Stocks Are Up but Remain a Risky Asset Class in 2013

NEW YORK (TheStreet) -- The new year is off to a solid start for U.S. equities, and while this strength can continue near term, I stand by the theme I wrote on Jan 2, in The Stock Market Is a Risky Asset Class in 2013.

Next week is an important week for earnings, as 13 money center and regional banks with buy ratings report their quarterly results. I profiled them on Thursday, Jan. 10 in Buy-Rated Big-Bank Stocks to Trade Pre-Earnings. Positive results from the banking system should prolong the near term stock market rally. Otherwise, next week's closes could be disappointing as pivots from my proprietary analytics act as magnets pulling stocks back down.

As I have been reporting recently, the fundamentals for the stock market are not cheap. At www.ValuEngine.com we show that only 42.7% of all stocks are undervalued with 57.3% overvalued. In addition, all 16 sectors are overvalued with eight overvalued by double-digit percentages; consumer staples by 24.3%, construction by 20.3%, transportation by 20.0%, industrial products by 17.2%, finance by 13.4%, medical by 12.4%, computer and technology by 12.3% and retail-wholesale by 11.9%.

Here are the pivots that have been magnets already in January:

The Yield on the 10-Year Treasury Note (1.894%): The rise in yield so far in January has held my annual value level at 1.981%. The 1.981% yield should be a magnet for all of 2013 keeping the low yield environment in tact. My annual and semiannual value levels are 2.476% and 3.063% with my semiannual risky level at 1.413%.

Comex Gold ($1,673.50): My annual value level is $1,599.90 with a monthly pivot at $1,673.80 and semiannual, quarterly and annual risky levels at $1,719.20, $1,802.90 and $1,852.10. I expected the monthly pivot to be a magnet in January and it was tested on Thursday, but don't expect a re-inflation of the gold bubble.

Nymex Crude Oil ($93.89): My monthly value level lags at $74.23 with a quarterly risky level at $95.84 and annual risky levels at $115.23 and $115.42. While oil should trade up to my quarterly risky level, do not look for a re-inflation of the oil bubble either.

The Euro vs. the Dollar (1.3253): My semiannual value level is 1.2797 with an annual pivot at 1.3257 and quarterly risky level at 1.3346. My annual pivot was tested on strength Thursday and the euro is slightly above this level this morning. The supports a trading range environment I have predicted for 2013.

My main theme for 2013 is that the stock market is a risky asset class in 2013. The major averages ended 2012 below some key levels for 2013 and they soon became pivots after stocks began the year to the upside.

However these levels are now magnets for the remainder of their time horizons and have an 85% chance of being tested again during these timeframes.
  • My quarterly pivot is 1431.1 on the S&P 500
  • My quarterly pivot is 3071 on Nasdaq
  • My annual pivot is 5469 on Dow Transports, which was tested on weakness on Tuesday.
  • My annual pivot is 860.25 on the Russell 2000.
  • The near-term upside on holding these pivots is my quarterly risky level at 13,668 on the Dow Industrial Average.

    The Dow Industrial Average (13,471): Monthly, and annual value levels are 12,818, 12,696 and 12,509 with quarterly and semiannual risky levels at 13,668, 14,118 and 14,323. The QE3 high is 13,661.87 set on Oct. 5 with the October 2007 high at 14,198.10. Note that the all-time closing high is 14,164.53 set on Oct. 9, 2007.

    The S&P 500 (1472.1): Annual and monthly value levels are 1400.7, 1397.6 and 1348.3 with a quarterly pivot at 1431.1 and quarterly and semiannual risky levels at 1510.0 and 1566.9. The QE3 high is 1474.51 on Sept. 14 with the October 2007 high at 1576.09.

    The Nasdaq (3122): Monthly and annual value levels are 2934, 2806 and 2790 with a quarterly pivot at 3071 and quarterly and semiannual risky levels at 3274 and 3583.

    The Nasdaq 100 (2744): Monthly and annual value levels are 2610, 2463 and 2385 with quarterly and semiannual risky levels at 2798, 2920 and 3196.

    The Dow Transportation Average (5470): Quarterly and monthly value levels are 5094 and 5012 with an annual pivot at 5469 and quarterly, annual and semiannual risky levels at 5634, 5925 and 5955. The all-time high at 5627.85 was set on July 7, 2011. The all-time closing high is 5618.25 set on July 7, 2011.

    The Russell 2000 (881.24): This index set a new all-time high at 883.19 on Thursday. Quarterly, monthly and annual value levels are 821.01, 813.37 and 809.54 with an annual pivot at 860.25 and quarterly and semiannual risky levels at 913.92 and 965.51.

    The PHLX Semiconductor Sector Index ( SOXX) (400.73): Quarterly, monthly and annual value levels are 371.62, 347.83 and 338.03 with quarterly and semiannual risky levels at 440.36 and 520.17. Semiannual and annual value levels are 325.99 and 274.16.

    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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