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

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June 24, 2010 – New Home Sales Plunge and the Fed is Concerned

The yield on the 10-Year Treasury moved lower as $38 billion 5-Year note auction gets tepid
investor demand. Gold continues to consolidate off Monday’s all time high at $1266.5, which
was a test of this month’s resistance. Crude moved below my annual pivot at $77.05. The euro
consolidates off my quarterly resistance at 1.2450, which was tested on Monday. The Dow
remains below my annual pivot at 10,379. New home sales plunge 32.7% as tax credits end, and
the Fed leaves rates exceptionally low for an extended period.
US Treasury Yields – The $38 billion 5-Year note auction had a neutral result with a yield of 1.995, a
bid-to-cover of 2.58 and indirect bid of 35%. The US Treasury auctions $30 billion 7-Year notes today. ,
The 30-Year fixed rate mortgage is at a record low of 4.76%, but mortgage applications decline. The
problem is that the spread versus the 10-Year has widened to 166 basis points from 115 where it was
when the Fed stopped buying mortgage securities on March 31st. A 4.25% mortgage would make it a
lot easier to refinance mortgages. The daily chart for the 10-Year shows the longer-term trading range
between the 200-day simple moving average at 3.544 and 3.061 with a daily pivot at 3.180, and annual
resistances at the floor at 2.999 and 2.813.

Chart Courtesy of Thomson / Reuters

Comex Gold – The daily chart shows declining MOJO, but Monday’s all time high of $1266.5 was a
failed test of my monthly resistance at $1265.9. The 21-day and 50-day simple moving averages
provide key supports at $1228.4 and $1201.3.

Courtesy of Thomson / Reuters

Nymex Crude Oil – The daily chart still shows overbought MOJO with oil below its 50-day and 200-day
simple moving averages and annual pivot at $77.05, $77.04 and $77.05. The 21-day is support at
$74.41. Today’s resistance is $79.91.

Courtesy of Thomson / Reuters

The Euro – The daily chart shows rising MOJO as strength reached my quarterly resistance at 1.2450
on Monday. The 21-day simple moving average is support at 1.2208.

Courtesy of Thomson / Reuters

Daily Dow: The 21-day simple moving average is support at 10,183 with the 200-day and 50-day
simple moving averages at 10,350 and 10,556. My annual pivot has been a magnet at 10,379. A close
below the 21-day shifts the daily chart to negative as MOJO rolls over. My call remains that the April
26th high at 11,258 ended the bear market rally since March 2009, and starts the second leg of the
multi-year bear market.

Courtesy of Thomson / Reuters

New Home Sales Plunge as Tax Credits Expire - New Home Sales for May plunged 32.7% to an
annual rate of just 300,000 units, the lowest pace since record keeping began in 1963. This should not
be a surprise as 33% of new home sales were generated because of tax credits, which expired on April
30th. Remember that homebuilders peaked in share price in July 2005 and new home sales are down
78% from that peak. Complicating a housing recovery is high unemployment, job security and banks
continue to employ tight credit conditions.
Federal Reserve Leaves The Funds Rate Exceptionally Low For An Extended Period. The FOMC
sees the economic recovery proceeding with a gradual improving labor market. Against this backdrop
household spending is increasing but constrained by high unemployment. The Fed worries about
modest income growth, lower housing wealth and tight credit conditions.
My concerns are clearly stated by the Fed – “Housing starts remain at a depressed level. Financial
conditions have become less supportive of economic growth on balance, largely reflecting
developments abroad. Bank lending has continued to contract in recent months.”
It was housing that caused stress in the banking system beginning in 2007. Housing is beginning to
drag the economy again, and stress in the banking system continues, but is buoyed by low interest
rates, which has just not helped Main Street USA. Strategists argue whether or not the economy is
headed for a double-dip or not. Looking at housing and the unemployment rate the economy is still in
its first dip. After all, the National Bureau of Economic Research (NBER) has yet to time stamp
recession’s end. Without an end there can not be a double-dip. Can the NBER declare the Recession
time stamped beginning December 2007 over with an unemployment rate of 9.7% when the rate was
4.6% at the end of 2007?
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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