July 23, 2010

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MARKET OVERVIEW

Index started week Thursday Close 4 day change 4 day change % ytd
DJIA 10098.12 10322.3 224.18 2.22% -1.04%
NASDAQ 2185.81 2245.89 60.08 2.75% -2.11%
RUSSELL 2000 612.26 635.48 23.22 3.79% 1.17%
S&P 500 1066.85 1093.67 26.82 2.51% -2.05%

Summary of VE Stock Universe

Stocks Undervalued 68.95%
Stocks Overvalued 31.05%
Stocks Undervalued by 20% 34.50%
Stocks Overvalued by 20% 10.75%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries 2.77% 6.47% 34.57% 8.74% undervalued 32.54% 22.72
Capital Goods 2.79% 5.90% 4.06% 10.42% undervalued 24.60% 20.57
Consumer Durables 3.42% 7.13% 3.17% 17.57% undervalued 42.18% 17.16
Consumer Non-Durables 1.90% 4.98% -0.05% 10.45% undervalued 30.45% 17.24
Consumer Services 2.66% 5.57% 3.34% 14.19% undervalued 27.71% 20.55
Energy 2.79% 8.76% -5.18% 5.57% undervalued 33.00% 24.4
Finance 2.09% 3.06% 8.65% 10.47% undervalued 15.08% 17.13
Health Care 1.56% 5.83% 1.65% 20.10% undervalued 17.94% 19.82
Public Utilities 2.15% 5.18% -3.65% 8.49% undervalued 16.16% 17.45
Technology 2.61% 5.42% 5.38% 15.48% undervalued 31.09% 26.66
Transportation 2.56% 6.05% 5.23% 6.29% undervalued 29.61% 19.5
Sector Talk—Transportation
Recently, we have seen a plethora of Transportation Sector firms near the top
of our forecast figures. This may serve as a bullish signal since shipping firms are often
considered to be leading indicators of economic recovery--Dow Theory.
Below, we present various top-five lists for the Transportation Sector from our
Institutional software package (VEI). We included liquidity or share price
requirements of 100k shares/day and $2 share in our screen and we only included
results that had full data--forecast and valuation figures present.

Top-Five Transportation Sector Stocks--Short-Term Forecast Returns

Mkt Valuation Last 12-M
Ticker Name
Price (%) Retn(%)
ABFS ARKANSAS BEST CORP 21.75 -17.19 -9.83
AMR AMR CORPORATION 6.79 -44.75 59.76
LCC US AIRWAYS GROUP INC 9.85 -59.7 380.49
UAUA UAL CORPORATION 22.78 -32.45 577.98
HRZ HORIZON LINES INC 4.06 -59.84 10.33

Top-Five Transportation Sector Stocks--Long-Term Forecast Returns

Mkt Valuation Last 12-M
Ticker Name
Price (%) Retn(%)
ABFS ARKANSAS BEST CORP 21.75 -17.19 -9.83
AMR AMR CORPORATION 6.79 -44.75 59.76
UPS UNITED PARCEL SERVICE-CL B 63.15 -14.75 24.61
CHRW CH ROBINSON WORLDWIDE INC 59.4 -4.03 13.38
NSC NORFOLK SOUTHERN CORP 54.68 -19.67 28.03

Top-Five Transportation Sector Stocks--Composite Score

Mkt Valuation Last 12-M
Ticker Name
Price (%) Retn(%)
GOL GOL LINHAS AEREAS INTELIGENTES S 13.38 -25.79 80.81
CSX CSX CORPORATION 51.72 -17.88 33.57
LCC US AIRWAYS GROUP INC 9.85 -59.7 380.49
NSC NORFOLK SOUTHERN CORP 54.68 -19.67 28.03
SSW SEASPAN CORP 10.34 -42.17 70.91
Top-Five Transportation Sector Stocks--Most Overvalued
Mkt Valuation Last 12-M
Ticker Name
Price (%) Retn(%)
KSP K-SEA TRANSPORTATION PARTNERS LP 5.53 133.99 -73.38
PACR PACER INTERNATIONAL INC. 7.66 74.06 314.05
NMM NAVIOS MARITIME PARTNERS LP 17.82 52.08 85.62
TOO TEEKAY OFFSHORE PARTNERS LP 23.29 31.8 63.32
LFL LAN AIRLINES SA 23.02 31.3 86.85

VE Premium Website Stock Analysis subscribers can find complete valuation,

forecast, and ratings data on every individual equity in the Transportaion Sector HERE.
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Catching Up with TK Ng
Explorations of Beta and Market Sentiment Continued
Former ValuEngine Analyst and Quant Guru Tk Ng published the following on his new blog
Technifundamentals this week. It has been edited for presentation in our newsletter. The
complete version--along with other content of interest, can be found HERE.
 Editor's Note: The Following was published by TK Ng on July 17, 2010. The
discussion applies to market activity for the week ending July 16th, and the predictions
provided apply to the market's activity for the past week.

This week, we continue our exercise with ValuEngine and our Viscovery SOMine
Software.

NOTE: For a summary of our terms, theory, and practice, see HERE.

The basic method for using Beta calculations and visual finance to gauge
market sentiment/direction is this: a SOM of the component stocks of the S&P500 is
constructed. This SOM represents the basic topology of the market. We also create
six stock portfolios based on the Long and Short sides of the three ValuEngine
benchmark portfolio strategy screens. Remember that the VE Standard Strategy=
Valuation; VE Forecast Strategy= Growth, and VE Star Strategy= Quality.* We then
plot our initial basket against the backdrop of the S&P500 component stocks and
examine the clusters of the resultant SOM.

*NOTE: Subscribers can run their own screens for the long sides of the
benchmark portfolio strategies HERE

Prior to overlaying on the SOM, each of our ValuEngine picks is labeled with
their benchmark strategy, the sector they belong to, and whether they are Long or
Short positions. The position of a label is approximately the position of the node on the
SOM that the stock occupies. The S&P500 component stocks are not labeled and the
empty spaces represent the nodes on the SOM that they occupy.

This week, we have made some improvements to the model. The attribute
windows are now much more defined [more colorful] and we plot the transforms of
the attributes instead of the original values. Defining nominals and using interpolation,
we can now plot Short/Long as well Type [V,G,Q] on the SOM where 1= the presence
of a defined nominal and 0= absence. The difference between our indicators and
ordinary technical analysis indicators is that our technicals are based on
fundamentals viz using ValuEngine pre-screened stocks.
Here is our initial SOM:

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities.
V=Valuation, G=Growth, Q=Quality.

The L stocks are mostly in cluster S2 but a number of them are also in S3-- which
has a majority of S stocks. This 'dilutes' the strength of the signal, and we have a rather
ambivalent market outlook. Type-wise or Sector-wise there is no clear pattern. V, G
and Q stocks as well stocks from Sectors B,C,D, E,F,H,ND,S,T,TP,or U are distributed
almost randomly over the topology of the SOM.
Here are the individual Cluster stats:

The length of the bars denoting our Model variables above measures the
deviation of the cluster Mean from the Mean of the entire data set. Thus, the longer
the bars, the more those stocks in the cluster with those bars will differ from the
performance of the Index as represented by S1 bars. Here we see that the bars for
Short/Long are negative in S1 [which contains most of the S&P500 components] and
S3, and only positive in S2. Comparing the length of the bars in S2(L cluster) and S3(S
cluster), in general the S3 bars are longer. This implies that Bearish indicators as
represented in S3 have a stronger signal strength than the Bullish indicators in S2. On
balance the outlook is more Bearish than Bullish.
Here we have a break out of our long and short picks from the VE screens.

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities.
V=Valuation, G=Growth, Q=Quality.

The long picks are in red while the shorts are blue. The red area is slightly bigger
than the blue area, but the blue area is more defined-- with our short stocks bunched
in a sub-cluster-- i.e. the nodes of our short picks are closer together. On the other
hand--besides the sub-cluster of long stocks, the other longs are spread sparsely over
the red area. On a SOM this indicates a less homogenous grouping. So again, the
outlook is more Bearish than Bullish.
Here is the SOM with the top BETA figures highlighted:

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities.
V=Valuation, G=Growth, Q=Quality.

The average Beta of S2 Bullish cluster is 2.13 while the average Beta of the S3
Bearish sector is 1.71. This also shows us that the risk is greater on the Bullish side.
Let's take a look at some selected VE screening results that we find plotted in S2:
Mkt Valuation P/E
Ticker Company Name Beta Sector
Price (%) Ratio
AMKR AMKOR TECHNOLOGY INC 5.76 -41.74 6.13 2.5 TECHNOLOGY
CBT CABOT CORPORATION 26.23 -36.14 11.37 1.64 BASIC INDUSTRIES
CBI CHICAGO BRIDGE & IRON 20.33 -40.73 12.07 2.39 CAPITAL GOODS
CLF CLIFFS NATURAL RESOURCES INC 54.52 -28.73 13.22 2.65 BASIC INDUSTRIES
CONSUMER
DDS DILLARD INC 22.35 -38.33 13.71 2.61
SERVICES
CONSUMER
F FORD MOTOR CO 12.09 8.28 7.85 2.51
DURABLES
GNW GENWORTH FINANCIAL INC 15 48.48 15.85 3.38 FINANCE
CONSUMER
HAR HARMAN INTL INDS INC 31.26 -45.61 33.33 2.06
SERVICES
HIG HARTFORD FINANCIAL SERVICES GP 23.04 -11.96 5.64 3.13 FINANCE
JBL JABIL CIRCUIT INCORPORATED 15.09 -34.15 16.7 1.94 TECHNOLOGY
LSI LSI CORP 4.86 -45.2 11.42 1.71 TECHNOLOGY
MWV MEADWESTVACO CORP 23.91 -27.16 20.65 1.77 BASIC INDUSTRIES
SNDK SANDISK CORPORATION 43.1 -30.57 12.13 1.69 TECHNOLOGY
SLG SL GREEN REALTY CP 56.3 -22.78 14.31 2.63 FINANCE
CONSUMER
HOT STARWOOD HOTELS & RESORTS WORL 45.45 9.35 44.34 2.02
SERVICES
THC TENET HEALTHCARE CORPORATION 4.28 -38.92 13.38 2.08 HEALTH CARE
TXT TEXTRON INC 20.2 -14.85 54.05 2.83 CAPITAL GOODS
UIS UNISYS CORPORATION 22.29 -41.49 4.89 3.72 TECHNOLOGY
CONSUMER
WYN WYNDHAM WORLDWIDE CORP 22.07 23.91 12.64 3.27
SERVICES

The S&P was down by about 1 % last week--while we had predicted a mild
Bullish outlook. Most of the down action happened on Friday (-2.88 %), so our
prediction was not such a disaster. But, being based on fundamentals means that it's
not unusual to see selected stocks fall-- as short-term noise clouds the fundamentals--
only to rise again the week after. This is the case for one of last week's stocks- Gannet
GCI. Gannett posted decent results earning 61 cents per share--up from last year's 30
cents a share-- and beat analysts' estimates of 53 cents a share. However, despite
the beat the share price took a dive of more than 10%.
In my mind, this week's exercise perfectly illustrates the market at this point in
time--a slightly bearish outlook with more risk to longs. If you must play the market, it
may be wise to avoid picking stocks for the short term and consider something safer
and less volatile--like buying a reverse ETF of the S&P500.
--New FREE Daily Newsletter Now Available
Richard Suttmeier is ValuEngine's Chief Market Strategist.
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early 2005
3. Predicted the most recent market correction in
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Suttmeier Says
--Commentary and Analysis from Chief Market Strategist
Richard Suttmeier
If you have any comments or questions, send them to Rsuttmeier@Gmail.com

ATTENTION ValuEngine Clients: Richard Suttmeier will be the

featured speaker at the Market Technicians Association Meeting
to be held at Bloomberg Headquarters at 5:30 PM on Monday,
August 9, 2010.

Topics will Include the Following:

• Prospects for the Housing Market

• The Community Banking Sector
• Are We in a Multi-Year Bear Market?
• Is Buy and Hold Dead as an Investment Strategy?

ValuEngine clients in the New York area interested in attending should contact
Suttmeier. To attend, please RSVP to rsuttmeier@gmail.com and include your first and
last name, company name, address, email address, and phone number. You must
RSVP to Suttmeier with your info no later than Friday August 6th so that your info can
be processed by Bloomberg security prior to the event.

Treasury Yields
The 10-Year is at (2.926) The weekly chart shows that the decline in yields is
overdone. The low yield for the move was 2.853 set on July 21st, and was a failed test
of my 2.999 and 2.813 annual risky levels. Next week the US Treasury auctions $39
billion in 2-Year notes on Tuesday, $37 billion 5-Year notes on Wednesday and $29
billion 7-Year notes on Thursday.

Commodities and Forex

Comex Gold--($1194.8) The weekly chart for gold stays negative on a weekly close
below the five-week modified moving average at $1206.3. The all time high of $1266.5
set on June 21st was a test of June’s monthly resistance, as a significant top for gold.
Nymex Crude---($78.96) A close today above my annual pivot at $77.05 and my
monthly risky level at $79.36, which was tested on Thursday indicates upside to my
semiannual risky level at $83.94.

The Euro--(1.2886) The weekly chart stays positive on a weekly close above the five-
week modified moving average at 1.2674.

Major Indices

The Dow--

Daily: (10,322) This week’s pivot is 10,019 with daily and annual pivots at 10,303 and
10,379, and semiannual and monthly risky levels at 10,558 and 10,891. My quarterly
value level is 7,812 with my annual risky level at 11,235, which was tested at the April
26th high at 11,258. This test marked the end of the bear market rally that began in
March 2009. We are in the second leg of the multi-year bear market that began in
October 2007 targeting 8,500 before 11,500.

Weekly: The April 26th high of 11,258 was a test of the 61.8% Fibonacci Retracement
of the decline from October 2007 high to the March 2009 low. Note also the failed
test of the 200-week simple moving average now at 11,071 and the failed test of my
annual risky level at 11,235. MOJO is flat and a weekly closes above the 5-week
modified moving average at 10,190 shifts the weekly chart profile to positive.

Monthly: The monthly chart now shows declining technical momentum after being
oversold and monthly closes below the five-month modified moving average at
10,169 keeps the monthly chart to negative. The 120-month simple
moving average is a resistance at 10,452.

Housing

Housing Starts fell 5% in June led by a 21.5% decline in multifamily units. Single-
family housing starts were essentially unchanged for the month-- at an annual rate of
454,000 units. The total annual production rate was at a 549,000. This was followed by
a decline in the National Association of Home Builders Housing Market Index--which
fell to 14 from 16 in July. Building permits rose 2.1% in June-- with permits for single-
family homes down 3.4%.
 The Obama Administration’s program to help homeowners refinance (HAMP)
has hit a snag. Last month, 530,000 mortgage borrowers dropped out of the
program--which is more than 40% of the nearly 1.3 million who enrolled since March
2009. This is a clear sign that another wave of foreclosures are on the horizon.

The game changer seems to be that homeowners dropped out rather than
provide proof of income--which is a direct link between having a job and owning a
home. Borrowers have also been complain about paperwork snafus-- saying that
banks are losing documentation.

In addition, many who get proposals for modifications from their bank say
"thanks but no thanks" because they still cannot afford the proposed lower
payment. Data from the Government Accountability Office (GAO) indicates that
through mid-May only $132 million of the $75 billion allocated for the program has
been distributed.

The bottom line is that housing activity continues to suffer.

--The ValuTrader Model Portfolio Newsletter

The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market
Strategist Richard Suttmeier's proprietary market analytics. Suttmeier combines his
technical analysis expertise with ValuEngine's proprietary valuation, forecast, and
ratings data for more than 4000 equities trading on US markets to come up with a 20
stock portfolio tailored to current market conditions. With ValuTrader, subscribers
access Suttmeier's "Buy and Trade" strategy with a portfolio designed to function well
in both up and down markets.
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