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Richard Suttmeier had been a professional in the US Capital Markets since 1972, transferring his engineering skills to the trading and investment world. Richard has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. Richard began his career in the financial... More
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  • This is not a New Bull Market for Stocks 0 comments
    Nov 12, 2009 05:58 AM | about stocks: DIA, SPX
    This is not a new Bull Market. The key to ending the dollar carry trade is the Dollar Index. At the dollar lows the Dow and S&P 500 reached new highs for the move. More Bank Failures Loom!
     
    We are still in a Multi-Year Bear Market that began in October 2007, led lower by financials. 
     
    The Bear Market Rally is based mainly on the Dollar Carry trade not on economic fundamentals. You can not have a New Bull Market when ValuEngine shows seven of eleven sectors overvalued.
     
    Year to date the S&P 500 is up by 21.6% with community banks down 24.9% and regional banks flat. Where's the leadership?  
     
    The Dollar Index traded to a new low for the move on Wednesday at 74.86. With Tuesday’s high at 75.38, Wednesday was a potential key reversal day with a close above that level. This did not happen. Charts courtesy of Thomson / Reuters
     
     
    The weekly chart shows the up trend that connects the lows of April 2008 and July 2008 at 74.48 this week. Resistance is the five-week modified moving average at 76.35.
     
    The Dow traded as high as 10,342 on Wednesday approaching Ascending Wedge resistance at 10,380 with the down trend that goes back to October 2007 at 10,692. A decisive move above 10,692 ends the multi-year bear market, but does not signal a new bull market, but instead a trading range with my semiannual resistance at 11,500 the upper end.
     
     
    The S&P 500 traded as high as 1105 with down trend resistance going back to October 2007 at 1123.
     
    The other major averages stayed below prior highs: The prior high for the NASDAQ is 2190 with the 200-week simple moving average at 2212.
     
    Transports, the Russell 2000 and SOX still show double-tops at 4050 / 4070 on Transports, 625 on the small cap index and 337 on the SOX. The high on Transports is between annual resistances at 4037 and 4199. The high on the SOX is a failed test of my semiannual resistance at 337.39.
     
    Be prepared for more bank failures - We are up to 120 bank failures year to date and 149 since the end of 2007, when “The Great Credit Crunch” began. FDIC Chair Sheila Bair predicts that many more bank failures lie ahead. My prediction has been that 500 to 800 banks will fail by the end of 2012.
     
    This is not good news for struggling small businesses, as when a bank fails all business clients must find a new business relationship with the bank taking over the failed banks assets, or at a different bank. This is tough as banks continue to tighten lending standards.
     
    Last Friday’s Bank Failure Friday Stretched to China - Four out of five of the bank failures on Friday bring were private banks and four out of five were extremely overexposed to C&D and CRE loans.
     
    United Commercial Bank publicly traded as UCBH Holdings Inc (UCBH) had 63 U.S. branches, a branch in Hong Kong and a subsidiary, UCB-China, in Shanghai. They reopened as part of East West Bank (EWBC), which has a similar business model including China.
     
    UCBH Holdings is the first failed TARP recipient. UCBH received $298.7 million in TARP money, paid a $7.5 million dividend in May, but did not make the payment due in August. UCBH had C&D and CRE loan ratios of 211% and 678% versus risk based capital, well above the ignored regulatory guidelines.
     
    The closure of UCBH satisfied one of my long-held predictions – some banks who got TARP money would fail. UCBH was a member of the ValuEngine List of Problem banks.
     
    Send me your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visit www.ValuEngine.com
     
    That’s today’s Four in Four. Have a great day.
     
     
    Richard Suttmeier
    Chief Market Strategist
    (800) 381-5576
     
     
    As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample issues of my research.
     
     
     
    “I Hold No Positions in the Stocks I Cover.”
    Themes: The Dollar Carry Trade Stocks: DIA, SPX
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