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

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January 27, 2010 – Fed to keep Policy at Status Quo

Don’t look for any changes from the FOMC. Case-Shiller shows home price pause ending end.
Existing and new home sales, credit card Charge-offs and the weekly chart for the Dow
Fed Statement will reflect Status Quo once again
The FOMC will continue to suggest that economic activity is picking up as the deterioration of the labor
market abates. The Fed will re-iterate that the housing sector continues to show signs of improvement,
and that household spending is expanding. The Fed will admit that the labor market remains weak with
modest income growth, lower housing wealth and continued tight credit. The Fed will re-iterate that the
zero to .25% federal funds rate will be needed for an extended period. The quantitative easing involving
GSE Debt and Mortgage Securities will be on schedule to end March 31st.
The Case-Shiller Home Price Index for November
The 20-City Index showed that home prices rose in only five markets in November. New cycle lows
occurred in Charlotte, Las Vegas, Seattle and Tampa.
Home prices are back to the levels of late-2003. Peak to trough prices are down 32.6% and peak to
date is -29.2%. This means that the nearby price improvement was just a minor correction.

Existing Home Sales Plunged 17% in December

Sales of previously occupied homes saw its largest monthly drop in more than forty years in December
despite the extension of the first time homebuyer tax credit of $8,000 and the $6,500 tax credit for
current home buyers who move. The extension of these benefits is to April 30th for contracts and June
30th for closings. The annual pace of existing home sales is now 5.45 units annualized. First-time home
buyers were 50% in November and this category declined to 43% in December. 32% were distressed
sales.
Most banks are holding inventory of foreclosed homes as bankers sort through homeowner paperwork
for those seeking mortgage modifications. As foreclosures mount on failed mitigation attempts there will
likely be another 3 to 3.5 million distressed homes coming to market in 2010.
New Home Sales should remain weak in December at an annual rate of 365,000 units. C&D loans on
the books of banks covering loans to builders and developers totals $492 billion, which equates to
another 2.5 million homes planned and partially funded.
Don’t cheer a slight decline in Credit Card Charge-Offs
Charge-offs slipped to 10.32% from 10.56% in December, but sources say the worst is yet to come.
The charge-off rate measures uncollected credit card debt, which is expected to reach the 12% to 13%
in the first half of 2010, as high unemployment and holiday attributes to increased charge-offs.
The weekly chart for the Dow Industrial Average has shifted to negative.
Last week we saw weekly Key Reversals for the Dow and S&P 500. The prior week we had weekly key
reversals for the SOX, EEM, QQQQ and crude oil and had lower weekly closes last week continuing
the overall key reversals. On Friday, January 15th on Fox Business Bulls & Bears I ended the interview
saying that I would not be surprised by a close next week (January 22nd) below 10,250 on the Dow.

Chart Courtesy of Thomson / Reuters

The Ascending Wedge up trend has been clearly broken to the downside. The Dow is back below the
down trend that went back to the high of October 2007. My prediction called for a breakout followed by
a fake-out and that seems to be the scenario. The five-month modified moving average is 9,631 with
my annual pivot at 10,379.
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.

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Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
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“I Hold No Positions in the Stocks I Cover.”