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.

Fannie Mae ( FNM) is the cheapest buy-rated financial stock, but it has been facing accounting issues and regulatory scrutiny. Shares are 34.2% undervalued with fair value at $73.03. The weekly chart profile is positive, with the five-week MMA at $47.55 after setting a 52-week low at $41.34 on Sept. 28. My monthly value level is $46.72, and a weekly close above my monthly pivot at $49.31 indicates potential strength to my semiannual risky levels at $52.63 and $56.82. Shares were recently trading at $48.04.

Although these two stocks are undervalued, the financial services sector is 5.5% overvalued, so investors could hedge these positions with the Financial Sector SPDR ( XLF), which has a positive weekly chart profile with the five-week MMA at $30.79. A short of the ETF can be considered at my quarterly risky level of $32.81. The risky levels are just above the 52-week high at $32.60 set on Nov 18. Shares were recently trading at $32.15, and my monthly value level is at $29.61.
Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of TheStreet.com Technology Report newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury bond trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback -- click here to send him an email.