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

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January 10, 2011 – US Stocks Remain Overvalued and Overbought

The rise in the yield on the 10-Year US Treasury is overdone on its weekly chart with the 200-
week simple moving average as support at 3.630. Comex gold ends the first week of 2011 with
a negative weekly chart, but weakness held my annual pivot at $1356.5. Nymex crude oil
remains overbought on its weekly chart and weakness on Friday held my semiannual pivot at
$87.52. The euro remains negative on its weekly chart, but has not yet tested this month’s
value level at 1.2805. The Dow remains extremely overbought on its weekly chart and is above
my annual pivot at 11,491. The major equity averages still straddle quarterly value levels, pivots
and risky levels favoring a reversal-oriented first quarter – 11,395 Dow, 1162.5 SPX, 2853
NASDAQ, 4671 Transports and 765.50 Russell 2000. The key risky level is thus on the NASDAQ,
so if the other major averages start to cascade below their quarterly levels before the NASDAQ
leads, the downside on the Dow is my semiannual value level at 9,449.
This week’s pivots / risky levels are 11,714 Dow, 1279.8 SPX, 2737 NASDAQ, 5308 Dow
Transports and 818.09 Russell 2000.
Stocks are overvalued fundamentally according to ValuEngine and overbought technically.
This has the earnings bar set extremely high for Q4 earnings reports. It is extremely hard to
justify new long positions ahead of earnings given the fact that last week we found less than
35% all stocks undervalued. When less than 35% of all stocks are undervalued stocks tend
have a downside correction, or enter a bear market. Market bottoms tend to occur when more
than 65% of all stocks are undervalued. At last week’s highs only 16.1% of all stocks were
undervalued by more than 20% with 33.0% overvalued by more than 20%.
• In April 2002 the percent of undervalued stocks dipped to 32% leading a bear market to
the October 2002 low when 85% of all stocks were undervalued.
• In March 2003 the percent of undervalued stocks was 85% as US troops headed for
Baghdad.
• Moving forward to 2007, the percentage of undervalued stocks dipped to 28% in June
2007 and by October 2007 all major averages and sectors experienced a major top. This
bear market was led early by a high in homebuilders in mid-2005, a high in community
banks at the end of 2006 and by highs in regional banks in February 2007.
• In March 2009 the percentage of undervalued stocks was 91%, and that proved to be a
major market low.
10-Year Note – (3.328) Weekly, annual and semiannual value levels are 3.636, 3.791 and 4.268 with
a daily risky level at 3.253. Annual, semiannual and monthly risky levels are 2.690, 2.441, 2.322 and
2.150. Supply will be tested this week with auctions of 3-Year and 10-Year notes and 30-Year
bonds on Tuesday, Wednesday and Thursday.

Courtesy of Thomson / Reuters

Comex Gold – ($1369.6) Annual, semiannual and annual value levels are $1356.5, $1300.6 and
$1187.2 with daily and weekly pivots at $1376.1 and $1396.2. Monthly, quarterly and semiannual risky
levels are $1439.0, $1441.7 and $1452.6.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($88.37) Semiannual and monthly value levels are $87.52 and $75.74 with a daily
pivot at $88.38 and weekly risky level at $91.10. Weekly closes above $87.52 targets annual,
semiannual and quarterly risky levels at $99.91, $101.92, $107.14 and $110.87.

Courtesy of Thomson / Reuters

The Euro – (1.2917) Monthly and weekly value levels are 1.2805 and 1.2773 with quarterly and daily
pivots at 1.3227 and 1.3226, and semiannual and annual risky levels at 1.4624, 1.4989, 1.6367 and
1.7312.

Courtesy of Thomson / Reuters

Weekly Dow: (11,675) Weekly MOJO remains extremely overbought with a MOJO reading of 9.2 on a
scale of 0.0 to 10.0. The five-week modified moving average is 11,428 with the 200-week simple
moving average at 10,913. The risk / reward for the first half of 2011 is downside risk to my
semiannual value level at 9,449 and upside potential to my annual risky level at 13,890. This week’s
pivot starts as a tight risky level at 11,714. The downside is protected by annual, quarterly,
semiannual value levels are 11,491, 11,395 and 10,959.

Courtesy of Thomson / Reuters

Bank Failure Friday – 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
• 2011 began with two bank failures on Friday, January 7th.
• 324 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.
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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