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July 16, 2010 The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approachATTENTION Investors and Finance Professionals: If you are reading this you should sign up for ValuEngine's award-winning stock valuation and forecast service at the low price of $19.95/month! NO OBLIGATION, TWO WEEK FREE TRIAL! CLICK HERE If the tables or images in this document do not display properly, please CLICK HERE to download the newsletter. Bonus for Readers --Free Individual Stock Report for Weekly Newsletter Subscribers As a bonus to our Free Weekly Newsletter subscribers, we are now offering a FREE DOWNLOAD of one of our $ 25.00 Detailed Valuation Reports. AUXILIUM PHARMACEUTICALS (AUXL). AUXILIUM PHARMACEUTICALS is a specialty pharmaceutical company that develops and markets products for urology and sexual health. Auxilium markets Testim 1%, a topical testosterone gel, for the treatment of hypogonadism. The company was recently in the news for the development of a drug called Xiaflex which treats a finger gnarling disease called Dupuytren's contracture. Our forecast model ranks AUXL near the top of our entire database in terms of short-term forecast returns. It is fourth overall out of more than 5000 tickers. The ticker has been on a rebound since July 6th. However, Investors remain unsure as to whether recent drugs developed by the company will find big enough markets to justify higher share prices. The underlying fundamentals of the company make our models less sanguine over the long-term potential of the stock. Based on the lackluster one-year forecast returns, ValuEngine has issued a HOLD recommendation for AUXILIUM PHARMACEUTICALS. We feel that AUXILIUM PHARMACEUTICALS has the probability to ROUGHLY MATCH average market performance for the next year. The company exhibits ATTRACTIVE 5- year annualized return and risk, but UNATTRACTIVE market/book ratio and price/sales ratio. However, as a short term play, AUXL has potential according to our Forecast Model. " id="pdf-obj-0-3" src="pdf-obj-0-3.jpg">

July 16, 2010

The ValuEngine Weekly is an Investor Education newsletter focused on the quantitative approach to investing and the tools available from ValuEngine. In today's fast-moving and globalized financial markets, it is easy to get overloaded with information. The winners will adopt an objective, scientific, independent and unemotional approach to investing.

If the tables or images in this document do not display properly, please CLICK HERE to download the newsletter.

Bonus for Readers --Free Individual Stock Report for Weekly Newsletter Subscribers

As a bonus to our Free Weekly Newsletter subscribers, we are now offering a FREE DOWNLOAD of one of our $ 25.00 Detailed Valuation Reports.

AUXILIUM PHARMACEUTICALS (AUXL). AUXILIUM PHARMACEUTICALS is a specialty pharmaceutical company that develops and markets products for urology and sexual health. Auxilium markets Testim 1%, a topical testosterone gel, for the treatment of hypogonadism. The company was recently in the news for the development of a drug called Xiaflex which treats a finger gnarling disease called Dupuytren's contracture.

Our forecast model ranks AUXL near the top of our entire database in terms of short-term forecast returns. It is fourth overall out of more than 5000 tickers. The ticker has been on a rebound since July 6th. However, Investors remain unsure as to whether recent drugs developed by the company will find big enough markets to justify higher share prices.

The underlying fundamentals of the company make our models less sanguine over the long-term potential of the stock. Based on the lackluster one-year forecast returns, ValuEngine has issued a HOLD recommendation for AUXILIUM PHARMACEUTICALS. We feel that AUXILIUM PHARMACEUTICALS has the probability to ROUGHLY MATCH average market performance for the next year. The company exhibits ATTRACTIVE 5- year annualized return and risk, but UNATTRACTIVE market/book ratio and price/sales ratio. However, as a short term play, AUXL has potential according to our Forecast Model.

The VE Detailed Valuation Report features advanced academic research that brings you superior investment strategies inHERE. If you have not subscribed and want to be able to receive a FREE $ 25.00 Detailed Valuation Report, you can subscribe to our Free Weekly Newsletter HERE. MARKET OVERVIEW Index started week Thursday Close 3 day change 4 day change % ytd DJIA 10199.24 10359.3 1.57% 160.06 -0.68% NASDAQ 2194.12 2249.08 2.50% 54.96 -1.98% RUSSELL 2000 627.64 634.62 6.98 1.11% 1.04% S&P 500 1077.23 1096.48 19.25 1.79% -1.80% Summary of VE Stock Universe Stocks Undervalued 69.23% Stocks Overvalued 30.77% Stocks Undervalued by 20% 34.03% Stocks Overvalued by 20% 10.70% SECTOR OVERVIEW Sector Change MTD YTD Valuation Last 12- P/E Ratio MReturn Basic Industries 0.05% 6.51% -7.57% 2.85% undervalued 42.72% 24.23 Capital Goods -0.54% 5.43% 4.94% 2.97% undervalued 35.48% 19.78 Consumer Durables -1.03% 5.20% 33.70% 5.13% undervalued 48.39% 23.52 Consumer Non-Durables -0.67% 3.33% 8.45% 6.03% undervalued 22.00% 17.72 Consumer Services -0.08% 4.62% -4.14% 6.33% undervalued 19.58% 17.41 Energy -0.37% 5.48% 0.30% 6.67% undervalued 38.02% 17.71 Finance -0.59% 4.96% 2.93% 7.85% undervalued 35.51% 20.87 Health Care -0.52% 4.87% 2.87% 10.76% undervalued 37.95% 21.33 Public Utilities -0.77% 4.92% 5.21% 11.61% undervalued 40.90% 27.7 Technology -0.31% 5.55% 1.58% 13.23% undervalued 53.39% 17.56 Transportation -0.20% 1.92% 1.75% 15.62% undervalued 24.48% 20.54 " id="pdf-obj-1-2" src="pdf-obj-1-2.jpg">

The VE Detailed Valuation Report features advanced academic research that brings you superior investment strategies in an actionable format. The most comprehensive and useful report available. Weekly Subscribers can download a FREE Detailed Valuation Report on AUXL HERE.

If you have not subscribed and want to be able to receive a FREE $ 25.00 Detailed Valuation Report, you can subscribe to our Free Weekly Newsletter HERE.

MARKET OVERVIEW

 

Index

started week

Thursday Close

 

3 day change

4 day change %

 

ytd

 

DJIA

10199.24

 
  • 10359.3 1.57%

160.06

   

-0.68%

NASDAQ

2194.12

 
  • 2249.08 2.50%

54.96

   

-1.98%

RUSSELL 2000

627.64

634.62

 

6.98

1.11%

 

1.04%

S&P 500

1077.23

1096.48

 

19.25

1.79%

 

-1.80%

 
   

Summary of VE Stock Universe

   

Stocks Undervalued

   

69.23%

Stocks Overvalued

   

30.77%

Stocks Undervalued by 20%

   

34.03%

Stocks Overvalued by 20%

   

10.70%

SECTOR OVERVIEW

 
 

Sector

Change

MTD

YTD

Valuation

Last 12-

P/E Ratio

 

MReturn

 

Basic Industries

 

0.05%

6.51%

-7.57%

2.85% undervalued

42.72%

 

24.23

 

Capital Goods

 

-0.54%

5.43%

4.94%

2.97% undervalued

35.48%

 

19.78

 

Consumer Durables

 

-1.03%

5.20%

33.70%

5.13% undervalued

48.39%

 

23.52

Consumer Non-Durables

 

-0.67%

3.33%

8.45%

6.03% undervalued

22.00%

 

17.72

 

Consumer Services

 

-0.08%

4.62%

-4.14%

6.33% undervalued

19.58%

 

17.41

 

Energy

 

-0.37%

5.48%

0.30%

6.67% undervalued

38.02%

 

17.71

 

Finance

 

-0.59%

4.96%

2.93%

7.85% undervalued

35.51%

 

20.87

 

Health Care

 

-0.52%

4.87%

2.87%

10.76% undervalued

37.95%

 

21.33

 

Public Utilities

 

-0.77%

4.92%

5.21%

11.61% undervalued

40.90%

 

27.7

 

Technology

 

-0.31%

5.55%

1.58%

13.23% undervalued

53.39%

 

17.56

 

Transportation

 

-0.20%

1.92%

1.75%

15.62% undervalued

24.48%

 

20.54

Sector Talk--Finance There was a lot of big finance news this week. Congress finally passed ther 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 Finance Sector Stocks--Long-Term Forecast Returns Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) WTNY WHITNEY HOLDING COMPANY 8.27 -26.09 -11.83 FAF FIRST AMERICAN CORPORATION 13.5 6.89 N/A GGAL GRUPO FINANCIERO GALICIA 6.17 -20.52 80.41 KFN KKR FINANCIAL HOLDINGS LLC 7.96 -51.42 688.12 RDN RADIAN GROUP INC 8.49 -50.84 289.45 Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) WTNY WHITNEY HOLDING COMPANY 8.27 -26.09 -11.83 RDN RADIAN GROUP INC 8.49 -50.84 289.45 KFN KKR FINANCIAL HOLDINGS LLC 7.96 -51.42 688.12 ABR ARBOR REALTY TRUST, INC 5.84 -44.94 271.97 BEE STRATEGIC HOTELS & RESORTS INC 4.18 2.01 294.34 Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) KFN KKR FINANCIAL HOLDINGS LLC 7.96 -51.42 688.12 FCE.A FOREST CITY A 12.19 -47.29 110.54 FFG FBL FINANCIAL GROUP - CLASS A 21.2 -39.27 142.84 UTR UNITRIN INC 26.25 -29.41 115.16 AMP AMERIPRISE FINANCIAL INC 39.2 -27.51 63.88 Top-Five Finance Sector Stocks--Short-Term Forecast Returns Top-Five Finance Sector Stocks--Composite Score " id="pdf-obj-2-3" src="pdf-obj-2-3.jpg">

Sector Talk--Finance

There was a lot of big finance news this week. Congress finally passed the reform bill despite GOP machinations. House Minority Leader John Boehner made statements vis-a-vis a repeal if the GOP takes back Congress, but for now the law will stand. In other news, Goldman Sachs admitted wrongdoing in its SEC civil case and settled for a whopping $550 million. This is one of the the largest settlements on record for Wall St. malfeasance. Also, Citigroup reported lower profits-- but they were still above expectations.

Below, we present various top-five lists for the Finance Sector from our

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 Finance Sector Stocks--Long-Term Forecast Returns

   

Mkt

 

Last 12-M

Ticker

Name

Price

Valuation(%)

Retn(%)

WTNY

WHITNEY HOLDING COMPANY

8.27

-26.09

-11.83

FAF

FIRST AMERICAN CORPORATION

13.5

6.89

N/A

GGAL

GRUPO FINANCIERO GALICIA

6.17

-20.52

80.41

KFN

KKR FINANCIAL HOLDINGS LLC

7.96

-51.42

688.12

RDN

RADIAN GROUP INC

8.49

-50.84

289.45

 
   

Mkt

 

Last 12-M

Ticker

Name

Price

Valuation(%)

Retn(%)

WTNY

WHITNEY HOLDING COMPANY

8.27

-26.09

-11.83

RDN

RADIAN GROUP INC

8.49

-50.84

289.45

KFN

KKR FINANCIAL HOLDINGS LLC

7.96

-51.42

688.12

ABR

ARBOR REALTY TRUST, INC

5.84

-44.94

271.97

BEE

STRATEGIC HOTELS & RESORTS INC

4.18

2.01

294.34

 
   

Mkt

 

Last 12-M

Ticker

Name

Price

Valuation(%)

Retn(%)

KFN

KKR FINANCIAL HOLDINGS LLC

7.96

-51.42

688.12

FCE.A

FOREST CITY A

12.19

-47.29

110.54

FFG

FBL FINANCIAL GROUP - CLASS A

21.2

-39.27

142.84

UTR

UNITRIN INC

26.25

-29.41

115.16

AMP

AMERIPRISE FINANCIAL INC

39.2

-27.51

63.88

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

Top-Five Finance Sector Stocks--Composite Score

Top-Five Finance Sector Stocks--Most Overvalued Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) WCBO WEST COASTHERE . Not a ValuEngine Premium Website member? Then please consider signing up for our no obligation, two-week free trial today. To Sign Up for a FREE TRIAL, Please Click the Logo Below --New FREE Daily Newsletter Now Available Richard Suttmeier is ValuEngine's Chief Market Strategist. With our new FREE ValuEngine Four-in-Four Daily Newsletter, you'll start your trading day with critical market information from the Chief Market Strategist who: 1. Correctly called the bottom of the market downturn in March, 2009 2. Warned of an impending housing meltdown in early 2005 3. Predicted the most recent market correction in April, 2010. " id="pdf-obj-3-2" src="pdf-obj-3-2.jpg">

Top-Five Finance Sector Stocks--Most Overvalued

   

Mkt

 

Last 12-M

Ticker

Name

Price

Valuation(%)

Retn(%)

WCBO

WEST COAST BANCORP / OREGON

2.65

300

48.04

DDR

DEVELOPERS DIVERSIFIED REALTY CP

10.6

218.3

119.92

CLP

COLONIAL PROPERTY TRUST

 
  • 15.53 127.02

101.69

ETFC

E*TRADE FINANCIAL CORP

 
  • 13.58 117.43

6.09

FCH

FELCOR LODGING TRUST INC

5.19

96.11

118.07

VE Premium Website Stock Analysis subscribers can find complete valuation, forecast, and ratings data on every individual equity in the Finance Sector HERE.

Not a ValuEngine Premium Website member? Then please consider signing up for our no obligation, two-week free trial today.

To Sign Up for a FREE TRIAL, Please Click the Logo Below

Top-Five Finance Sector Stocks--Most Overvalued Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) WCBO WEST COASTHERE . Not a ValuEngine Premium Website member? Then please consider signing up for our no obligation, two-week free trial today. To Sign Up for a FREE TRIAL, Please Click the Logo Below --New FREE Daily Newsletter Now Available Richard Suttmeier is ValuEngine's Chief Market Strategist. With our new FREE ValuEngine Four-in-Four Daily Newsletter, you'll start your trading day with critical market information from the Chief Market Strategist who: 1. Correctly called the bottom of the market downturn in March, 2009 2. Warned of an impending housing meltdown in early 2005 3. Predicted the most recent market correction in April, 2010. " id="pdf-obj-3-109" src="pdf-obj-3-109.jpg">

--New FREE Daily Newsletter Now Available

Richard Suttmeier is ValuEngine's Chief Market Strategist.

With our new FREE ValuEngine Four-in-Four Daily Newsletter, you'll start your trading day with critical market information from the Chief Market Strategist who:

1. Correctly called the bottom of the market downturn in March, 2009

  • 2. Warned of an impending housing meltdown in early 2005

Top-Five Finance Sector Stocks--Most Overvalued Mkt Last 12-M Ticker Name Price Valuation(%) Retn(%) WCBO WEST COASTHERE . Not a ValuEngine Premium Website member? Then please consider signing up for our no obligation, two-week free trial today. To Sign Up for a FREE TRIAL, Please Click the Logo Below --New FREE Daily Newsletter Now Available Richard Suttmeier is ValuEngine's Chief Market Strategist. With our new FREE ValuEngine Four-in-Four Daily Newsletter, you'll start your trading day with critical market information from the Chief Market Strategist who: 1. Correctly called the bottom of the market downturn in March, 2009 2. Warned of an impending housing meltdown in early 2005 3. Predicted the most recent market correction in April, 2010. " id="pdf-obj-3-122" src="pdf-obj-3-122.jpg">
  • 3. Predicted the most recent market correction in April, 2010.

Our Four-in-Four brings you ValuEngine Chief Market Strategist Richard Suttmeier's latest thoughts and analysis on marketClick HERE or on the logo below to Sign Up for Chief Market Strategist Richard Suttmeier's FREE Four-in-Four Daily Newsletter! --Latest FDIC Report UPDATE is Posted ValuEngine Chief Market Strategist Richard Suttmeier is an expert on the US Banking System and uses the health of the system as a leading economic indicator. He distills his thoughts on the banking system in our FDIC Report. The latest update of the report is now available. Suttmeier remains bearish in his outlook for both US banks as well as the US housing market. In his summary of the report he notes the following: The FDIC Quarterly Banking Profile for the first quarter of 2010--which I covered in detail a month ago, continued to show stress in the banking system, particularly among community banks. With the second quarter of 2010 in the books, we have to wait until late August before I can dissect the next release of the most important economic indicator for the US economy, the FDIC Quarterly Banking Profile, which is the balance sheet of the US economy. " id="pdf-obj-4-2" src="pdf-obj-4-2.jpg">

Our Four-in-Four brings you ValuEngine Chief Market Strategist Richard Suttmeier's latest thoughts and analysis on market trends, key indices, individual stocks, the regulatory environment, and much, much more.

Richard uses his 35 years of experience as a bond-trader, technical analysis, and the fundamentally-powered, quant-based systems at ValuEngine to write his Four-in-Four newsletter every trading day. We are offering it FREE to you now because Richard's insights have been so helpful to the investment strategies of our clients in the past.

With our NEW Four-in-Four Daily Newsletter, you'll get Suttmeier's latest analysis delivered right to your desktop ABSOLUTELY FREE!

Our Four-in-Four brings you ValuEngine Chief Market Strategist Richard Suttmeier's latest thoughts and analysis on marketClick HERE or on the logo below to Sign Up for Chief Market Strategist Richard Suttmeier's FREE Four-in-Four Daily Newsletter! --Latest FDIC Report UPDATE is Posted ValuEngine Chief Market Strategist Richard Suttmeier is an expert on the US Banking System and uses the health of the system as a leading economic indicator. He distills his thoughts on the banking system in our FDIC Report. The latest update of the report is now available. Suttmeier remains bearish in his outlook for both US banks as well as the US housing market. In his summary of the report he notes the following: The FDIC Quarterly Banking Profile for the first quarter of 2010--which I covered in detail a month ago, continued to show stress in the banking system, particularly among community banks. With the second quarter of 2010 in the books, we have to wait until late August before I can dissect the next release of the most important economic indicator for the US economy, the FDIC Quarterly Banking Profile, which is the balance sheet of the US economy. " id="pdf-obj-4-12" src="pdf-obj-4-12.jpg">

--Latest FDIC Report UPDATE is Posted

ValuEngine Chief Market Strategist Richard Suttmeier is an expert on the US Banking System and uses the health of the system as a leading economic indicator. He distills his thoughts on the banking system in our FDIC Report. The latest update of the report is now available. Suttmeier remains bearish in his outlook for both US banks as well as the US housing market.

In his summary of the report he notes the following:

The FDIC Quarterly Banking Profile for the first quarter of 2010--which I covered in detail a month ago, continued to show stress in the banking system, particularly among community banks. With the second quarter of 2010 in the books, we have to wait until late August before I can dissect the next release of the most important economic indicator for the US economy, the FDIC Quarterly Banking Profile, which is the balance sheet of the US economy.

What we know is that there were 41 bank failures in the first quarter at a

What we know is that there were 41 bank failures in the first quarter at a cost of $6.5 billion to the FDIC Deposit Insurance Fund (DIF). In the second quarter, bank failures totaled 45 costing the DIF another $11.1 billion. With 86 bank failures for the first half of the year the DIF was drained by $17.6 billion. The DIF thus burned through the entire $15.3 billion DIF assessments from member banks for all of 2010. If this is not evidence of continued stress in the banking system, what is?

In housing, the home buyers who qualified for the $8,000 or $6,500 tax credits but failed to close by the June 30 th deadline received a reprieve until September

30 th . Since the expiration of that tax credit at the end of April, every economic statistic related to the housing market has fallen off a cliff. At the same time, government programs to keep families in their homes have failed to fulfill their promise. There is a huge backlog of foreclosures and 19% of all mortgage defaults are “strategic”--e.g. the house is “underwater,” fears of job losses, etc. Home prices are still 50% above where they were in 1999 / 2000 when the bubble began to inflate. Mortgages remain tough to get despite record low mortgage rates.

Other problems include unemployment at 9.5%-- versus 4.6% when the Recession began in December 2007, a failed economic stimulus plan, and Federal Reserve policies which have not worked either.

Exacerbating these problems are the new regulatory rules encompassed in the proposed Congressional financial reform bill that will soon pass and—in my opinion-- only make matters worse. Why implement a new regulatory regime which will be implemented and controlled by the very same regulators who ignored the old regulations and were oblivious to the original crisis?

We have begun the second leg of the multi-year bear market and the second wave of “The Great Credit Crunch.” We now have 46 states facing fiscal crises which will necessitate the raising of revenues and the cutting of services. These measures will further batter Main St. and further exacerbate the economic difficulties.

A critical portion of this report is the ValuEngine List of Problem Banks. Problem banks are publicly traded FDIC insured financial institutions who are overexposed to Construction & Development Loans and/or Nonfarm nonresidential real estate loans, with “1-Engine”--Strong Sell, or “2-Engine”—Sell. The report also includes a listing of all other engine-rated banks-- and those with “n/a” ratings but forecast figure data points according to our models-- in violation of FDIC guidelines vis-a-vis loan exposures.

Our latest ValuEngine FDIC Report UPDATE is now posted. The report contains loan exposure and/or ValuEngineHERE. Others interested in the report may find out more on our website by clicking the image below. " id="pdf-obj-6-3" src="pdf-obj-6-3.jpg">

Our latest ValuEngine FDIC Report UPDATE is now posted. The report contains loan exposure and/or ValuEngine datapoints on valuation, forecast, and ratings for all of the institutions on our List of Problem Banks.

Subscribers can download it HERE.

Others interested in the report may find out more on our website by clicking the image below.

Our latest ValuEngine FDIC Report UPDATE is now posted. The report contains loan exposure and/or ValuEngineHERE. Others interested in the report may find out more on our website by clicking the image below. " id="pdf-obj-6-12" src="pdf-obj-6-12.jpg">
Catching Up with TK Ng Explorations of Beta and Market Sentiment Continued Former ValuEngine Analyst andHERE. Editor's Note: The Following was published by TK Ng on July 10, 2010. predictions provided apply to the market's activity for the past week. The 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. Two weeks ago, I predicted that the selling had abated and there would be a mild rebound. Well, maybe I was wrong in using the word 'mild'. The S&P500 increased by 5 % or so for the week ending July 9. Let's see how we do this week. " id="pdf-obj-7-3" src="pdf-obj-7-3.jpg">

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

Editor's Note: The Following was published by TK Ng on July 10, 2010. predictions provided apply to the market's activity for the past week.

The

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.

Two weeks ago, I predicted that the selling had abated and there would be a mild rebound. Well, maybe I was wrong in using the word 'mild'. The S&P500 increased by 5 % or so for the week ending July 9. Let's see how we do this week.

Here is our initial SOM: B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer Services, E=Energy, F=Finance,

Here is our initial SOM:

Here is our initial SOM: B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer Services, E=Energy, F=Finance,

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.

S1 holds the S&P500 stocks, S2 most of the Short (S) stocks and S3 most of the

Long (L) stocks. This is the same order as last week.

Last week the ratio of L stocks/ S

stocks that are in the S1 cluster which holds the S&P 500 stocks was 28/21=1.33. This

week it is 42/29= 1.44. This is an indication of increased Bullishness.

S3, the cluster

which has Bullish characteristics holds only 6.14 % of our stock Universe for this SOM

while S2 the cluster with the Bearish characteristics holds 17.33 % . This point somewhat tempers the Bullishness.

Here are the individual Cluster stats: The length of the bars denoting our Model variables above

Here are the individual Cluster stats:

Here are the individual Cluster stats: The length of the bars denoting our Model variables above

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. The longest bars in S3 with the L stocks are Beta (first Green bar) Momentum [12-m return%] fourth bar Mauve color and Volatility (Red bar). In a Bullish market, high momentum, high Beta and high volatility means a sharp run-up. Also take a look at the Purple bar next to the Red Volatility bar, which measures EPS surprise % in the stock's history. Note its length in S3 as well as S2. EPS surprise will be an important factor in a stock's movement for the coming week. Thus the sharp run-up is based on fundamentals, particularly EPS surprise.

Here is the SOM with the top BETA figures highlighted: B=Basic Industries, C=Capital Goods, D=Consumer Durables,

Here is the SOM with the top BETA figures highlighted:

Here is the SOM with the top BETA figures highlighted: B=Basic Industries, C=Capital Goods, D=Consumer Durables,

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.

Here are our SOM BETA stats: The average Beta of S2 stocks was 1.60 last week

Here are our SOM BETA stats:

Here are our SOM BETA stats: The average Beta of S2 stocks was 1.60 last week

The average Beta of S2 stocks was 1.60 last week and is now 1.50. The average Beta of S3 stocks was 1.98 and is now 2.62. There is more 'sensitivity' to the Index on the upside than on the down side.

Let's take a look at some selected VE screening results that we find plotted in

S3:

   

Mkt

Valuation

P/E

   

Ticker

Company Name

Price

(%)

Ratio

Beta

Sector

AIG

AMERICAN INTERNATIONAL GROUP

37.38

-75

N/A

 
  • 3.78 FINANCE

AIV

APARTMENT INVESTMENT& MANAGEMENT

20.88

55.41

14.74

 
  • 2.33 FINANCE

           

CONSUMER

DDS

DILLARD INC

21.86

-39.56

13.41

2.6

SERVICES

UFS

DOMTAR CORP

49.68

-48.77

8.51

3.05

ENERGY

           

CONSUMER

DYN

DYNEGY INC

-61.36

1.66

1.4

  • 3.69 NON_DURABL

ES

EK

EASTMAN KODAK CO

 
  • 4.73 -60.55

3.47

1.56

FINANCE

FFG

FBL FINANCIAL GROUP - CLASS A

 
  • 21.2 -39.27

6.69

2.58

FINANCE

FCE.A

FOREST CITY A

 

-47.29

6.82

2.89

  • 12.19 CONSUMER

SERVICES

GCI

GANNETT INC DEL

 
  • 15.11 -34.42

6.84

2.67

FINANCE

           

BASIC

KFN

KKR FINANCIAL HOLDINGS LLC

7.96

-51.42

5.63

2.87

INDUSTRIES

SLG

SL GREEN REALTY CP

 
  • 57.07 -21.55

14.51

2.63

ENERGY

SGY

STONE ENERGY CORP.

 
  • 11.67 -51.39

 

2.51

  • 3.83 FINANCE

UTR

UNITRIN INC

 
  • 26.25 -29.41

 

1.51

BASIC

  • 7.98 INDUSTRIES

RHAYY

RHODIA SA

 
  • 19.95 -38.51

 

2.91

  • 6.82 FINANCE

Based on this exercise, the market outlook is decidedly more Bullish this week as compared to last week. But only a few stocks will move significantly. The stocks will be those with good fundamentals and the run-up will be speedy.

Suttmeier Says --Commentary and Analysis from Chief Market Strategist Richard Suttmeier If you have any comments

Suttmeier Says --Commentary and Analysis from Chief Market Strategist Richard Suttmeier

If you have any comments or questions, send them to Rsuttmeier@Gmail.com

Treasury Yields

The 10-Year is at 2.974. After holding my daily pivot at 3.111 the 10-Year yield is back between my annual pivot at 2.999 and my annual risky level at 2.813. Today’s neutral zone is between my daily pivot at 3.110 and my semiannual pivot at 2.999. Semiannual and quarterly value levels are 3.479 and 3.486 with annual, quarterly and semiannual risky levels at 2.813, 2.495 and 2.249.

Suttmeier Says --Commentary and Analysis from Chief Market Strategist Richard Suttmeier If you have any comments

The low yield for the move was 2.879 set on July 1st, and was a failed test of my 2.999

and 2.813 annual risky levels.

Commodities and Forex

Comex Gold--Strength this week has stayed shy of my semiannual pivot at $1218.7. This level needs to be cleared to target my semiannual risky level at $1260.8. The downside is to my quarterly risky level at $1140.9. Today’s value level is $1196.9

with my semiannual pivot at $1218.7. 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--It’s amazing how strong my annual pivot has been at $77.05. The chart trading range has been $67.15 to $87.15 with $77.05 right in the middle. My quarterly value level is $56.63 with my annual pivot at $77.05, and monthly and semiannual risky levels at $79.36 and $83.94.

The Euro--The euro is stronger than I expected and today’s pivot is 1.2900. My weekly value level is 1.2422 with a daily pivot at 1.2900, and the 200-day simple moving average at 1.3691. Monthly and quarterly value levels are 1.2035 and 1.1424.

Major Indices The Dow-- Daily: The Dow traded above my annual pivot Tuesday through Thursday without

Major Indices

The Dow--

Daily: The Dow traded above my annual pivot Tuesday through Thursday without a daily close above. Weakness on Thursday held the 50-day simple moving average at 10,244. My weekly value level is 9,635 with my annual pivot at 10,379, and semiannual, daily and monthly risky levels at 10,558, 10705 and 10,891. My annual risky level at 11,235 was tested at the April 26th high at 11,258, which 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.

The S&P 500--

Tuesday’s high was just below my semiannual risky level at 1100.7 after the July 1st low held my annual value level at 1014.2. This volatility enabled ValuTrader Subscribers to employ my “Buy and Trade” Strategy by shorting SPY at $120.49 on May 3rd and covering the short at $101.84 on July 2nd for a gain of 15.5%.

The NASDAQ--

A bearish cross-over where the 50-day simple moving average crossed below the 200-day was confirmed and tested at 2251 and 2254 on Wednesday as my semiannual and annual pivots provide magnets at 2223, 2242 and 2250. All of these levels could not be taken out even with Intel reporting its best quarter in a decade. Today’s risky level is 2311.

Financial Reform

The bill's proponents claim that it ends “too big to fail” but in my opinion does not. The big banks are bigger and if a problem arises where is the funding to break up a big bank in trouble?

It’s now up to the banking regulators to implement this law, but how can they be trusted when they did not see “The Great Credit Crunch” coming? Remember that the US Treasury, Federal Reserve and FDIC ignored their own guidelines set in December 2006 with regard to concentrations by community banks to Construction & Development Loans and Non-farm Non-residential real estate loans, with the combo called Commercial Real Estate loans. Community banks are failing today because of this lack of regulation.

Resolving this dilemma is a problem and it is being hidden by fancy accounting foot work.

Resolving this dilemma is a problem and it is being hidden by fancy accounting foot work. The FDIC has new powers among a still to be determined Systemic Risk Council. If they think that a “too big to fail” institution such as AIG can be unwound using the FDIC broad authority to use receivership powers start now! AIG owes US tax payers $47.5 billion. How about unwinding Fannie Mae and Freddie Mac which owe taxpayers $144.9 and counting through the end of 2012 at least.

If the FDIC provided a macro view back in 2003 and 2004 they would have identified the heavy concentration of C&D and CRE loans before community banks became overly concentrated to these real estate loans. If they did we would not have more than half or them at risk today.

Regulators will provide much needed oversight of the derivatives markets. If the FDIC was concerned about that Notional Amount of Derivative Contracts why would they allow them to continue to increase throughout “The Great Credit Crunch”? They total $218 trillion today, up 32.3% since the end of 2007.

The FinReg Bill strengthens the capital requirements of the US banking system with bank holding companies subject to the same standards as insured banks for Tier 1 capital. Too much leverage and thin capital cushions were a factor during the financial crisis, but unfortunately for community banks this stress has intensified while Wall Street was bailed-out.

Jobs will not be created on Main Street until the problems among Main Street community banks are cleaned up. Perhaps the FDIC will put pressures on the “too big to fail” to pay higher deposit insurance fees to bring the Deposit Insurance Fund back to regulatory ratios by mid-2013. This will require banks with assets above $50 billion to raise capital, which could slow lending and result in higher rates for consumer and small business loans.

As I have been saying; you can’t prevent another crisis until “The Great Credit Crunch” ends and in my opinion, the FinReg bill just makes it more difficult to end “The GreatCredit Crunch."

--The ValuTrader Model Portfolio Newsletter The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market

--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.

For more on the Suttmeier ValuTrader Newsletter Portfolio, Click the Logo Below

--The ValuTrader Model Portfolio Newsletter The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market
--The ValuTrader Model Portfolio Newsletter The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market