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

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March 30, 2011 – Home Prices Continue to Decline – How Low Can They Go?
The S&P Case Shiller Home Price Index shows continued declines in home values. Keep an
eye on Dow Transports and Dow Industrials as additional strength puts the focus on another
Dow Theory Buy Signal. Stocks remain overvalued according to ValuEngine so stock strength
is not supported by fundamentals.
The S&P Case Shiller Home Price Index – I focus on the 20-City Composite which declined 3.1%
year over year to just 1.1% above the April 2009 low. From the Mid-2006 high this index declined
31.8%. The Index began in the year 2000 at 100 and now reads 140.86. My prediction since the end
of the home buyer tax credits is that home prices as measured by the S&P Case Shiller Home Price
Index will decline back to 100 to clear out the existing home inventory and inventory still to come from
additional foreclosures, short sales and sales of Other Real Estate Owned by Fannie Mae and Freddie
Mac and the FDIC-insured financial institutions. This would be a decline of 29% from current home
values. On the FDIC Quarterly Banking Profile for the 4th quarter of 2010 OREO totals $52.8 billion.
Tracking Dow Theory - The Dow Transports is within striking distance of a potential close above its
February 17th closing high at 5298.10. If that happens and is followed by the Dow Industrial Average
closing above its February 18th closing high at 12,391.25, we will have a Dow Theory Buy Signal. The
Dow Industrials and Dow Transports are only 0.9% below their February 18th and February 17th highs
with the other major averages further below their February highs; S&P 500 by 1.8%, NASDAQ by
2.9%, NASDAQ 100 3.3%, Russell 2000 by 1.0% and the SOX by 7.0%.
The Trading Range Scenario - It appears that the Dow Industrial Average, which did not turn
negative on its weekly chart, will stay in a trading range between its March 16th low at 11,555.48 and
its February 18th high at 12,391.29. Strength can stretch to this week’s risky level at 12,488, which
would still be a high below 12,600. Given weakness a close below the five-week modified moving
average at 12,038 this week and rising shifts the weekly chart profile to negative, which would target
my annual risky level at 11,491. New monthly and quarterly levels will be available Friday.
Stocks Remain Overvalued Fundamentally – We are not operating under a ValuEngine Valuation
Warning, but 60.8% of all stocks are overvalued. In addition all 16 sectors are overvalued with 5 by
double-digit percentages.
10-Year Note – (3.493) The short term rise in yields moved above its 50-day simple moving average
at 3.463. This yield was as low as 3.139 on March 16th. Rising yields is a drag on equity
valuations. The weekly chart shows an important support at the 200-week simple moving average at
3.554. Today’s value level is 3.548.

Courtesy of Thomson / Reuters

Comex Gold – ($1417.7) Gold has been fading since reaching its new all time high at $1448.6 on
March 24th. The 50-day simple moving average is $1387.0 with daily, semiannual and weekly risky
levels at $1444.2, $1452.6 and $1469.8.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($104.78) The daily chart shows a potential double-top just shy of my semiannual
risky level at $107.14. My annual pivots are $101.92 and $99.91. My weekly pivot is $105.31. Today’s
risky level is $106.99. A close below $99.91 signals a double-top for crude oil.

Courtesy of Thomson / Reuters

The Euro – (1.4105) The weekly chart shows the euro overbought versus the dollar with the 200-week
simple moving average as support at 1.3967. The 50-day is 1.3798 with a weekly pivot at 1.4119 and
the November 4th high as resistance at 1.4281. Today’s risky level is 1.4257.

Courtesy of Thomson / Reuters

Daily Dow: (12,279) My annual value level lags at 11,491 with the February 18th closing high at
12,391.25 and daily and weekly risky levels at 12,480 and 12,488. Given a Dow Theory Buy Signal
and a new high for the laggard SOX, the upside is to my annual risky level at 13,890. Without a Dow
Theory Buy and given a weekly close below 11,491 the downside is to semiannual value levels at
10,959 and 9,449. The Dow is the only major average to hit a new high since its March 16th low at
11,555.48. After all the positive hype in March the Dow is up only 53 points month to date.

Courtesy of Thomson / Reuters

Key Levels for the Other Major Equity Averages
• The S&P 500 (1319.4) My annual value level is 1210.7 with the 50-day simple moving average
at 1306.58 and daily and weekly risky levels at 1335.5 and 1353.7. The S&P 500 needs to
close Thursday above 1327.2 to achieve a positive March.
• The NASDAQ (2757) The 50-day simple moving average is 2743 with daily and weekly risky
levels at 2795 and 2830. The NASDAQ needs to close Thursday above 2782 to achieve a
positive March.
• The NASDAQ 100 (NDX) (2326) The 50-day simple moving average is 2318 with daily and
weekly risky levels at 2351 and 2389. The NDX needs to close Thursday above 2351 to
achieve a positive March.
• Dow Transports (5261) My annual pivot is 5179 with weekly and daily risky levels at 5295 and
5324, and the February 17th closing high at 5298.10. The Dow Transportation Average is the
first major average to become overbought since its March 15th low at 4906.63.
• The Russell 2000 (829.49) My annual value level is 784.16 with daily and weekly risky levels at
847.65 and 857.75. The Russell 2000 is positive for March above 823.45.
• The Philadelphia Semiconductor Index (SOX) (441.04) I show no nearby value levels with
the five-week modified moving average at 439.10 and the 50-day simple moving average at
445.66, and daily and weekly risky levels at 446.10 and 459.29. Semiconductors need to
provide leadership, but are lagging. The SOX needs to close Thursday above 458.62 to
achieve a positive March.
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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