Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Princeton, NJ. ValuEngine

covers over 5,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found HERE.

April 16, 2010 – The Housing Market Remains in the Dumps

Builder Confidence Remains extremely low, which does not jive with the 52-week high for HGX.
Defaults are increasing in the Loan Modification Programs. Foreclosures Surged in the first
quarter as banks increase OREO. ValuEngine Valuations – Justify shifting to 75% cash once
again. At 1225 to 1232 its time to short the S&P 500!
The National Association of Home Builder Housing Market Index (HMI) may have improved to 19
from 15 in April, but considering that 50 is a “neutral” reading, the overall builder confidence remains in
the dumps. There may have been some last minute orders for new homes, but the tax credits expire for
contracts at the end of April. The NAHB described the four point gain as a surge, but I view that
comment as pure cheerleading.
Homebuilders remain in a bind from tighter lending standards as C&D loans are next to impossible to
get, and as lower home appraisals from foreclosures and short sales cut into the demand for new
homes.
With initial jobless claims up the past two weeks to 484,000 the labor market remains a concern for the
housing sector. Continuing claims are rising again as is the four-week moving average.
The Housing Sector Index (HGX) reached a new 52-week high with weekly MOJO in overbought
reading. In my judgment HGX is anticipating that the HMI should be above 80. My weekly pivot for HGX
is $115.99 with monthly resistance at $122.16.

Chart Courtesy of Thomson / Reuters

Defaults are rising in the Loan Modification Program - Not helping the housing market or the
banking system is the fact that defaults on modified mortgages doubled in March to 2,879 from 1,499 in
February.
There are approximately seven million homeowners behind on their mortgage payments. The
modification programs were intended to help four million stay in their home, but the results have been
dismal. Only 227,922 permanent modifications have occurred, and in my opinion re-defaults will occur.
According to the latest Mortgage Metrics Report complied by the Office of Thrift Supervision and the
comptroller of the currency, 60% of mortgage modifications negotiated by homeowners with their
servicing bank entered default a year later.
In addition, many homeowners are saddled with HOA fees, home equity loans, credit card debt, which
must be covered by generally lower incomes.
Foreclosures Surged in the first quarter as banks increase OREO - Home foreclosures spiked 16%
in the first quarter, the largest jump in five years. In my discussions on foreclosures I have been worried
about the growth of OREO, Other Real Estate Owned, which will deteriorate further when the FDIC
Quarterly Banking Profile for the first quarter is released in the later half of May. Realty Trac reported
that the number of homes taken over by banks spiked 35% in the first quarter. This could result in more
than a million bank repossessions in 2010. This is indeed the first real sign that banks are catching up
with failed mortgage mitigations, and as I have been saying there remains a glut of depressed
properties.
By the numbers: 367,000 foreclosures in March is up 19% sequentially and 7.6% year over year. The
first quarter OREO was a record 258,000.
ValuEngine Valuations – Justify shifting to 75% cash once again
MOJO may be strong, but only 39% of all stocks are undervalued with 61% overvalued. Only 18.8% of
stocks are undervalued by 20% or more and 31% of stocks are overvalued by 20% or more. All eleven
sectors are overvalued by 3.2% (Health Care) to 20.5% (Consumer Durables). Sector P/E ratios range
from 16.6 times (Public Utilities) to 29 times (Technology)! There are only 20 stocks that are at least
10% undervalued and projected to gain 10% over the next twelve months that trade above $10 per
share, and none are “brand” names. This is an historic time to raise cash to 75%.
At 1225 to 1232 its time to short the S&P 500 – The weekly chart is overbought with the 200-week
simple moving average at 1225 and the 61.8% retracement level at 61.8%. This retracement is back to
the high of October 2007. It was Fibonacci Retracement levels that helped me time the low of 666 back
on March 5, 2009.

Chart Courtesy of Thomson / Reuters

That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
www.ValuEngine.com
(800) 381-5576
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I
have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as
well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the
ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample
issues of my research.

“I Hold No Positions in the Stocks I Cover.”