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The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approach to investing and the tools
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MARKET OVERVIEW
Index started week Wednesday 3 day change 3 day change % ytd
Close
DJIA 11572.81 11585.4 12.59 0.11% 11.03%
NASDAQ 2657.09 2666.93 9.84 0.37% 17.46%
RUSSELL 2000 786.9 790.26 3.36 0.43% 24.83%
S&P 500 1254.66 1259.78 5.12 0.41% 12.88%
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4. Fannie Mae and Freddie Mac will continue to drain taxpayer money as the
Treasury provides unlimited lines of credit through 2012. The cost currently is
about $150 billion, by far the largest of any government bailouts. We need to
unwind the activities of these GSEs, and beef up Ginnie Mae as the go to
government agency that backs new mortgage issuance.
5. Because of the housing market depression and stress in the banking system the
Unemployment Rate will stay above 9% for all of 2011.
6. QE2, the $600 billion program where the Federal Reserve buys long dated US
Treasury Securities has been a failure so far. The yield on the 10-Year was 2.334
when Fed Chief Bernanke touted QE2 in October only to see the yield nearly
125 basis points higher in December. The primary intent of QE2 was to lower
longer-dated US Treasury yields. Yields held this week’s value level at 3.494
again on Wednesday. There is risk to 3.75 to 4.25 in 2011, but with or without this
weakness the 10-Year yield will decline to 2.75 to 2.50 during 2011.
7. Comex Gold has gone parabolic and therefore you cannot predict how high
gold prices can climb. I do know that corrections will be fierce and painful for
those that buy strength instead of weakness. The 2011 neutral zone is between
$1350 and $1450.
8. Nymex Crude Oil is headed back above $100 per barrel according to most
experts. I cannot rule that out for 2011, but the downside is more significant
given weekly closes below the $87 per barrel area. If gasoline stays above
$3.00 per gallon demand on Main Street will slow down and will be a drag on
economic growth and job creation.
9. Problems among the PIIGS nations denominated in euros will trump problems at
the state level in the USA. This will keep the euro versus the dollar in a trading
range. We will begin 2011 with a quarterly pivot around 1.3150.
10. US stocks show strong technical characteristics. The S&P 500 is above the 61.8%
Fibonacci Retracement of the decline from October 2007 to the low of March
2009 at 1228.74. Dow Theory had a Buy Signal in early November and another
confirmation in December. The Dow Industrial Average – I project downside to
9,375 in the first half with a rebound to 11,500 in the second half. Strength
above 11,500 will return to 11,500, and the 2011 close will be at or below 11,500.
11. ValuEngine.com indicates that equity fundamentals are not cheap. Fifteen of
sixteen sectors will begin 2011 overvalued according to ValuEngine. The normal
range for the percent undervalued or overvalued stocks is 35% to 65%. We will
begin 2011 close to the low end of the range for undervalued stocks and
towards the high end for overvalued stocks. Because of the battle between the
technicals and fundamentals, stocks will be reversal-oriented in 2011 and be
little changed year over year.
Click the icon below to hear VE Chief Market Strategist Richard Suttmeier
on TheStreet.com's "The Real Story" Podcast
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Suttmeier Says
--Commentary and Analysis from Chief Market Strategist
Richard Suttmeier
Treasury Yields
10-Year-- (3.466) – The Weekly value level is 3.494 has held on
weakness with a risky level at 3.264.
The Euro--Value level is 1.3060 with my quarterly pivot at 1.3318, which goes away at
the end of the year.
Major Indices
US stocks are overvalued fundamentally and overbought technically on both
daily and weekly charts. The major equity averages remain below this week’s risky
levels as the year draws to a close at: 11,629 Dow, 1269.4 SPX, 2682 NASDAQ, 5215
Dow Transports and 808.57 Russell 2000. Fifteen of sixteen sectors are overvalued
according to ValuEngine with only 37.7% of all stocks undervalued. At 35% the stock
market tends to find a top. Only 17.5% of all stocks are undervalued by 20% or more.
The Dow--
Daily: Remains extremely overbought on both daily and weekly charts. The five-
day modified moving average is 11,523 with daily and weekly risky levels at 11,618
and 11,629.
Housing
On Tuesday we learned that home prices are on the decline again according
to Case-Shiller, and that the Conference Board’s Consumer Confidence fell to 52.5 in
December. The National Association of Home Builders Housing Market Index remains
depressed at 16 when a reading of 50 is neutral. The Consumer Confidence reading
at 52.5 is depressed considering that 90 to 120 is the neutral zone.
• The 20-City Composite from the Case-Shiller Home Price Index fell 1.3%
sequentially in October and 0.8% year over year with Atlanta, Charlotte, Miami,
Portland, Seattle and Tampa hitting new lows since home prices began to fall in
mid-2006.
• Home sales are down 25% year over year and the supply of unsold homes is
up 50%, and housing starts are near thirty year lows.
• From the mid-2006 peak to current home prices are down 29.6%.
• The 20-City Composite is still 50% above its starting point at the end of 1999.
Upcoming Suttmeier Appearance
ValuEngine Chief Market Strategist Richard Suttmeier On the Road in
January
ValuEngine Chief Market Strategist Richard Suttmeier is a financial analyst for media such as Fox News,
CNBC,YahooFinance,the Wall Street Journal, New York
Times, CNNfn, and Bloomberg, Suttmeier has long been
one of ValuEngine's "power users," supporting his own
technically-focused analysis with VE's fundamentally-
based quant methods.
This meeting will take place at the University Club of Winter Park, 841 N. Park
Ave. Winter Park, FL 32789. It starts at 6:30pm. Again, all VE clients are invited. We
place a special call out to those seeking individual investment advice, assistance,
and portfolio management.
Happy New Year to All !