Sandy Forces QE Fatigue in Remission

NEW YORK ( TheStreet) -- The stock market rallied on Thursday as economic data came in better than expected.

Initial jobless claims was below expectations at 363,000, but remember that claims need to trend below 350,000 to take the labor market out of recessionary territory.

The Institute for Supply Management manufacturing came in at a modest 51.7 in October, a slight expansion.

The Conference Board's reading for consumer confidence was 72.2 in October, the highest reading since February 2008. While the trend is positive keep in mind that readings between 90 and 110 are neutral. The current reading thus tells us that consumers are less pessimistic.

Construction spending rose 0.6% in September to the highest level since October 2009, but this pace is well below what a healthy construction sector should be. Stocks in this sector have become extremely speculative and at www.ValuEngine.com we show that the construction sector is 19.5% overvalued. Other sectors that are overvalued by double-digit percentages are: retail-wholesale by 12.8%; finance by 11.9%; consumer staples by 11.7%; medical by 11.3%; and utilities by 10.7%.

Friday morning look for nonfarm payrolls to rise 125,000, but the unemployment rate is more important in front of next Tuesday's presidential election. Will the rate be above, below or on 8.0%? Under helps President Obama. Higher should help Gov. Romney.

This week's earnings reports have continued the trend where most companies miss on the revenue line.

In sum, the overall economic picture, equity fundamentals, the weekly chart patterns, and the location of my risky levels, do not justify significantly higher stock prices. Here are the technicals for the U.S. capital markets.

Analysis of the Yield on the 10-Year Treasury Note (1.719%): The weekly chart is neutral with flat momentum and the five-week modified moving average at 1.713%. My quarterly and annual value levels 2.109% and 2.502% with my semiannual pivot at 1.853% and monthly and semiannual risky levels at 1.452% and 1.389%. The trading range should continue between 1.853% and 1.452%.

Analysis of Comex Gold ($1,714.80): The weekly chart for gold will be downgraded to negative on a close Friday below the five-week MMA at $1,727.40, as momentum falls out of overbought territory. My semiannual, monthly and annual value levels are $1,643.30, $1,639.80 and $1,575.80 with my semiannual pivot at $1702.5, and quarterly risky levels at $1,844.90 and $1,881.40.

Analysis of Nymex Crude Oil ($86.12): The weekly chart for crude oil stays negative on a close Friday below the five-week MMA at $90.94. The 200-week simple moving average is a major support at $82.64 with my new monthly value level at $76.96. My annual and quarterly risky levels are $103.58 and $107.31, so there's room for significant volatility. The 200-week SMA has been a magnet since mid-2009.

Analysis of the euro vs the dollar (1.2940): The weekly chart shifts to negative with a close Friday below the five-week MMA at 1.2876. My new monthly value level lags at 1.2289 with semiannual and quarterly pivots at 1.2917 and 1.3048. A stronger dollar should put pressure on U.S. stocks.

Analysis of the Dow Industrial Average (13,233): The weekly chart stays negative with a close Friday below the five-week MMA at 13,308. My annual value level lags at 12,312 with my new monthly pivot at 13,143 and annual and quarterly risky levels at 14,032 and 14,192. The QE3 high is 13,661.87 was set on Oct. 5, and the October 2007 high is 14,198.10. Note that the risky levels are below the 2007 high.

Analysis of the Dow Transportation Average (5167): The weekly chart for the Dow Transports shifts to positive on a close Friday above the five-week MMA at 5051 as "QE Fatigue" goes into remission. My new monthly pivot is 5053 with the Sept. 14 QE3 high at 5231.15. The all-time high at 5627.85 was set on July 7, 2011.

Analysis of the S&P 500 (1427.6) -- The weekly chart stays negative with a close Friday below the five-week MMA at 1428.6. My annual value level is 1363.2 with a new monthly pivot at 1418.7, and quarterly and annual risky levels at 1513.3 and 1562.9. The Sept. 14 QE3 high is 1474.51 with the Oct 2007 high at 1576.09. Note that the risky levels are below the 2007 high.

Analysis of the Nasdaq (3020) -- The weekly chart stays negative on a close Friday below the five-week MMA at 305. The November 2007 high is 2861.51 with my annual value level at 2698, a new monthly pivot at 3028, and annual and quarterly risky levels at 3210, 3232 and 3295. The Sept. 21 QE3 high is 3196.93.

Analysis of the Russell 2000 (827.84): The weekly chart shifts from negative to neutral with a close Friday above the five-week MMA at 825.74. My new monthly pivot is 807.15 with my annual pivot at 836.15. The Sept. 14 QE3 high is 868.50 with the all time high at 868.57 set on May 2, 2011.

Analysis of the Semiconductor Index or SOX (379.50): The weekly chart shifts from negative to neutral on a close Friday above the five-week MMA at 379.03. The 200-week simple moving average is 356.80 with my new monthly value level at 354.06 and the Sept. 14 high at 410.82.

Some sector ETFs could shift from negative to neutral at Friday's closes as "QE Fatigue" goes into remission:

  • Materials Select Sector SPDR ( XLB) ($36.73) shifts from negative to neutral on a close Friday above the five-week modified moving average (MMA) at $36.63.
  • Industrial Select Sector SPDR ( XLI) ($37.14) shifts from negative to neutral on a close Friday above the five-week MMA at $36.74.
  • Consumer Discretionary Sector SPDR ( XLY) ($46.60) shifts from negative to neutral on a close Friday above the five-week MMA at $46.40.
  • Consumer Staples Sector SPDR ( XLP) ($35.41) stays negative on a close Friday below the five-week MMA at $35.65.
  • Energy Select Sector SPDR ( XLE) ($71.87) stays negative on a close Friday below the five-week MMA at $72.72.
  • Technology Select Sector SPDR ( XLK) ($29.34) stays negative on a close Friday below the five-week MMA at $29.89.

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
    Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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