Break-out Or Fake-out

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 14, 2009 – Break-out or Fake-out Break-out or Fake-out from several market angles. Obviously earnings from the most important tech stock, Intel and the most important “too big to fail” bank, JP Morgan should be the catalyst for Dow 10,000 and break-outs for Comex copper and Nymex crude oil. Without a break-out there could be a fake-out on warnings found the minutes from the September 22 / 23 FOMC meeting. Intel beat earnings estimates and shares traded above my monthly risky level at $21.44. As I stated yesterday, Intel has a BUY rating according to ValuEngine with fair value at $26.81. I do not expect fair value to be challenged any time soon. ValuEngine shows risk to $19.14 over the next twelve months. The stock is below my monthly risky level at $21.44 so far today and a close below would indicate that the great earnings report was built into strength going into the earnings release. JP Morgan also beat earnings estimates and traded to $47.50 pre-market this morning. Yesterday I stated that the big banks had the camouflage paint to cover up increasing bad real estate and consumer loans. I saw nothing in the JP Morgan report with regard to their industry leading $70 trillion exposure to notional amount of derivative contracts held off balance sheet. ValuEngine rates JP Morgan a HOLD and the stock opened well above fair value at $40.84. The prior intraday high was $46.49 set on the first day of the September 22 / 23 FOMC meeting. Bonuses on Wall Street will be a record in 2009 because of the Fed gift of a near zero cost of funds. Let’s get back to banking reality. FASB should bring back mark-to-market accounting in 2010, which banks should easily handle if you believe the hype from Bank CEOs. As I said on Monday, the Congressional Oversight Panel warns that the “too big to fail” banks are bigger, small banks will continue to fail, and troubled assets are more troubled today. The year ago banking problems remain problems today. The minutes from the September 22 / 23 FOMC meeting

The Fed will recognize that growth remains constrained by ongoing job losses, sluggish income growth, and tight credit. Businesses are still cutting back as evidenced in the rise is empty office space. The Fed will indicate that policy actions in place will gradually contribute to a resumption of sustainable economic growth in a contest of price stability. The Fed will re-iterate the need to leave the federal funds rate at zero to 0.25% for an extended period. The quantitative easing in place will be allowed to sunset at the end of Q1 2010. Fed is in the midst of purchasing up to $1.25 trillion of mortgage-backed securities and $200 billion of Fannie and Freddie debt. So far the tally is $862 billion of MBS and $125 billion of agency debt. The purchase od US Treasury will total $300 billion when this program ends at the end of October. Comex copper and Nymex crude oil remain are at the cusp of 200-week simple moving averages. The 200-week simple moving average for Comex copper is 292.67. The September 28th high is 296.60. The 200-week simple moving average at $75.16 for Nymex crude oil was tested this morning. A breakout above indicates strength to monthly and quarterly resistances at $82.98 and $83.16. Otherwise, look for a fake-out back to annual pivots at $68.81 and $66.51 once again. The Dow opens at a new high for the year at 9,977.24 and within striking distance of 10,000. A fake-out would keep the Dow below weekly, daily and annual resistances at 9,967, 10,007 and 10,012. Tuesday’s low is support at 9,815. 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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