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Keep an eye on the key levels for the US Capital Markets

|Includes: DIA, DUG, GLD, iShares 20+ Year Treasury Bond ETF (TLT)
The major equity averages straddled my weekly pivots on Monday with my key quarterly risky level at 2853 for the NASDAQ. The 10-Year yield has declined from last week’s test of my annual value level at 3.791. Comex gold is above my annual pivot at $1356.5, and tested its 50-day simple moving average at $1373.6 this morning. Nymex crude oil is below my semiannual pivot at $87.52 with the 200-day simple moving average as support at $80.76. The euro is above its 50-day simple moving average at 1.3367 with this week’s risky level at 1.3636.
Key Levels for the Major Equity Averages
  • The Dow Industrial Average (12,268) began the week below its weekly pivot at 12,274, and tried to close above that level but could not. The nearest support is the 21-day simple moving average at 12,020. Today’s risky level is 12,364.
  • The S&P 500 (1332.3) stayed below its weekly pivot at 1335.6 for the entire session.
  • The NASDAQ (2817) is above its weekly pivot at 2811 with my quarterly risky level at 2853.
  • Dow Transports (5218)is also above its weekly pivot at 5206 with its January 18th high at 5256.80.
  • The Russell 2000 (825.90) is also above its weekly pivot at 811.80 with its July 2007 high at 862.00.
We continue to trade under a ValuEngine Valuation Warning - 16 of 16 sectors overvalued with only 33.26% of all stocks undervalued on Wednesday, below the 35% threshold by this measure. This also means that 66.74% of all stocks are overvalued.
10-Year Note – (3.612) My annual value level is 3.791 with a weekly risky level at 3.568, which was the prior high yield set on January 16th. This yield is above its 200-week simple moving average for the first time since mid-October 2007.
Comex Gold – ($1362.7) My annual pivot at $1356.5 has been a strong magnet so far in 2011. The nearby resistance is the 50-day simple moving average at $1373.6 was tested overnight. Gold was above its 50-day between August 12, 2010 through January 5, 2011.
Nymex Crude Oil ($84.90) The 200-week simple moving average, now at $80.36 has been a magnet since June 2009. If crude stays below my semiannual pivot at $87.52 the risk is to the 200-day simple moving average at $80.76.
The Euro – (1.3481) The 200-week simple moving average is a resistance at 1.3952. The 50-day simple moving average is a support at 1.3367 with my weekly risky level at 1.3636.
Winding Down Fannie Mae and Freddie Mac
For two years now I have been suggesting letting Fannie Mae and Freddie Mac gradually unwind their mortgage portfolios. Instead their roles have been increased to represent 90% of the mortgage market. This should have been the role of Ginnie Mae, a government agency that packages mortgages into Pass-Thru mortgage securities that are backed by the full faith and credit of the US government.
Because of the Conservatorship of Fannie and Freddie tax payers are on the hook for $153 billion and counting, as any plans to unwind these GSEs will take until at least the end of 2012 to complete. All new mortgages should have been backed by Ginnie Mae, not by making Fannie Mae and Freddie Mac mortgages and debt government-backed, when they clearly were not. Any losses should have been born by the investors in the mortgage securities issued by Fannie and Freddie. Here’s what has been and continues to be stated on the Fannie Mae web site. Conservatorship ignores this statement and has all Fannie and Freddie debt and mortgage securities backed by the US. How can the government renege on this September 2008 pledge?
Fannie Mae debt securities, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than Fannie Mae.
The Ginnie Mae program should be expanded and offered through community banks but only for 30-Year fixed rate mortgages with 20% down and with a rate 100 basis points above the US Treasury 10-Year note.
The larger regional banks should have their own private mortgage market for all types of mortgage products that each bank would guarantee. Banks should be encouraged to keep mortgages as assets on the banks balance sheets.
Fannie Mae and Freddie Mac dominate the $10.6 trillion US mortgage market, and back nearly 90%, along with the Federal Housing Administration.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist, (800) 381-5576
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