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

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found at http://www.valuengine.com/nl/mainnl

March 9, 2011 – The Case for a Bear Market for Stocks

In making a bearish call on the US stock market I base such a call on both fundamental and
technical factors. The fundamentals show that stocks are overvalued and we have had three
ValuEngine Valuation Warnings so far this year. The January warning was ignored by the
market but so far stocks peaked with the warning issued on February 18th and re-iterated on
March 3rd. During this period we have seen many days where all sixteen sectors have been
overvalued, with eight to eleven by double-digit percentages. Today 63.8% of all stocks are
overvalued, and all sixteen sectors are overvalued, eleven by double-digit percentages.
ValuEngine provides valuation, forecast, and ratings data for a universe of more than 5,500 stocks.
When more than 65% of all stocks are calculated to be overvalued, we issue a ValuEngine Valuation
Warning. We do this because in the past this level of overvaluation has often been correlated with
market corrections and downturns. Conversely when more than 65% of all stocks are undervalued
additional weakness provides buying opportunities. On March 5, 2009 the percentage of undervalued
stocks reached 91%.
The technical factors ignore the daily charts as timing a cycle high requires confirmation from the
weekly charts and having risky levels from my proprietary analytics to judge how high markets can go
before they top out. Right now the major averages are stuck in want I call the “Libya Trading Ranges”,
which are the February 18th highs down to the February 24th lows. The weekly chart profiles are
positive, but overbought for all major averages except Dow Transports. To confirm a cycle high all
major averages must have weekly closes below their five-week modified moving averages with weekly
12x3x3 weekly slow stochastic readings declining below 8.0 on a scale of zero to 10.0.
This dynamic is being delayed as the major equity averages straddle their 50-day simple moving
averages. The Dow Industrial Average and S&P 500 have been above their 50-day since December
1st now at 11,967 Dow and 1298.81 S&P 500. The NASDAQ and NASDAQ 100 have tested its 50-day
several times since February 23rd, six days for the NASDAQ with the 50-day now at 2742.35 and four
days for the NASDAQ 100 with the 50-day now at 2314.18. The Russell 2000 tested and held its 50-
day on February 22nd and February 23rd and today the 50-day is 802.42. The Philadelphia
Semiconductor index (SOX) tested and held its 50-day the past two days at 444.47 and has been
above the 50-day since September 24th. Dow Transports have been below its 50-day since February
22nd and has been tested as resistance twice, and closed above 5111 today. A weekly close above the
five-week shifts Transports to neutral delaying the market top.
Key Levels for the Major Equity Averages
• The Dow Industrial Average (12,214) Libya Trading Range: 11,983 to 12,391. My annual
value level is 11,491 with daily, weekly and monthly risky levels at 12,249, 12,483 and 12,741.
The five-week modified moving average has been tested in each of the past three weeks and
this week the average is 12,060.
• The S&P 500 (1321.8) Libya Trading Range: 1294 to 1344. My quarterly value level is 1262.5
with daily, weekly and monthly risky levels at 1331.2, 1350.3 and 1381.3. The five-week
modified moving average has been tested in each of the past three weeks and this week the
average is 1307.
• The NASDAQ (2766) Libya Trading Range: 2706 to 2840. My monthly value level is 2629 with
daily, weekly, quarterly and monthly risky levels at 2798, 2829, 2853 and 2926. The NASDAQ
traded below its five-week modified moving average in each of the past three weeks without a
weekly close below, and this week the average is 2755.
• The NASDAQ 100 (NDX) (2338) Libya Trading Range: 2285 to 2403. My monthly value level is
2250 with daily, weekly, quarterly, and monthly risky levels at 2370, 2398, 2438 and 2499. The
NASDAQ 100 traded below its five-week modified moving average in each of the past three
weeks without a weekly close below, and this week the average is 2327.
• Dow Transports (5147) Libya Trading Range: 4918 to 5306. My quarterly value level is 4671
with weekly, daily and annual pivots at 5052, 5119 and 5179. The Transports closed below its
five-week modified moving average in each of the two weeks with declining momentum, which
is a negative weekly chart profile. A close above this week’s five-week at 5111 shifts the weekly
chart to neutral.
• The Russell 2000 (824.66) Libya Trading Range: 795 to 838. My quarterly value level is 765.50
with weekly, daily and monthly risky levels at 831.09, 835.56 and 850.79. The five-week
modified moving average has been tested in each of the past three weeks and this week the
average is 810.47.
• The Philadelphia Semiconductor Index (SOX) (447.94) Libya Trading Range: 439 to 474. My
monthly value level is 402.46 with a monthly pivot at 453.89, daily and quarterly pivots at
458.32 and 465.93, and weekly risky level at 485.92. The five-week modified moving average
has been tested in each of the past three weeks and this week the average is 450.51.
The trading strategy in this environment is what I have been calling “Buy and Trade” where you buy
weakness to a value level and sell strength to a risky level. Here are the guidelines presented to
subscribers to my ValuTrader Subscription product, which includes a model portfolio.
Buy and Trade Strategies for Long Positions
• Value Level – The price at which you establish an additional long position on share price
weakness. This is done on a GTC Limit Order to buy weakness to the Value Level.
• Risky Level – The price at which you remove a single long position or reduce a multiple
long position on share price strength. This is done on a GTC Limit Order to sell strength to
the Risky Level.
Buy and Trade Strategies for Short Positions
• Value Level – The price at which you remove a single short position or reduce a multiple
short position on share price weakness. This is done on a GTC Limit Order to buy weakness
to the Value Level.
 • Risky Level – The price at which you establish an addition short position on share price
strength. This is done on a GTC Limit Order to sell strength to the Risky Level.
10-Year Note – (3.542) Weekly, annual, and semiannual value levels are 3.642, 3.796 and 4.268 with
a daily pivot at 3.523, and monthly, annual, and semiannual risky levels at, 3.002, 2.690 and 2.441.

Courtesy of Thomson / Reuters

Comex Gold – ($1429.0) Weekly, annual, quarterly, semiannual and annual value levels are $1385.4,
$1356.5, $1331.3, $1300.6 and $1187.2 with monthly and quarterly pivots at $1437.7 and $1441.7,
and daily and semiannual risky levels at $1450.1 and $1452.6.

Courtesy of Thomson / Reuters

Nymex Crude Oil – ($104.78) Weekly, monthly and semiannual value levels are $97.78, $96.43, and
$87.52 with my annual pivots at $99.91 and $101.92, and semiannual, daily and quarterly risky levels
are $107.14, $107.71 and $110.87.

Courtesy of Thomson / Reuters

The Euro – (1.3900) My quarterly value level is 1.3227 with a daily pivot at 1.3953, and weekly,
semiannual and monthly risky levels at 1.4446, 1.4624 and 1.4637.

Courtesy of Thomson / Reuters

Daily Dow: (12,214) Annual, quarterly, semiannual, and semiannual value levels are 11,491, 11,395,
10,959, and 9,449 with daily, weekly, monthly and annual risky levels at 12,249, 12,484, 12,741 and
13,890.

Courtesy of Thomson / Reuters

Richard Suttmeier
Chief Market Strategist
ValuEngine.com, (800) 381-5576
Send your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visit
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and
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“I Hold No Positions in the Stocks I Cover.”