Equity Valuations, Then and Now
Pivots are balancing the dollar carry trade for US Treasury yields, gold, crude oil, the dollar, and the Dow.
The yield on the 10-Year Note is neutral on its weekly chart with my semiannual pivot as a magnet at 3.675. This yield is the line in the sand between risk aversion and Treasury supply/inflation expectations. My weekly support is 3.845 with my monthly resistance at 3.504.
Comex gold is neutral on its weekly chart with my annual pivot at $1115.2 as a magnet. The reversal-oriented pattern is influenced by monthly and quarterly pivots at $1093.5 and $1084.9. My semiannual resistances are $1139.7 and $1186.5.
Nymex crude oil is neutral on its weekly chart with quarterly support at $67.22, the 200-week simple moving average at $76.20, my annual pivot at $77.05, and monthly resistance at $79.90.
The euro is negative but oversold on its weekly chart with my weekly pivot at 1.3749 and the 200-week simple moving average at 1.3879.
All major equity averages have positive daily charts but with the zone of 21-day and 50-day simple moving averages as pivots or resistances. For the Dow the 21-day is 10,219 with the 50-day at 10,377.
All major equity averages straddle weekly pivots at 10,255 Dow, 1098.8 SPX, 2237 NASDAQ, 3927 Dow Transports, 628.44 on Russell 2000, and 336.19 on the Philadelphia Semiconductor Index (SOX).
The weekly chart for the Dow is neutral above 10,221 with my annual pivot at 10,379. My weekly pivot is a magnet for the remainder of the week at 10,255. A close in February below 10,067 keeps the monthly key reversal in play.
Valuations on March 6, 2009 Versus Today, February 17, 2010
There are three major inputs to the ValuEngine Valuation Model: Twelve-month trailing EPS, 12-month forward EPS estimates from Wall Street, and the yield on the 30-Year Bond.
Back on March 6 when I predicted a 40% to 50% bear market rally, all 11 sectors were significantly undervalued -- 32% for Consumer Durables to 42.2% for Energy.
Today six of 11 sectors are overvalued. Health Care is the cheapest sector at just 6.5% undervalued. Energy, which was the cheapest in March, is the most expensive today at 10.7% overvalued.
Three Measures of Stress in the Banking System Available February 23
On February 23 the FDIC will release its Quarterly Banking Profile for the fourth quarter of 2009. I will dissect this data to measure whether or not stress is increasing or decreasing in the banking system.
My first read is the quarter over quarter growth or deterioration in the loan types shown in this table. Construction and Development Loans, which are a major component of Commercial Real Estate, declined 8.1% sequentially in the third quarter in 2009. My second read is the year over year growth of deterioration in these assets. C&D loans were down 19.9% by this measure.
The Great Credit Crunch began at the end of 2007, so I compare asset exposures then versus now. C&D loans declined 21.7% since The Great Credit Crunch began. Note that total assets in the banking system declined nearly $600 billion in the first three quarters of 2009.
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