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

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found at http://www.valuengine.com/nl/mainnl

January 26, 2011 – Home Prices are Declining as Expected

Reviewing My Number One Theme for 2011 - Home Prices will resume a decline that began in
mid-2006. We had the home buyer tax credits expire in mid-2010, and government sponsored
mortgage modifications provided limited help. In 2011 we face continued foreclosure issues including
questionable documentation, and banks have a record high Other Real Estate Owned (OREO). OREO
is up to $53.2 billion at the end of the third quarter, up 338.2% since the end of 2007. Depressed home
sales are being sold at a 30% to 35% discount, which reduces property appraisals at the county level.
Home builders will have to compete with these lower prices and we need a mortgage modification
program for all Americans, not just those at risk of losing their homes. QE2 is not working and US
Treasury yields are higher causing mortgage rates to rise. “The Great Credit Crunch” began with
housing, and that foundation needs repair before Main Street can recover with sustainable job
creation.
The S&P / Case-Shiller Home Price Index – Points to lower home prices through November.
 • The 20-City Composite is down 1.6% year over year in November and down 1.0% sequentially.
• The 20-City Composite is up only 3.3% from its April 2009 low, but remains about 50% above
where it began in January 2000.
• Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa hit new lows,
below the levels set in April 2009.
The Federal Housing Finance Agency (FHFA) also shows a year-over-year house price decline of
4.3% in November.
House Prices will continue to decline as long as the Conference Board’s reading on Consumer
Confidence remains weak. The Conference Board's reading on Consumer Confidence jumped to 60.6
in January from 53.3 in December, but keep in mind that the neutral zone for this measure is 90 to
120, so consumer confidence remains extremely weak. Show me readings between 90 and 120 and
home prices will stabilize.
Stocks will peak this week, or will confirm recent highs as a peak over the next few weeks
Stocks remain overvalued fundamentally according to ValuEngine with 15 of 16 sectors
overvalued and only 38.9% of all stocks undervalued. This follows last week’s ValuEngine Valuation
Warning where just 33.3% of all stocks were undervalued. Below 35% is the warning.
All major averages are extremely overbought on there weekly charts and my Proprietary Analytics
show weekly risky levels at 12,162 Dow, 1333.9 S&P 500, 2805 NASDAQ, 5321 Dow Transports, and
828.86 Russell 2000. There is an 85% chance that the Dow will decline to my annual pivot at 11,491
and the Dow Transports and Russell 2000 ended last week below their annual pivots at 5179 and
784.16 respectively.
10-Year Note – (3.317) The yield continues to trade in a range set in December – Between 3.568 on
December 16th and 3.247 set on December 20th.
Comex Gold – ($1333.3) Gold is now oversold on its daily chart with daily and semiannual value
levels at $1316.1 and $1300.6 with quarterly and annual pivots at $1331.3 and $1356.5. Gold is
trending below its 50-day simple moving average now at $1378.5.
Nymex Crude Oil – ($87.82) Crude oil is now trending below its 50-day simple moving average at
$87.96 with the 200-day at $80.48. My semiannual pivot remains at $87.52.
The Euro – (1.3643) This week’s value level is 1.3398 with chart resistance at 1.3786 as the euro
becomes overbought on its daily chart.
Daily Dow - (11,977) The daily chart is overbought after setting a new high for the move at 11,985.97
Tuesday morning. This week’s risky level is 12,162. My annual value level remains at 11,491. There
are negative divergences for the S&P 500, NASDAQ, Transports, and Russell 2000. Dow
Transports are flirting with a close below its 50-day simple moving average at 5047.
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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