and 719.9% to 4273.9% for CRE loans. The pipelines of money lent versus dollars committed were
92.3% to 100%, continuing to show the stress in the banking system.
Negative Divergences begin for the US Stock Market
The Dow Industrial Average is the only major average to charge to a new high for the move on Friday.
The other major averages peaked on Tuesday with Transports and Russell 2000 now down on the
year by 1.2% for Transports and 1.3% for the Russell 2000.
Stocks remain overvalued fundamentally according to ValuEngine with 15 of 16 sectors
overvalued and only 38.6% of all stocks undervalued. This follows last week’s ValuEngine Valuation
Warning. Only 16.2% of all stocks are undervalued by at least 20%.
All major averages are extremely overbought on there weekly charts and my Proprietary Analytics
show weekly risky levels at 12,162 Dow, 1333.9 S&P 500, 2805 NASDAQ, 5321 Dow Transports, and
828.86 Russell 2000. There is an 85% chance that the Dow will decline to my annual pivot at 11,491
and the Dow Transports and Russell 2000 ended last week below their annual pivots at 5179 and
784.16 respectively. Stocks will peak this week, or will soon confirm last week’s highs as a peak
over the next two weeks.
10-Year Note – (3.412) Weekly, annual and semiannual value levels are 3.758, 3.791 and 4.268 with
a daily pivot at 3.436, and annual, semiannual and monthly risky levels are 2.690, 2.441, 2.322 and
2.150. The 200-week simple moving average is major support at 3.618.

Courtesy of Thomson / Reuters

Comex Gold – ($1341.8) Semiannual and annual value levels are $1300.6 and $1187.2 with daily and
annual pivots at $1350.3, and weekly, monthly, quarterly and semiannual risky levels at $1390.9,
$1439.0, $1441.7 and $1452.6. The weekly chart stays negative on weekly closes below the five-
week modified moving average at $1367.5.
 Courtesy of Thomson / Reuters

Nymex Crude Oil – ($89.17) Semiannual and monthly value levels are $87.52 and $75.74 with daily,
weekly, annual, semiannual and quarterly risky levels at $92.02, $95.34, $99.91, $101.92, $107.14
and $110.87. Crude oil has become overbought on its weekly chart.

Courtesy of Thomson / Reuters

The Euro – (1.3618) Weekly, quarterly and monthly value levels are 1.3398, 1.3227 and 1.2805 with a
daily risky level at 1.3803. Semiannual and annual risky levels are 1.4624, 1.4989, 1.6367 and 1.7312.

Courtesy of Thomson / Reuters

Weekly Dow: (11,872) Weekly MOJO remains extremely overbought with a MOJO reading of 9.4 on a
scale of 0.0 to 10.0. The five-week modified moving average is 11,574 with the 200-week simple
moving average at 10,909. This week’s risky level is 12,162. The downside is protected by annual,
quarterly, semiannual value levels are 11,491, 11,395 and 10,959.

Courtesy of Thomson / Reuters

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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