December 17, 2010

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VALUATION WATCH: Our models find that overvaluation is approaching

levels typically seen when a market correction is imminent. Overvalued
stocks now make up almost 63% of our universe and almost 30% of the
universe is calculated to be overvalued by 20% or more. 15 of 16 Sectors
are now calculated to be overvalued.

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.
This week's free download is our report on RAYTHEON CO (RTN). ValuEngine has
issued a STRONG BUY recommendation for RAYTHEON CO. Based on the information
we have gathered and our resulting research, we feel that RAYTHEON CO has the
probability to OUTPERFORM average market performance for the next year. The
company exhibits ATTRACTIVE volatility, company size and P/E ratio.
Based on available data as of Dec. 17, 2010, we believe that RTN should be
trading at $51.21. This makes RTN 11.36% undervalued. Fair Value indicates what we
believe the stock should be trading at today if the stock market were perfectly
efficient and everything traded at its true worth. For RTN, we base this on actual
earnings per share (EPS) for the previous four quarters of $4.91, forecasted EPS for the
next four quarters of $4.79, and correlations to the 30- year Treasury bond yield of
4.58%.
 RAYTHEON CO is a global technology company. The company provides
products and services in the areas of defense and commercial electronics,
engineering and construction, and business and special mission aircraft.
Weekly Subscribers can download a FREE Detailed Valuation Report on RTN 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 4 day change 4 day change % ytd
DJIA 11406.16 11499.2 93.04 0.82% 10.00%
NASDAQ 2645.35 2637.31 -8.04 -0.30% 16.32%
RUSSELL 2000 777.04 776.56 -0.48 -0.06% 22.00%
S&P 500 1242.52 1242.87 0.35 0.03% 11.34%

Summary of VE Stock Universe

Stocks Undervalued 37.38%
Stocks Overvalued 62.62%
Stocks Undervalued by 20% 17.75%
Stocks Overvalued by 20% 29.71%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E
MReturn Ratio
Aerospace 0.49% 2.83% 21.17% 8.01% overvalued 28.76% 19.51
Auto-Tires-Trucks 0.39% 6.24% 57.04% 14.79% overvalued 54.29% 26.02
Basic Materials 0.40% 3.51% 30.07% 28.64% overvalued 64.08% 37.05
Business Services 0.09% 4.31% 12.93% 7.16% overvalued 21.98% 29.64
Computer and Technology 0.92% 3.80% 30.07% 8.09% overvalued 35.94% 43.22
Construction 0.92% 7.03% 11.55% 6.75% overvalued 12.09% 36.65
Consumer Discretionary 0.97% 2.14% 21.50% 6.67% overvalued 26.55% 30.88
Consumer Staples 0.51% 4.29% 12.55% 12.00% overvalued 19.52% 27.27
Finance 0.56% 3.03% 16.30% 7.58% overvalued 17.56% 24.22
Industrial Products 0.85% 5.38% 24.18% 16.28% overvalued 32.08% 25.42
Medical 0.96% 5.66% 16.69% 3.76% undervalued 20.18% 37.27
Multi-Sector Conglomerates 0.71% 3.03% 24.70% 14.84% overvalued 32.20% 28.92
Oils-Energy 0.24% 2.23% 15.38% 22.70% overvalued 36.49% 39.93
Retail-Wholesale 1.07% 1.66% 20.27% 10.64% overvalued 59.50% 22.21
Transportation 0.88% 2.49% 24.49% 12.24% overvalued 27.26% 42.36
Utilities 0.71% 1.85% 6.71% 8.53% overvalued 13.90% 25.11
Sector Talk-- Basic Materials

Below, we present various top-five lists for the Basic Materials Sector from our
Institutional software package (VEI). These results were filtered by market price and
volume--no results below 3$/share or less than 100k shares/day volume.

Top-Five Basic Materials Stocks--Short-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
UFS DOMTAR CORP 76.5 -2.52 35.93
MERC MERCER INTL SBI 6.87 -17.95 171.54
MSB MESABI TRUST 45.66 -0.36 314.34
AAUKY ANGLO AMER -PLC 24.34 32.38 13.58
CHOP CHINA GERUI ADV 6.04 6.52 8.4

Top-Five Basic Materials Stocks--Long-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
DD DU PONT (EI) DE 49.45 8.33 57.89
ABX BARRICK GOLD CP 51.63 12.21 30.61
MSB MESABI TRUST 45.66 -0.36 314.34
LZ LUBRIZOL CORP 109.41 13.36 50.58
ADM ARCHER DANIELS 30.35 -17.46 -0.82

Top-Five Basic Materials Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
UFS DOMTAR CORP 76.5 -2.52 35.93
ASH ASHLAND INC 52.65 -16.24 31.26
CBT CABOT CORP 38.26 -6.86 51.29
DD DU PONT (EI) DE 49.45 8.33 57.89
LZ LUBRIZOL CORP 109.41 13.36 50.58
Top-Five Basic Materials Stocks--Most Overvalued
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
MVG MAG SILVER CORP 11.24 143.09 83.93
NGD NEW GOLD INC 9.06 109 150.28
AKS AK STEEL HLDG 15.36 108.36 -25
VRS VERSO PAPER CP 3.61 88.18 56.96
SQM SOC QUIMICA MIN 53.18 85.14 34.8

Subscribers can check out the latest valuation, forecast, and ratings figures on
the Aerospace-Defense Sector from our Models HERE.
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What's Hot--Valuation Watch

Model Calculations Show Correction May be Imminent

The ValuEngine Valuation Model tracks more than 5000 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. As of last night's close, our overall market overvaluation
and overvalued by 20% or more figures have reaches levels which have been
correlated with approaching market corrections in the past.

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. ValuEngine issued a market valuation watch this week.

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.

This chart shows overall universe valuation in excess of 60% vs the S&P 500 from
the end of March 2010 to the present.
 This chart shows universe overvalued by 20% or more levels in excess of 27.5% vs
the S&P 500 from the end of March 2010 to the present.

In addition to the overall valuation metrics, we see that on a sector basis 15 of

16 sectors are calculated to be overvalued. In the past, our Chief Market Strategist
Richard Suttmeier has used the sector valuation figures to buttress his macro market
calls. Eight sectors are calculated to be overvalued by 10% or more.

This is another indicator that stocks are no longer the bargain they were a few
months ago and that investors should consider implementing additional risk
management tools and/or booking some profits.

Of course, as always past performance is no indication of future behavior.

Given the wild gyrations of the markets over the past few years, it has been tough to
rely completely on any fundamentally or technically-based mode of analysis. But as
you can see from the charts below, the overvalued indicator has been fairly robust
and thus must be considered as we move forward.
 This chart shows universe overvaluation figures in excess of 60% vs the S&P 500
from 1991 up until the end of May 2010.

This chart shows universe overvalued by 20% or more levels in excess of 30% vs
the S&P 500 from 1991 up until the end of May 2010.
 As you can see from the charts, in many cases in the past the spikes in
overvaluation provided a timely signal of an impending negative move. Our most
recent valuation watch occurred in late April 2010, just as the market headed down
for the Summer.
If levels of overvaluation continue to climbs and surpass 60% for the overall
universe and 30% for the overvalued by 20% or more metric, then we will issue a
valuation warning and expect an imminent correction.
ValuEngine offers clients several newsletters which can help to mitigate the
overall downside risk to their portfolios. Richard Suttmeier's ValuTrader Newsletter
includes some hedging via the use of popular short ETFs and Suttmeier allocates
money long or short depending on his read of the overall macro environment. The
ValuEngine Forecast Model Market Neutral Strategy Portfolio Newsletter includes both
a long and short side so that subscribers may garner lower volatility than a long only
portfolio can provide.

With Richard Suttmeier's ValuTrader Newsletter Portfolio, you get timely stock picks
and a strategy designed to profit from today's volatile market environment.
Click HERE to Sign Up for Richard Suttmeier's ValuTrader Newsletter Portfolio

With the ValuEngine Forecast Model Market Neutral Strategy Newsletter, you can
run your own portfolio like a hedge fund to manage risk and profit in any market
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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

Treasury Yields
10-Year-- (3.471) My daily value level is 3.753 with a semiannual
pivot at 3.479, and weekly pivot at 3.176, annual pivots at 2.999
and 2.813, and quarterly, semiannual and monthly risky levels at
2.265, 2.249 and 1.949. The rise in the 10-Year yield is overdone
and my semiannual pivot at 3.479 has become a magnet.

Commodities and Forex

Comex Gold-- ($1370.7) Daily, quarterly, semiannual and annual value levels are
$1347.9, $1306.4, $1260.8, $1218.7 and $1115.2 with a weekly pivot at $1377.4, and
monthly risky level at $1443.5. Comex Gold closed above its 50-day simple moving
average at $1369.10, and closes have been above this support since August 12th.

Nymex Crude-- ($87.86) Semiannual, annual and monthly value levels are $83.94,
$77.05 and $75.50 with daily and weekly pivots at $87.56 and $88.76, and semiannual
and annual risky levels at $96.53 and $97.29. Nymex Crude oil remains influenced by
my weekly pivot at $88.76.

The Euro--(1.3237) My monthly value level is 1.2500 with daily, weekly and quarterly
pivots at 1.3246, 1.3227 and 1.3318, and semiannual risky level at 1.4733. The euro has
been influenced by my quarterly pivot at 1.3318.

Major Indices
The major averages straddle this week’s risky levels / pivots at 11,467 Dow,
1242.9 SPX, 2643 NASDAQ, 5141 Transports, 770.13 Russell 2000, and 428.02 Sox.

The Dow--
Daily: (11,499) Semiannual, annual, monthly and quarterly value levels are 10,558,
10,379, 10,325 and 8,523 with annual and semiannual pivots at 11,235 and 11,296, and
daily and weekly pivots at 11,499 and 11,467. The Dow Industrial Average remains
overbought on both daily and weekly charts and gains above 11,500 have not been
sustained so far.
Housing
Home repossessions dropped 28% in November sequentially and 12% year over
year. Even so the year to date total is around 980,000 according the RealtyTrac.
Once we get into 2011 the pace of foreclosures should pick up again as the freezes
end and as improved documentation practices are put into place by lenders.
The tough environment for housing should persist in 2011; high unemployment,
a continued weak housing market, and tighter lending standards. With 10.8 million
households or 22.5% of all homes with a mortgage were underwater at the end of the
third quarter. There are 5 million mortgages that are at least two month in arrears, yet
many of them have not even entered the foreclosure process.
According to Trulia Inc there is ten months of housing inventory up for sale and
in many communities sellers are cutting prices across the country. The average price
cut is 12% from a year ago.
Until the housing market shows a sustainable recovery, job creation will lag and
the economic recovery will remain weak.

Upcoming Suttmeier Appearance

ValuEngine Chief Market Strategist Richard Suttmeier On the Road in
January
ValuEngine Chief Market Strategist Richard Suttmeier is a financial analyst for
media such as Fox News, CNBC,YahooFinance,the Wall Street Journal, New York
Times, CNNfn, and Bloomberg, Suttmeier has long been one of ValuEngine's "power
users," supporting his own technically-focused
analysis with VE's fundamentally-based quant
methods.
With all of the recent market
uncertainties, making the correct stock
decisions can be daunting. ValuEngine Chief
Market Strategist Richard Suttmeier will be
appearing at the AAII Orlando Chapter
meeting on January 19, 2011. We invite all VE
clients in Florida to attend. At the meeting,
Suttmeier will discuss the following topics:
• How ValuEngine.com can help investors
adapt to volatile and risky market
conditions
• How to implement a hedge fund-type strategy for your own stock investment
portfolio
 • How ValuEngine’s research helped me call both the top and the bottom of the
market over the past five years
This meeting will take place at the University Club of Winter Park, 841 N. Park
Ave. Winter Park, FL 32789. It starts at 6:30pm. Again, all VE clients are invited. We
place a special call out to those seeking individual investment advice, assistance,
and portfolio management.

Subscribers can check out the latest from Suttmeier on a daily basis with his
free Four-in Four Daily newsletter. Sign up HERE.