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

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found at http://www.valuengine.com/nl/mainnl

February 17, 2011 – Stock Melt-up Continues to Ignore Warnings

The stock melt-up has the major equity averages above this week’s pivots putting the focus on the
NASDAQ and its quarterly risky level at 2853. The Dow Transports broke above the potential double-
top. Stocks are ignoring the ValuEngine Valuation Warning and extreme overbought technical market
indicators. The 10-Year yield failed at my weekly risky level at 3.568 after holding my annual value
level at 3.791 last week. Comex gold is above my annual pivot at $1356.5 and closed above its 50-day
simple moving average at $1372.2. Nymex crude oil remains below my semiannual pivot at $87.52,
but is now oversold. The euro is above its 50-day simple moving average at 1.3377 with this week’s
risky level at 1.3636.
New Highs for the Move for the Major Equity Averages
• The Dow Industrial Average (12,288) remains extremely overbought, and closed above its
weekly pivot at 12,274 testing 12,303.16. The 21-day simple moving average rises to 12,063
with today’s risky level at 12,399.
• The S&P 500 (1336.3) closed above its weekly pivot at 1335.6 setting a new high for the move
at 1337.61. The 21-day simple moving average rises to 1306.1 with today’s risky level at
1344.4.
• The NASDAQ (2826) closed back above this week’s pivot at 2811 with my quarterly risky level
at 2853. The 21-day simple moving average rises to 2756 with today’s risky level at 2840.
• Dow Transports (5286) tested and held its weekly pivot at 5206 on Tuesday, then breaks
above its January 18th high at 5256.80 to 5306.54 on Wednesday. Today’s risky level is 5317.
• The Russell 2000 (828.37) is above its weekly pivot at 811.80 with its July 2007 high at 862.00.
Today’s risky level is 837.39.
We continue to trade under a ValuEngine Valuation Warning - 16 of 16 sectors overvalued with
only 32.4% of all stocks undervalued on Wednesday, below the 35% threshold by this measure. This
also means that 67.6% of all stocks are overvalued.
10-Year Note – (3.619) Is between my annual value level is 3.791 and my weekly risky level at 3.568.
Comex Gold – ($1375.3) My annual pivot is $1356.5 with the 50-day simple moving average at
$1372.2 with my monthly risky level at $1412.4.
Nymex Crude Oil – ($85.00) Continues to trade below my semiannual pivot at $87.52 and is now
oversold on its daily chart with today’s value level at $82.85.
The Euro – (1.3567) Still above its 50-day simple moving average at 1.3377 with my weekly risky level
at 1.3636.
Housing Starts and Permits Remain Soft - Housing Starts increased 14.6% in January, but the gain
was entirely due to a 77.7% increase in the multifamily sector. Single family starts declined 1.0% to a
413,000 annual rate with single family permits down 4.8%. Overall building permits declined 10.4%.
More Information from the NAHB Housing Market Index – If you look at the National Association of
Home Builders Housing Market Index going back to 1985 it never went below 20 until October 2007.
During the 1988 to 1992 mini-crisis the lowest reading was 20 in January 1991. For the current
popping of the Housing Bubble this index peaked at 72 in June 2005, when the CEO’s of the publicly
traded homebuilders described the housing market as the best they have ever seen.
Back in June 2005 ValuEngine had the homebuilders extremely overvalued and I noted their weekly
price charts were extremely overbought. I wrote a piece calling for a summer 2005 peak for the home
builder stocks, which proved to be a prudent market call. The NAHB HMI has been 20 or below since
September 2007 and has been between 13 and 16 the past nine months. The exception was a 22
reading in the height of the $8,000 first time homebuyer tax credit in May 2010.
The Mortgage Bankers Association reported that their weekly Mortgage Applications Survey
decreased 9.5% with the Refinance Index down 11.4%, to the lowest reading since July 3, 2009. The
Purchase Index decreased 5.9%, and is 18.2% lower than a year ago. A major drag is attributed to the
above 5% mortgage rate, up nearly a full percentage point from the October 2010 low, in the midst of
when Fed Chief Bernanke was touting that the pending QE2 program would push longer term yields
lower to help consumers. The only thing that QE2 has done is inflate an equity market to an
overvalued and overbought inflating financial bubble!
The minutes from the latest Fed Meeting indicates that unemployment and tight credit conditions
continues to be a drag on the housing market. History repeats: Housing peaked in mid-2005 and the
recovery has been nil. Community banks peaked at the end of 2006, and Bank Failure Friday
continues. Regional Banks peaked in March 2007, and toxic assets remain in the banking system. Fed
policy with that ridiculously low funds rate and QE2 is masking problems that will still plague the US
economy for the next several years.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com, (800) 381-5576
Send your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visit
www.ValuEngine.com
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. You can go HERE to review sample issues and
find out more about my research.

“I Hold No Positions in the Stocks I Cover.”