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

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August 26, 2010 – Daily charts show oversold or overbought conditions.

The yield on the 10-Year US Treasury tested 2.419 on Wednesday with overdone momentum.
Gold remains overbought with a test of $1243.7 overnight. Crude oil is oversold with a daily
pivot at $72.06. The Euro is oversold with a daily pivot at 1.2741. The Dow is oversold with
weekly and daily pivots at 10,035 and 10,129. New and existing home sales take a plunge.
What to do with Fannie and Freddie. Mortgage applications rise for refinancings. Savings &
Loans report a second quarter profit.
10-Year Note – (2.538) My annual pivots are 2.813 and 2.999 with weekly and quarterly pivots at
2.574 and 2.495, and daily and semiannual risky levels at 2.472 and 2.249. Note that the decline in
yield is extremely overdone.

Courtesy of Thomson / Reuters

Comex Gold – ($1241.3) Weekly, quarterly, monthly and annual value levels are $1159.5, $1140.9,
$1133.2 and $1115.2 with my semiannual pivot at $1218.7, and daily and semiannual risky levels at
$1247.4 and $1260.8. Note that gold is overbought on its daily chart.
 Courtesy of Thomson / Reuters

Nymex Crude Oil – ($72.52) My quarterly value level is $56.63 with daily and weekly pivots at
$72.06 and $73.59, and annual risky level at $77.05. My monthly and semiannual risky levels are
$80.02 and $83.94. Note that crude oil has become oversold on its daily chart.

Courtesy of Thomson / Reuters

The Euro – (1.2658) Quarterly and monthly value levels are 1.2167, 1.1486 and 1.1424 with a daily
pivot at 1.2741, and weekly and semiannual risky levels at 1.3276 and 1.4733. Note that the euro is
oversold on its daily chart.

Courtesy of Thomson / Reuters

Daily Dow: (10,060) My quarterly value level is 7,812 with a daily pivot at 10,129, and weekly and
annual pivots at 10,358 and 10,379, and monthly, semiannual and annual risky levels at 10,439,
10,558 and 11,235. My annual risky level at 11,235 was tested at the April 26th high of 11,258.01.
Note that the Dow is below 21-day, 50-day and 200-day simple moving averages at 10,427, 10,292
and 10,455.

Courtesy of Thomson / Reuters

New-Homes Sales Fall 12.4% to Record Low in July - Sales of newly built, single-family homes
declined 12.4% in July to a seasonally adjusted annual rate of 276,000 units. This was the lowest
sales rate for new homes on record going back to 1963. Earlier in the week Existing Home Sales
showed a record plunge of 27.2% in July to its lowest pace in fifteen years, an annual pace of just
3.83 million units.
Here's the Catch-22 - Mortgage Rates are extremely low but the spread versus US Treasury 10-Year
has widened from 115 basis points on March 31st, when the Fed stopped buying Fannie and Freddie
mortgage securities to 190 with the 10-Year at 2.50%. Can you imagine the power of the housing
market to recover with a 3.65% mortgage rate instead of 4.40? Then there's the fact that banks
are requiring 20% to 30% down payment to finance a home. Cash-trapped Americans cannot afford
that down payment, as they worry about keeping their job. And, you can't have an economic recovery
without a housing recovery first.
What to do about Fannie and Freddie? Back in May 2008 I suggested liquidation on Fox Business,
and relying on Ginnie Mae. Expanding Ginnie Mae may not even be on the table with Fannie /
Freddie reform. Privatizing mortgage creation will likely widen the mortgage spread to 4% above the
US Treasury, which will help take home prices down another 30%.
Mortgage applications for refinancings rose 5.7% as borrowers applied for refinanced mortgages at
the lowest rates in decades, but remember that an application is not a new mortgage.
US Thrifts were Profitable in the Second Quarter - The federal Office of Thrift Supervision reports
that savings and loans had total net income of $1.49 billion in the second quarter of 2010, the fourth
consecutive profitable quarter in a row. However of the 750 S&L’s 54 have problem exposures up
from 50 sequentially. This is a thumbnail sketch of what the FDIC Quarterly Banking Profile will
show when it’s released soon.
That’s today’s Four in Four. Have a great day.

Richard Suttmeier
Chief Market Strategist
ValuEngine.com
(800) 381-5576

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