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No Dow Theory Buy Signal, but my Risky Level was Tested.

|Includes: DIA, DUG, GLD, MTB, iShares 20+ Year Treasury Bond ETF (TLT), WL
For the 10-Year yield my annual value level is 2.813 with my weekly risky levels at 2.498, and this range factors in QE2. Gold is below my monthly pivot at $1373.0. Crude oil nearly tested my semiannual pivot at $83.94. The euro failed above 1.40 once again. The Dow Industrials traded above its April 26th closing high at 11,205.03 for the second Monday in a row, as my annual risky level at 11,235 was tested for a second time in two consecutive Mondays. The Dow Transports traded above its May 3rd closing high at 4806.1 testing this week’s risky level at 4823. For the Dow Industrial Average my monthly value level is 10,848 with my annual, semiannual and weekly risky levels at 11,235, 11,296 and 11,374. A Dow Theory Buy Signal requires closes above the April 26th closing high of 11,205.03 on Industrials, with the Dow Transports closing above its May 3rd closing high at 4806.1. Wilmington Trust and the mortgage market!
10-Year Note – (2.627) Daily, annual and annual value levels are 2.752, 2.813 and 2.999 with weekly, monthly, quarterly and semiannual risky levels at 2.498, 2.380, 2.265 and 2.249.
Courtesy of Thomson / Reuters
Comex Gold – ($1351.8) Quarterly, semiannual and annual value levels are $1306.4, $1260.8, $1218.7 and $1115.2 with daily and monthly pivots at $1336.9.3 and $1373.0, and weekly risky level at $1396.7.
Courtesy of Thomson / Reuters
Nymex Crude Oil ($82.93) Monthly and annual value levels are $78.51 and $77.05 with a daily pivot at $81.63, and semiannual and weekly risky levels at $83.94 and $85.08.  
Courtesy of Thomson / Reuters
The Euro – (1.3886) Quarterly and monthly value levels are 1.3318 and $1.2709 with a daily pivot at $1.3828, and weekly and semiannual risky levels at 1.4371 and 1.4733.
Courtesy of Thomson / Reuters
Daily Dow: (11,125) Monthly, semiannual, annual and quarterly value levels are 10,848, 10,558, 10,379 and 8,523 with a daily pivot at 11,162, and annual, semiannual and weekly risky levels at 11,235, 11,296 and 11,374. My annual risky level at 11,235 was tested at the November 1st, October 25th and April 26th highs of 11,244.27, 11,247.60 and 11,258.01.
Courtesy of Thomson / Reuters
Wilmington Trust is taken out at a 46% discount. Wilmington Trust (NYSE:WL) will be purchased by M&T Bank (NYSE:MTB) for $3.84, a 46% discount to Friday closing price. I guess the banking system avoided one bank failure. According the FDIC data for Wilmington for the second quarter 2010 the bank has $10.7 billion in assets with overexposures to C&D and CRE loans, but their ratios of 130% and 328% respectively is better than most banks that have failed. Even the pipeline exposure was 74%. The regulatory guidelines are 100% of risk-based capital for C&D loans and 300% for CRE loans and the monies lent versus monies committed is 74% when terrible exposures are 80% and higher. With a SELL rating by ValuEngine, Wilmington Trust was on the ValuEngine List of Problem Banks. If you subscribed to the ValuEngine FDIC report you would have avoided being long this troubled bank.  
The below market buyout was caused by miserable third quarter earnings where Wilmington reported soaring loan losses and a sixth consecutive quarterly loss. There a many more banks with similar and even worse financial shape, so betting on a take-over to make money on community banks has gotten a bit tougher for names on the ValuEngine List of Problem Banks.
M&T Bank is rated a HOLD according to ValuEngine with a one-year price target at $77.32. If you are using my “Buy and Trade” strategy my weekly value level is $71.47 with my monthly risky level at $91.79. As part of the purchase deal, M&T will repay the $330 million in TARP that Wilmington owes taxpayers.
Getting a bid down 46% is better than getting a knock on the door on a late Friday afternoon from the FDIC.
The Housing Market Remains an Economic Drag - Most analysts say that the foreclosure mess including robo-signing will not have a lasting affect on a sluggish housing market. In my opinion the foreclosure mess could be another negative catalyst just as subprime was, particularly in a weak economy, low job creation, tight mortgage standards, and the prospect of another leg down for house prices. That’s a likely outcome when nearly a million homes are expected to be repossessed this year. The pipeline is said to be 3.1 million borrowers seriously delinquent.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
(800) 381-5576
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