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August 4, 2011 <a href=ATTENTION Investors and Finance Professionals: If you are reading this you should sign up for ValuEngine's award-winning stock valuation and forecast service NO OBLIGATION, 14 Day FREE TRIAL! CLICK HERE Valuation Update Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews The ValuEngine Valuation Model tracks more than 5500 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries. We track valuation figures and use them as a metric for making calls about the overall state of the market. Whenever we see levels in overvaluation levels in excess of @ 60% for the overall universe and 27.5% for the overvalued by 20% or more categories, we issue a valuation watch. When overvaluation exceeds 65%, we issue a valuation warning. This is a time for investors to keep a close eye and the market and to consider booking some profits and perhaps hedging against a move to the downside. We began our last Valuation Watch on April 28th with the SP 500 at 1355 and the overvaluation figures almost hitting 62%. Significantly, our Chief Market Strategist Richard Suttmeier, using both the fundamentally-based Valuation Model calculations as well as his own read of the technicals, called for a 1000 point decline in the Dow during his May media appearances. " id="pdf-obj-0-3" src="pdf-obj-0-3.jpg">
August 4, 2011 <a href=ATTENTION Investors and Finance Professionals: If you are reading this you should sign up for ValuEngine's award-winning stock valuation and forecast service NO OBLIGATION, 14 Day FREE TRIAL! CLICK HERE Valuation Update Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews The ValuEngine Valuation Model tracks more than 5500 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries. We track valuation figures and use them as a metric for making calls about the overall state of the market. Whenever we see levels in overvaluation levels in excess of @ 60% for the overall universe and 27.5% for the overvalued by 20% or more categories, we issue a valuation watch. When overvaluation exceeds 65%, we issue a valuation warning. This is a time for investors to keep a close eye and the market and to consider booking some profits and perhaps hedging against a move to the downside. We began our last Valuation Watch on April 28th with the SP 500 at 1355 and the overvaluation figures almost hitting 62%. Significantly, our Chief Market Strategist Richard Suttmeier, using both the fundamentally-based Valuation Model calculations as well as his own read of the technicals, called for a 1000 point decline in the Dow during his May media appearances. " id="pdf-obj-0-5" src="pdf-obj-0-5.jpg">

August 4, 2011

Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews

The ValuEngine Valuation Model tracks more than 5500 US equities, ADRs, and foreign stock which trade on US exchanges. The model calculates a level of mispricing or valuation percentage for each equity based on what the stock should be worth if the market were totally rational and efficient--an academic exercise to be sure, but one which allows for useful comparisons between equities, sectors, and industries.

We track valuation figures and use them as a metric for making calls about the overall state of the market. Whenever we see levels in overvaluation levels in excess

of @ 60% for the overall universe and 27.5% for the overvalued by 20% or more categories, we issue a valuation watch. When overvaluation exceeds 65%, we issue a valuation warning. This is a time for investors to keep a close eye and the market and to consider booking some profits and perhaps hedging against a move to the downside.

We began our last Valuation Watch on April 28th with the SP 500 at 1355 and the overvaluation figures almost hitting 62%. Significantly, our Chief Market Strategist Richard Suttmeier, using both the fundamentally-based Valuation Model calculations as well as his own read of the technicals, called for a 1000 point decline in the Dow during his May media appearances.

Shortly thereafter, the market declined significantly into June, recovered a bit, then took off on the

Shortly thereafter, the market declined significantly into June, recovered a bit, then took off on the latest plunge. So, where are we at now? Consider the tables below. Here you can see that the Market and Sector valuations have pretty much reversed themselves.

MARKET VALUATION

04/28/11

08/04/11

Stocks Undervalued

38.25%

69.89%

Stocks Overvalued

61.75%

30.11%

Stocks Undervalued by 20%

16.36%

31.81%

Stocks Overvalued by 20%

30.28%

9.97%

sp500

1355.66

1260.34

SECTOR VALUATION

04/28/11

08/04/11

Aerospace

8.67% overvalued

7.62% undervalued

Auto-Tires-Trucks

9.34% overvalued

13.13% undervalued

Basic Materials

10.35% overvalued

9.84% undervalued

Business Services

9.75% overvalued

8.03% undervalued

Computer and Technology

9.95% overvalued

11.35% undervalued

Construction

5.34% overvalued

8.82% undervalued

Consumer Discretionary

6.96% overvalued

11.13% undervalued

Consumer Staples

10.28% overvalued

4.93% undervalued

Finance

7.64% overvalued

9.15% undervalued

Industrial Products

10.11% overvalued

12.04% undervalued

Medical

5.14% overvalued

12.85% undervalued

Multi-Sector Conglomerates

16.31% overvalued

8.11% undervalued

Oils-Energy

20.39% overvalued

6.87% undervalued

Retail-Wholesale

8.22% overvalued

6.69% undervalued

Transportation

13.49% overvalued

4.12% undervalued

Utilities

12.61% overvalued

0.32% overvalued

sp500

1355.66

1260.34

Our watches and warnings let us know that the model thinks things are overheated, but they cannot tell us when a correction will occur, nor can they tell us its duration and depth. At today's levels, we are now flirting with a drop of 10% from the May 2nd highs. In this case, we got a warning back in May that has indeed presaged a "correction" some two months later.

In the past, we have found that in some cases the market heads for a long dive, in others we see just a momentary drop before the market resumes an upward climb. We simply do not possess the long-term historical data necessary to complete a better study of the metric.

And of course, the calls are more robust to the upside since the overvalued condition seems

And of course, the calls are more robust to the upside since the overvalued condition seems to persist for only a short while. Once we rely on the undervaluation figures, the calls become more problematic since we have seen sustained undervaluation readings of 70%, 80%, and even 90% on occasion. In late 2008 and early 2009, we saw overall universe undervalution readings in excess of 90% that lasted for months before the market began to rally in March 2009 after the "satanic" low of 666 for the S&P 500.

We will continue to watch and track our valuation metrics so that we may add to our dataset.

MARKET OVERVIEW

Summary of VE Stock Universe

Stocks Undervalued

69.89%

Stocks Overvalued

30.11%

Stocks Undervalued by 20%

31.81%

Stocks Overvalued by 20%

9.97%

SECTOR OVERVIEW

Sector

Change

MTD

YTD

Valuation

Last 12-

P/E

MReturn

Ratio

Aerospace

-0.09%

-1.68%

15.00%

7.62% undervalued

19.10%

22.16

Auto-Tires-Trucks

0.51%

-4.65%

-16.86%

13.13% undervalued

28.28%

17.57

Basic Materials

-0.31%

-2.12%

-8.31%

9.84% undervalued

48.79%

25.96

Business Services

-0.15%

-2.33%

0.63%

8.03% undervalued

14.59%

24.25

Computer and Technology

0.52%

-1.83%

1.22%

11.35% undervalued

22.05%

41.26

Construction

-0.77%

-3.82%

-16.41%

8.82% undervalued

-4.97%

42.81

Consumer Discretionary

0.47%

-2.35%

-1.90%

11.13% undervalued

17.93%

33.19

Consumer Staples

0.25%

-2.06%

-6.86%

4.93% undervalued

12.06%

18.39

Finance

0.21%

-1.78%

-1.07%

9.15% undervalued

7.01%

25.09

Industrial Products

0.45%

-2.59%

-3.82%

12.04% undervalued

21.78%

20.86

Medical

0.13%

-2.25%

3.82%

12.85% undervalued

15.06%

31.19

Multi-Sector Conglomerates

-0.26%

-2.73%

-5.02%

8.11% undervalued

20.98%

23.52

Oils-Energy

-1.33%

-3.68%

-4.79%

6.87% undervalued

35.00%

49.77

Retail-Wholesale

1.15%

-1.56%

4.68%

6.69% undervalued

26.60%

25.79

Transportation

-0.14%

-3.54%

-12.67%

4.12% undervalued

15.86%

18.48

Utilities

0.60%

-0.88%

1.33%

0.32% overvalued

15.08%

26.46

And of course, the calls are more robust to the upside since the overvalued condition seems