Positive Technicals Vs. Weaker Fundamentals

NEW YORK (TheStreet) -- The technical factors I analyze on the weekly charts for U.S. Treasury yields, Comex gold, Nymex crude oil, the euro vs. the dollar, and the major equity averages assume that the Federal Open Market Committee will institute a third round of quantitative easing, or QE3, on Sept. 12, and that the move will jumpstart the economy.

This could be difficult with the weakening fundamentals.

Technically, it appears that the negative divergence for the Dow Jones Transports will end this week, but we still need a breakout for the euro vs. the dollar.

Transports will shift to positive on a close today above its five-week modified moving average at 5108. The weekly chart for the euro vs. the dollar needs a weekly close above its five-week modified moving average at 1.2395 to shift to positive, which correlates to the positive technical momentum in the other markets.

But the fundamentals are a different story, as the percentage of undervalued stocks fell to 58%, according to ValuEngine.com.

We now consider 10 of 16 sectors overvalued, led by medical (18.7%), utilities (15.3%), computers and technology (12.7%) and consumer staples (10.4%). The cheapest sector is basic materials, which is undervalued by 9.3%.

Analysis of the Yield on the 10-Year Treasury Note (1.838) -- I have been warning about the rise in the yield of the U.S. Treasury 10-Year note since it set its all time low at 1.377% on July 25.

When that yield was tested, I viewed it as a test of my semiannual risky level at 1.389% and recommended that investors in Treasuries book profits.

My prediction called for the 10-Year yield to rise to my semiannual and quarterly value levels at 1.853 and 1.869%, respectively, and this range was tested on Thursday.

Source: Thomson Reuters

The weekly chart for the 10-Year yield shows rising momentum, which favors higher yields. My annual value level is 2.502 with the five-week modified moving average at 1.644%. Note that the longer-term trend is toward lower yields with the 200-week simple moving average at 2.867%. This trend was tested when yields rose in 2010 and 2011, so why not again in 2012?

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