Richard Suttmeier

Higher Yields Produce Cheap Financials

 

Yields begin December cheaper than the five-day, five-week and five-month modified moving averages on all the maturities, which is a clear sign that the risk is toward higher yields into year-end.

Yields currently straddle key longer-term levels on the five-year through 30-year, and to begin a renewed trend toward higher yields the five-year needs a weekly close cheaper than 4.532% and the 10-year needs a weekly close cheaper than 4.577%.

The 30-year bond stands above its 50-day simple moving average (SMA) at 4.669, which is well above the 200-day SMA at 4.550. Both moving averages are rising in yield, and this configuration favors higher yields. The yield on the 30-year moved above the 200-day SMA at the end of September after being below it since August 2004, and it continues to rise in yield almost daily. The monthly chart profile for 30-year yields favors higher yields, with a close in December cheaper than the five-month modified moving average at 4.598.

Will the coupon curve invert?

The yields on the two-year, three-year and five-year are essentially the same. I will thus focus on the spread between the 10-year and the five-year as the next key slice of the curve. The 10-year minus five-year spread ended November at +7.5 basis points. I show monthly and quarterly supports at +1.8/+0.7, suggesting that this spread will not invert in December. If there is a weekly close wider than the five-week modified moving average at 11.0, that would be my clue to look for a bearish steepening, with the 10-year yield rising faster than the five-year yield.

Two Undervalued Financial Stocks

Fifth Third Bank(FITB) is the best-screened banking stock. Shares are rated a buy and are 29.7% undervalued, with fair value at $57.24. The weekly chart profile is positive with the five-week MMA at $39.95. My monthly and quarterly value levels are $39.08 and $38.33. A weekly close above my quarterly pivot at $40.63 would put the targets on my semiannual risky level at $48.05. The risky level is below fair value, but that underscores the steep undervaluation of the stock. Shares were recently trading at $40.30.

TheStreet Premium Services

Jim Cramer
Jim Cramer's Action Alerts PLUS:
Trade right alongside a Wall Street pro — enjoy access to his Charitable Trust portfolio and be sent trade alerts BEFORE he makes a move. Learn More
OptionsProfits
OptionsProfits:
Get 50+ trade ideas a week from the industry's top options experts. Plus — exclusive commentary on market trends and essential trading tools. Learn More
Real Money
Real Money:
Our team of professional Wall Street Pros — including Jim Cramer, Doug Kass, and Nicholas Vardy — delivers intelligent analysis, timely trade ideas, and colorful commentary. Learn More
Stocks Under $10
Stocks Under $10:
Break into the market with small- and mid-cap stocks... all $10 or less! David Peltier tells you exactly which low-priced stocks he's buying and selling. Learn More
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
blog comments powered by Disqus
Dow Jones S&P 500 NASDAQ 10-Year Note
12,393.45 1,310.33 2,827.34 15.81
Oil *
101.78
DOWN
26.41
DOWN
2.99
DOWN
10.02
DOWN
0.44
10 Yr
1.58%
SPDR Gold
151.62
-0.21%
-0.23%
-0.35%
-2.71%
Data delayed 20 minutes

Top Stories and Tools

Articles From

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

We respect your privacy.
Podcasts

Connect with TheStreet