Bank Failure Friday Shutters Seven

Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com. ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine covers over 5,000 stocks every day. A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks, and commentary can be found HERE. Suttmeier's Four in Four video can be watched on the web HERE.

October 26, 2009 – Bank Failure Friday Shutters Seven Bank Failure Friday shutters another seven. I review the stock market negative divergences for Transports, small caps and semiconductors. The NASDAQ weakens as well. Higher copper and crude oil should be a Fed concern. Bank Failure Friday Shutters Seven, as the total for 2009 rises to 106 bank failures: The total for “The Great Credit Crunch” reaches 131 on the way to 500 to 800 by the end of 2012. All seven of Friday’s closures were private banks and thus not on the ValuEngine List of Problem Banks, which contains 760 publicly traded banks. There are more than 3,000 banks with the characteristics of the risks I see: Overexposures to C&D and / or CRE loans, as the US Treasury, Federal Reserve and FDIC ignore their own joint regulatory guidelines set in December 2006. All seven of Friday’s bank failures were well above the loan to risk-based capital ratios of 100% for C&D loans and 300% for CRE loans. Two of the banks had C&D ratios of 1378% and 1858% for C&D loans, and the FDIC saw that coming in periodic reviews. Two banks had CRE ratios of 2561% and 2670%. The FDIC says that the banking industry funds their own failures, but at the expense of other members, which puts a squeeze on lending. The FDIC says that they will not likely have to tap their $500 billion line of credit with the US Treasury. I say that’s just wishful thinking. The trouble in the banking system is getting worse, not better and the FDIC is actually slow to close banks that are in as poor shape as those already closed. Time will not heal banks with extreme overexposures to C&D and CRE loans. The FDIC List of Problem Banks will continue to rise from the current non-listed 416, and bad loans are rising. The FDIC Quarterly Banking Profile for Q3 will be available around Thanksgiving. By my calculations the Deposit Insurance Fund is in arrears by $5.4 billion. Transports, small caps and SOX are leadership indices. The problem now is to the downside.

The daily chart for Dow Transports shows a double top, which was a failed test of my zone of annual resistances at 4037 and 4199. Transports closed below 21-day and 50-day simple moving averages at 3877 and 3832 with monthly support at 3615. The daily chart for the Russell 2000 shows a double top. Friday’s close was between the 21day and 50-day simple moving averages at 607.27 and 594.44 with monthly support at 589.03. The daily chart for the SOX shows a double top. Friday’s close was below the 21-day simple moving average at 322.64 and on the cusp of the 50-day at 315.73. The Sox is rolling over despite great earnings from Intel and Texas Instruments. Where would the NASDAQ be without Apple, Google, Amazon and Microsoft? The daily chart for the NASDAQ shows declining MOJO with a reading of 7.8 with the NASDAQ above its 21-day and 50-day simple moving averages at 2129 and 2080. Breakouts in Copper and Crude Oil should be a Fed worry about commodity speculation. Comex Copper is above its 200-week simple moving average at 293.16. Weekly support is 273.98 with monthly resistance at 321.34. Nymex Crude Oil is above its 200-week simple moving average at $75.29. Weekly support is $72.71 with monthly and quarterly resistances at $82.98 and $83.16. Send me your comments and questions to [email protected]. For more information on our products and services visit www.ValuEngine.com That’s today’s Four in Four. Have a great day.

Richard Suttmeier Chief Market Strategist 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 ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample issues of my research.

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