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business newsHousing, Banking Caused Recession, and Problems Continue
By
Richard Suttmeier
Jun 10, 2010 8:45 am
FDIC's growing list of problem banks and a possible renewed housing-market slump indicate that the recovery isn't a sure thing.
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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.
US Treasury Yields -- Yesterday’s 10-Year note auction was a success as the US Treasury sold $21 billion at 3.242% with the issue trading below that yield after the auction. The bid to cover was strong at 3.24 times and the Indirect Bid was 40%, at the upper end of my 30% to 40% neutral zone. Today the US Treasury auctions $13 billion reopening of last month’s 30-Year bond with my quarterly resistance looming at 4.026. Semiannual support lags at 4.543.
Comex Gold -- has overbought MOJO on its weekly chart as the precious metal reached an all-time high of $1254.4 on Tuesday versus monthly resistances at $1265.9 and $1277.4. Semiannual support is $1186.5 with my weekly pivot at $1225.8, and annual support lags at $1115.2.
Nymex Crude Oil -- shows declining MOJO on its weekly chart with the 200-week simple moving average at $76.73. Today’s support is $71.10 with my annual risky level at $77.05. Oil remains in a trading range between $67.15 and $75.72.
The Euro -- shows oversold MOJO on its weekly chart despite, as the euro stays above this week’s support at 1.1863. Quarterly and monthly resistances are 1.2450 and 1.2679.
Weekly Dow: It identified the beginning of the second leg of the multi-year bear market when I plotted the 61.8% Fibonacci retracement of the decline from the October 2007 high to the March 2009 low at 11,246 on April 26 with the high at 11,258. MOJO is declining and weekly closes below the five-week modified moving average at 10,312 keeps the weekly chart negative. My annual pivot remains 10,379. I still predict Dow 8,500 before Dow 11,500. Choppy trading this week is being caused by the power of the pivot. The Dow pivot is 9,986, the S&P 500 pivot is 1061.1 and the NASDAQ pivot is 2215.
Mortgage Applications declined 12.2% in the week ending June 4. Applications are down 30.4% year over year to a new 13-week low, and the Purchase Index is down 35% since the end of April when the homebuyer tax credits expired. The 30-Year fixed-rate mortgage is 4.81% but the Refinance Index declined 14.3% last week. This mortgage rate is 160 basis points above the yield on the 10-Year Treasury. At the end of March when the Fed stopped buying mortgage-backed securities, this spread was 115 basis points.
Ben Bernanke says that the European debt crisis is likely to have only a modest impact on the economic recovery in the US. This is the same Bernanke that said that subprime wouldn't spread to the real economy. Remember two years ago he looked for below-trend growth in the second half of 2008.
The Fed estimates 3.5% growth this year, which won't be strong enough to bring quick relief to the 15 million Americans who are out of work. In 2011, GDP is projected to be 3.5% to 4%. This seems overly optimistic to me, given all of the concerns I've been writing about.
In typical fashion, Bernanke hedged his positive tone by saying that one worry is a potential contagion from the European debt crisis, which could crimp lending in the US and around the globe. As these concerns become headline events, the stock market has had periodic nosedives. Bernanke is also worried that hiring in the US by private companies could stall. In my opinion these concerns are more likely than the optimistic side of the Chairman’s coin.
Let me reiterate my concerns
If we look at some historic stock charts, we find that the homebuilders peaked in mid-2005, the community banks peaked at the end of 2006, and the regional banks -- including those considered “too big to fail” -- peaked in February 2007. In October 2007, the contagion spread to the broader economy and we entered the current bear market for stocks.
Now, we're discussing a different contagion, one that's spreading from Europe as PIIGS nations face debt issues. We also have the clouds of the volcanic eruptions from Iceland making it difficult to schedule trips to and from Europe.
US Treasury Yields -- Yesterday’s 10-Year note auction was a success as the US Treasury sold $21 billion at 3.242% with the issue trading below that yield after the auction. The bid to cover was strong at 3.24 times and the Indirect Bid was 40%, at the upper end of my 30% to 40% neutral zone. Today the US Treasury auctions $13 billion reopening of last month’s 30-Year bond with my quarterly resistance looming at 4.026. Semiannual support lags at 4.543.
Comex Gold -- has overbought MOJO on its weekly chart as the precious metal reached an all-time high of $1254.4 on Tuesday versus monthly resistances at $1265.9 and $1277.4. Semiannual support is $1186.5 with my weekly pivot at $1225.8, and annual support lags at $1115.2.
Nymex Crude Oil -- shows declining MOJO on its weekly chart with the 200-week simple moving average at $76.73. Today’s support is $71.10 with my annual risky level at $77.05. Oil remains in a trading range between $67.15 and $75.72.
The Euro -- shows oversold MOJO on its weekly chart despite, as the euro stays above this week’s support at 1.1863. Quarterly and monthly resistances are 1.2450 and 1.2679.
Weekly Dow: It identified the beginning of the second leg of the multi-year bear market when I plotted the 61.8% Fibonacci retracement of the decline from the October 2007 high to the March 2009 low at 11,246 on April 26 with the high at 11,258. MOJO is declining and weekly closes below the five-week modified moving average at 10,312 keeps the weekly chart negative. My annual pivot remains 10,379. I still predict Dow 8,500 before Dow 11,500. Choppy trading this week is being caused by the power of the pivot. The Dow pivot is 9,986, the S&P 500 pivot is 1061.1 and the NASDAQ pivot is 2215.
Mortgage Applications declined 12.2% in the week ending June 4. Applications are down 30.4% year over year to a new 13-week low, and the Purchase Index is down 35% since the end of April when the homebuyer tax credits expired. The 30-Year fixed-rate mortgage is 4.81% but the Refinance Index declined 14.3% last week. This mortgage rate is 160 basis points above the yield on the 10-Year Treasury. At the end of March when the Fed stopped buying mortgage-backed securities, this spread was 115 basis points.
Ben Bernanke says that the European debt crisis is likely to have only a modest impact on the economic recovery in the US. This is the same Bernanke that said that subprime wouldn't spread to the real economy. Remember two years ago he looked for below-trend growth in the second half of 2008.
The Fed estimates 3.5% growth this year, which won't be strong enough to bring quick relief to the 15 million Americans who are out of work. In 2011, GDP is projected to be 3.5% to 4%. This seems overly optimistic to me, given all of the concerns I've been writing about.
In typical fashion, Bernanke hedged his positive tone by saying that one worry is a potential contagion from the European debt crisis, which could crimp lending in the US and around the globe. As these concerns become headline events, the stock market has had periodic nosedives. Bernanke is also worried that hiring in the US by private companies could stall. In my opinion these concerns are more likely than the optimistic side of the Chairman’s coin.Let me reiterate my concerns
If we look at some historic stock charts, we find that the homebuilders peaked in mid-2005, the community banks peaked at the end of 2006, and the regional banks -- including those considered “too big to fail” -- peaked in February 2007. In October 2007, the contagion spread to the broader economy and we entered the current bear market for stocks.
Now, we're discussing a different contagion, one that's spreading from Europe as PIIGS nations face debt issues. We also have the clouds of the volcanic eruptions from Iceland making it difficult to schedule trips to and from Europe.
No positions in stocks mentioned.
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