The first quarter of 2011 could turn out to be a multi-year selling opportunity, just as March 2009 was a multi-year buying opportunity. On March 5, 2009, 91% of all stocks were undervalued and all 11 sectors were undervalued by more than 30%. Wall Street and hence Main Street missed this golden opportunity to buy stocks. In early March 2009, I made the call that stocks would rally 40% to 50%. I proved to be too pessimistic. Since then the Dow Industrial Average (NYSEARCA:DIA) is up 86.9% with the S&P 500 (NYSEARCA:SPY) up 96.4% and the NASDAQ (QQQQ) up 117.0%. With stocks overvalued and weekly charts overbought with the exception of Transports now is not the time to increase allocation to stocks, it’s the time to decrease stock allocations.
The Housing Market was the first to provide warnings as The Housing Index topped out in July 2005 and today is 62.0% below that high, with housing currently at risk of renewed weakness.
The America’s Community Bankers Index (ABAQ) peaked in December 2006 and today is 49.0% below that high. The FDIC List of Problem Banks rose by 24 in the fourth quarter to 884 from 860, which is 11.5% of the 7,657 FDIC-insured financial institutions. When I drill down into the FDIC data I find 2623, or 34.3% of all community banks overexposed to commercial real estate loans, and 58.5% of all banks have a real estate loan pipeline that’s 80% or more funded, which is continued stress.
The Regional Bankers Index (BKX) peaked in March 2007 and today is 57.2% below that high. The “too big to fail” banks are bigger and the BKX is down fractionally so far in 2011. Under Dodd-Frank some of these banks will need to raise capital, and face heavier FDIC deposit insurance fund assessments beginning in April.
Total Assets in the banking system declined $51.8 billion in the 4th quarter 2010 with C&D loans down $32.5 billion. Even so C&D loans still total $321.6 billion with nonfarm, non-residential real estate loans at $1.07 trillion and problem loans continue to clog bank balance sheets.
ValuEngine Valuation Warnings on February 18th and March 3rd marked tradable highs for stocks. To confirm a market top all weekly charts must shift to negative. The major equity averages remain below their February 18th highs when the Dow Industrial Average reached 12,391. My proprietary analytics still show weekly and monthly resistances, to limit the upside even if some of the averages continue to new highs. Market weakness on Friday and Monday resulted in a reduction of overvalued stocks to 60.5%, below 65%. We show 15 of 16 sectors overvalued, six by double-digit percentages.
Key Levels for the Major Equity Averages
- The Dow Industrial Average (12,090) Libya Trading Range: 11,983 to 12,391. My annual value level is 11,491 with daily, weekly and monthly risky levels at 12,152, 12,483 and 12,741.
- The S&P 500 (1310.1) Libya Trading Range: 1294 to 1344. My quarterly value level is 1262.5 with daily, weekly and monthly risky levels at 1323.8, 1350.3 and 1381.3.
- The NASDAQ (2746) Libya Trading Range: 2706 to 2840. My monthly value level is 2629 with daily, weekly, quarterly and monthly risky levels at 2802, 2829, 2853 and 2926.
- The NASDAQ 100 (NDX) (2328) Libya Trading Range: 2285 to 2403. My monthly value level is 2250 with daily, weekly, quarterly, and monthly risky levels at 2375, 2398, 2438 and 2499.
- Dow Transports (5018) Libya Trading Range: 4918 to 5306. My quarterly value level is 4671 with daily, weekly and annual pivots at 5082, 5052 and 5179.
- The Russell 2000 (824.99) Libya Trading Range: 795 to 838. Daily and quarterly value levels are 819.50 and 765.50 with monthly risky level at 850.79.
- The Philadelphia Semiconductor Index (SOX) (447.35) Libya Trading Range: 439 to 474. My monthly value level is 402.46 with a monthly pivot at 453.89, a quarterly pivot at 465.93 and daily and weekly risky levels at 466.70 and 485.92.
10-Year Note – (3.514) Weekly, annual, and semiannual value levels are 3.642, 3.796 and 4.268 with daily, monthly, annual and semiannual risky levels are 3.449, 3.002, 2.690, 2.441, and 2.322.
Comex Gold – ($1433.3) Weekly, annual, quarterly, semiannual and annual value levels are $1385.4, $1356.5, $1331.3, $1300.6 and $1187.2 with monthly and quarterly pivots at $1437.7 and $1441.7, and my semiannual risky level at $1452.6.
Nymex Crude Oil – ($104.92) Weekly, monthly and semiannual value levels are $97.78, $96.43, and $87.52 with my annual pivots at $99.91 and $101.92, and semiannual and quarterly risky levels are $107.14 and $110.87.
The Euro – (1.3971) My quarterly value level is 1.3227 with a daily pivot at 1.4001, and weekly, semiannual and monthly risky levels at 1.4446, 1.4624 and 1.4637.
Daily Dow: (12,090) Annual, quarterly, semiannual, and semiannual value levels are 11,491, 11,395, 10,959, and 9,449 with daily, weekly, monthly and annual risky levels at 12,152, 12,484, 12,741 and 13,890.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.