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May 18, 2010 – Risk Aversion stalls on improved Housing data and euro

Improved NAHB Housing Market Index, but the reading remains depressed. TARP Dividend
Payments were due on Monday, May 17th. Risk Aversion continues but was giggled by a euro
rebound.
The National Association of Home Builders Housing Market Index increased three points in May to
22, but the index needs to be above 50 to be considered a game changer. The reading is the highest
since August 2007, but the homebuyer tax credits expired at the end of April so sustaining this
improving trend will be difficult in the months ahead.

As you might expect homebuilders experienced a trading bounce on the better than expected NAHB
data, but it was subdued as shown by the daily chart of the Housing Sector Index (HGX). HGX is
trending below its 50-day simple moving average at $116.34 with risk to the 200-day simple moving
average at $106.37. My monthly value level is at $105.96.
 Courtesy of Thomson / Reuters

The US Treasury reported that mortgage modifications rose 68,000 last month to near 300,000 out of
the estimated 3.275 million who are deemed eligible for help from the HAMP. This growth was 13%
sequentially in April, but the Treasury report also cited that there were 3,700 re-defaults.
Three months ago 74 FDIC-insured financial institutions deferred their TARP dividend
payments. SNL Financial reports that Saigon National Bank (SAGN) will miss its sixth TARP dividend
payment, which gives the US Treasury the right to elect two directors to this bank’s board. The rub is
that the bank’s regulator the Office of the Comptroller of the Currency (OCC) is blocking the payment
citing a shortfall in capital. SNL compiled a list of the TARP recipients that are nearing the threshold of
missing six TARP dividend payments.
Monday was the day when current TARP recipients were supposed to pay their dividend payments to
the US Treasury. Three months ago 74 TARP banks reneged on making their dividend payments.
According to Probublica.org there remains $204.9 billion in TARP outstanding loaned to 706 recipients.
Eleven of the thirteen banks on the above list are publicly traded and on the ValuEngine List of Problem
Banks. Midwest Banc Holdings (MBHI) was one of the banks that were closed by the FDIC last
Friday.
The problem the way I have described the TARP give-away to small banks was that those overexposed
to C&D and CRE loans should have been turned down when they requested TARP. These were not
“healthy banks” and this is being proved the case when state and other regulators are telling many of
the TARP banks do not make your TARP dividends as your capital is too low.
According to TARP guidelines the US Treasury has the authority to appoint two board directors if a
bank misses six dividend payments. The question is, will they do so?
10-Year Note – The daily chart shows how the 200-day simple moving average at 3.580 has become
the risk aversion support. My semiannual, weekly and monthly supports are 3.675, 3.683 and 3.735
with my quarterly pivot at 3.467, and the May 6th low yield at 3.226. On Thursday the US Treasury
announces $113 billion in 2-Year, 5-Year and 7-Year notes for auction next week.

Courtesy of Thomson / Reuters

Comex Gold – has become currency of last resort primarily on euro weakness. My semiannual support
is $1186.5 with my monthly resistance at $1270.1. Gold is topping out as the euro alleviates on
oversold condition.
 Courtesy of Thomson / Reuters

Nymex Crude Oil – has become extremely oversold with nearby support at $68.75 and the 200-day
simple moving average at $76.66. A Memorial Day bounce with Hurricane Season beginning on
June 1st could result in a short-covering rally.

Courtesy of Thomson / Reuters

The Euro – became extremely oversold and after trading below 1.23 on Monday, holding that level
targets my quarterly pivot at 1.2450.

Courtesy of Thomson / Reuters

Daily Dow: As long as MOJO is rising the trading range set since the “Flash Crash” should remain in
tact. The daily chart profile is neutral with the Dow below its 21-day simple moving average at
10,924. The Dow is below its 50-day simple moving average at 10,875 with the 200-day simple moving
average as support at 10,241. It seems that the April 26th high at 11,258 ends the bear market rally
since March 2009. My call remains, “Dow 8,500 Before Dow 11,500”.

Courtesy of Thomson / Reuters

That’s today’s Four in Four. Have a great day.
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
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
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