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March 24, 2011 – Dow Industrials Lead, but is it just a Flight to Quality?
The Dow Industrials are attempting to lead stocks to new highs for the year, but maybe
investors are considering these Blue Chips as a safer haven than US Treasuries? US stocks
remain overvalued fundamentally with deteriorating technicals. Can the Dow Industrials power
higher above its February 18th high at 12,391.29? That’s not my bet, as the other major
averages lag. If I am wrong 2011 will be a re-run of 2007, as housing is weak, and the banking
system remains over-leveraged. If the February highs are taken out to the upside it will likely
do so despite a ValuEngine Valuation Warning. In March 2007 I thought that stocks peaked in
the first quarter, but it proved to be just housing, community banks and regional banks. If new
highs are seen than stocks will move sideways to up longer than I expect.
Stocks Remain Overvalued Fundamentally – We are not operating under a ValuEngine Valuation
Warning, but 57.2% of all stocks are overvalued. In addition 15 of 16 sectors are overvalued with 5 by
double-digit percentages.
Tracking the Bearish Moving Average Crossovers – This occurs when the 21-day simple moving
average trends below the 50-day simple moving average.
• Dow – The 21-day and 50-day are converging as resistance at 12,041 and 12,038.
• SPX – The 21-day and 50-day had a negative crossover on Wednesday at 1302.70 and
1304.32.
• NASDAQ – The 21-day and 50-day crossed over on Friday at 2720 and 2742.
• NASDAQ 100 – The 21-day and 50-day crossed over on Friday at 2297 and 2317.
• Dow Transports – The 21-day and 50-day crossed on March 14th at 5059 and 5108.
• The Russell 2000 – The 21-day and 50-day are still converging at 808.00 and 804.75.
• The SOX – The 21-day and 50-day crossed over on Friday at 438.33 and 445.89.
Closes on Weekly Charts relative to the five-week modified moving averages
• Dow – The five-week MMA is 11,994 with declining MOJO.
• SPX – Stays negative on a weekly close below the five-week MMA at 1299.2.
• NASDAQ – Stays negative on a weekly close below the five-week MMA at 2725.
• NASDAQ 100 – Stays negative on a weekly close below the five-week MMA at 2300.
• Dow Transports – Stays negative on a weekly close below the five-week MMA at 5101.
• The Russell 2000 – Stays negative on a weekly close below the five-week MMA at 803.96.
• The SOX – Stays negative on a weekly close below the five-week MMA at 440.81.
The weekly chart for the Dow Industrial Average shifts to negative this week on a weekly close
below the five-week modified moving average at 11,994, as momentum (12x3x3 weekly slow
stochastic) will be declining under 8.0. This measure scales between zero and 10.0, where a
reading above 8.0 defines an overbought condition. Momentum peaked at 9.5 on February 18th
when the high for the cycle was reached at 12,391.29. My first downside target is my annual
value level at 11,491. A weekly close below 11,491 targets semiannual value levels at 10,959
then 9,449 in the second quarter. This week’s risky level is 12,271.
10-Year Note – (3.352) Weekly, annual, and semiannual value levels are 3.496 and 3.796 with daily,
and monthly risky levels at, 3.214 and 3.002.
Nymex Crude Oil – ($105.36) Monthly, and semiannual value levels are $96.43, and $87.52 with
annual and pivots at $99.91, $101.92 and $103.30, and semiannual and quarterly risky levels at
$107.14 and $110.87.
Daily Dow: (12,086) Daily, annual, quarterly, semiannual, and semiannual value levels are 11,805,
11,491, 11,395, 10,959, and 9,449 with weekly, monthly and annual risky levels at 12,271, 12,741 and
13,890.