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Today Should Be a Breakout or a Key Reversal


Could be the end to the multi-year bear market.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

The Dow
remains positive but overbought on its weekly chart with resistance at 10,581, which is on the down trend that goes back to the October 2007 high. This week the Dow reached a new high for the move at 10,513.52 and last week's low is 10,231.25.

Source: Thomson Reuters

Today's the day when the Dow needs to breakout above 10,600 to signal an end to the multi-year bear market. If that doesn't occur and the close is below 10,231.25 we have a weekly key reversal. A top would be confirmed by two consecutive lower weekly closes. This would also keep the multi-year bear market in place going into 2010.

The S&P 500 had a daily key reversal on Thursday. Following a new high for the move at 1117.28, the close was below Wednesday's low at 1105.29. Supports are the 21-day and 50-day simple moving averages at 1094.81 and 1076.88. A close above 1111, or Snake Eyes, is the breakout for the S&P 500.

Source: Thomson Reuters

The Unemployment Rate Should Stay at 10% or Higher

This chart shows the unemployment rate at 4.6% when the NBER declared the US economy in recession. GDP ended 2007 at $14.18 trillion and didn't peak until the third quarter of 2008 at $14.55 trillion.

Unemployment was at 8.2% at the end of August 2009, when many forecasters declared the recession over. GDP ended the second quarter at $14.15 trillion and bumped up to $14.27 trillion in the preliminary reading for the third quarter. How can you declare the recession over with the unemployment rate up another 2% to 10.2% in just two additional months?

The Weekly Chart for Nymex Crude Oil is the real economic tell as we've seen lower weekly highs for the past seven weeks with the 200-week simple moving average as support at $75.64. A close today below $75.64 is the biggest indicator that the economy remains in recession.

Source: Thomson Reuters

Home Buyers Face Tighter Mortgage Standards Thanks to the FHA

The FHA, along with Fannie Mae (FNM) and Freddie Mac (FRE), accounted for more than 90% of all US home loans in the first half of 2009. All three are in difficult financial straights and will tighten lending standards, which could put the brakes on the anemically improving housing market.

We have stimulus dollars, housing bailout money, and cheap funds from the Federal Reserve, but all it has done is weaken the dollar and create the paying field for commodity and equity speculation.

Money isn't flowing into community and regional banks and as a result credit conditions for consumers and small businesses have tightened as bad loans rise.

Do we need tougher financial regulations?

We need a Treasury Secretary, a Fed Chairman, and FDIC Chief who follow their own regulatory guidelines instead of ignoring them.

Poor policy decisions and lack of regulation resulted in bubbles in housing, commodities, and equity prices. This caused "The Great Credit Crunch" which continues today. (See also, Beige Book Shows the Great Credit Crunch Continues)

Now these same regulators are causing a renewed commodity and equity bubbles, while not solving the problem that caused our economic problem. Community banks are falling like dominos, small businesses aren't getting credit while Wall Street reaps speculative trading gains, and despite program after program to help homeowners, defaults and foreclosures continue to accelerate.

We don't need new regulations. We need new leaders of the regulatory bodies already in place.

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No positions in stocks mentioned.

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