September 10, 2010

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MARKET OVERVIEW
Index started week Thursday Close 3 day change 3 day change % ytd
DJIA 10446.8 10415.2 -31.6 -0.30% -0.15%
NASDAQ 2227.26 2236.2 8.94 0.40% -2.54%
RUSSELL 2000 641.06 634.62 -6.44 -1.00% 1.04%
S&P 500 1102.6 1104.18 1.58 0.14% -1.11%

Summary of VE Stock Universe

Stocks Undervalued 69.70%
Stocks Overvalued 30.30%
Stocks Undervalued by 20% 35.91%
Stocks Overvalued by 20% 9.53%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries -0.33% 1.25% 17.75% 3.56% undervalued 32.36% 22.53
Capital Goods 0.11% 1.46% 8.90% 12.55% undervalued 11.01% 19.63
Consumer Durables 0.34% 2.19% 6.93% 17.03% undervalued 23.97% 18.02
Consumer Non-Durables -0.01% 0.95% 1.77% 10.72% undervalued 18.28% 16.17
Consumer Services 0.20% 2.35% 3.58% 12.53% undervalued 12.80% 20.31
Energy -0.10% 1.77% -2.97% 3.25% undervalued 31.23% 23.65
Finance 0.23% 0.56% 7.01% 9.57% undervalued 4.25% 17.65
Health Care 0.28% 1.59% 13.32% 17.85% undervalued 2.13% 20.51
Public Utilities 0.41% 0.17% -2.99% 4.93% undervalued 12.45% 17.72
Technology 0.14% 2.20% 7.15% 16.17% undervalued 19.17% 23.03
Transportation -0.09% 2.06% 5.87% 6.56% undervalued 15.57% 18.27
INDEX TALK—The DOW
Below, we present various top-five lists for the DOW from our Institutional
software package (VEI).

Top-Five DOW Stocks--Short-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
GE GENL ELECTRIC 15.91 -16.3 9.72
UTX UTD TECHS CORP 68.62 -3.95 14.75
AXP AMER EXPRESS CO 40.69 -26.97 21.61
BA BOEING CO 63.44 -12.58 29.05
PG PROCTER & GAMBL 60.29 -5.96 15.59

Top-Five DOW Stocks--Long-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
GE GENL ELECTRIC 15.91 -16.3 9.72
BA BOEING CO 63.44 -12.58 29.05
UTX UTD TECHS CORP 68.62 -3.95 14.75
CSCO CISCO SYSTEMS 20.61 -25.08 -7.29
CAT CATERPILLAR INC 70.64 -7.8 49.88

Top-Five DOW Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
AXP AMER EXPRESS CO 40.69 -26.97 21.61
INTC INTEL CORP 18 -36.63 -6.93
DD DU PONT (EI) DE 42.18 -11.06 40.69
BA BOEING CO 63.44 -12.58 29.05
GE GENL ELECTRIC 15.91 -16.3 9.72
Top-Five DOW Stocks--Most Overvalued
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
KO COCA COLA CO 58.29 7.92 18.84
MCD MCDONALDS CORP 74.37 5.29 39.5
DIS DISNEY WALT 34.08 0.24 27.93
TRV TRAVELERS COS 50.27 -0.99 4.38
HD HOME DEPOT 29.41 -3.54 10.81

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--What's HOT
Q2 2010 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. A major
update to the report which covers the FDIC Quarterly Banking Profile for Q2 2010, is
now available.
Suttmeier notes the following about bank failures in the latest report:
There were 45 bank failures in the second quarter, and we ended the quarter
with the number of FDIC-insured financial institutions declining to 7,893, of which 1306
are publicly-traded. The FDIC only closed 25 banks during all of 2008. In 2009 the FDIC
picked up the pace with 140 bank failures with a peak of 50 in the third quarter of
2009. So far in 2010, the FDIC closed 41 banks in the first quarter, another 45 in the
second quarter, and 32 so far for the third quarter. Almost all of the banks closed this
year and last were overexposed to construction and development (C&D) loans and
non-farm / non-residential real estate loans (CRE).
With 118 bank failures so far in 2010, the total for “The Great Credit Crunch” is
up to 283-- continuing its path to my predicted 500 to 800 by the end of 2012 into
2013.
There are currently 7,893 FDIC-insured institutions—of which 1306 are publicly-
traded banks.
 Looking at all FDIC-Insured Financial Institutions, we find 1172 community
banks--14.8%-- overexposed to Construction & Development Loans, 1432-- 18.1%--
overexposed to Nonfarm / Nonresidential real estate loans, and 2504 --31.7%
--overexposed to Commercial Real Estate (CRE) loans.

Looking at loans versus loan commitments, which I call “Pipeline,” even more
banks are feeling additional stress. A “normal” or “healthy” pipeline is when 60% of
the C&D and CRE loans are outstanding versus a bank’s total commitment to these
types of loans. Of the FDIC-Insured Financial Institutions 1317--16.7%-- have a real
estate loan pipeline that’s 100% funded, 2622 --33.2%-- have a pipeline that’s
between 80% and 100% funded. Assets among banks with a CRE pipeline of 80% or
more funded increased to $3.84 trillion including $121.3 billion in C&D loans. The
average pipeline for 3939 banks is 92.0%. This means that @ half of all of the
community banks remain dangerously over-leveraged. Possible losses total @ $1.5
trillion!

When we look at publicly-traded banks, we find that 293 of the 1306 publicly-
traded banks are overexposed to C&D loans and 394 are overexposed to Nonfarm /
Nonresidential real estate loans. Here again, more than 50% of the institutions are
overexposed/over-leveraged when it comes to CRE/C&D.

Pipeline levels for publicly-traded banks show similar stress. 234 publicly-traded
banks have a real estate loan portfolio that’s 100% funded and 463 have a real
estate loan portfolio between 80% and 100% funded. Banks with pipelines in excess
of 80% tend to show up on Bank Failure Friday.

We see some pretty big players with critical pipeline levels. In particular, four big
banks are likely to see waves of write-offs in upcoming quarters. JP Morgan Chase
(JPM) with $1.72 trillion in assets, has a pipeline of 80%. SunTrust Banks (STI) has $160.5
billion in assets with an 83% pipeline. BB&T Corp (BBT) has $149.2 billion in assets with
an 84% pipeline. Fifth Third Bank (FITB) has 100.0 billion in assets with an 84% pipeline.

The FDIC refuses to name its problem banks, but in the ValuEngine FDIC Report,
Chief Market Strategist Richard Suttmeier identifies more than 600 banks that display
the hallmarks of institutions in danger of failure.
 Our latest ValuEngine Quarterly FDIC Report 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.

Click the logo below to Sign Up for Chief Market Strategist Richard Suttmeier's FREE
Daily Newsletter!
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-- (2.757) Annual value levels are 2.813 and 2.999 with
daily, monthly, weekly, quarterly and semiannual risky levels at
2.624, 2.562, 2.507, 2.495 and 2.249. If you are in the "bond
bubble" camp, the trading range for the 10-Year US Treasury yield
is between my annual pivot at 2.999 and my semiannual risky
level at 2.249.

I do not believe that we are in a bond bubble, but that does not mean that
yields are headed lower. The 10-Year yield has formed a trading range between my
annual pivot at 2.813 and my semiannual risky level at 2.249 with monthly and
quarterly pivots in-between at 2.562 and 2.495. The cycle low yield has been 2.419 set
on August 25th. My second annual pivot remains at 2.999. The bottom line is that the
10-Year yield can trade in a 75 basis points range between 2.999 and 2.249 as long as
the Federal Reserve maintains a zero percent funds rate for an extended period and
as long as the Fed buys US Treasuries.

Commodities and Forex

Comex Gold--($1246.00) Weekly, semiannual, quarterly and annual value levels are
$1223.7, $1218.7, $1140.9 and $1115.2 with daily, semiannual and monthly risky levels
at $1258.2, $1260.8 and $1263.8. Gold failed to reach a new high this week stopped
by my semiannual and monthly pivots at $1260.8 and $1263.8. Gold is still overbought
on its daily chart.

Nymex Crude--($73.97) Quarterly value level is $56.63 with daily and monthly pivots is
$72.46 and $74.45, and weekly, annual and semiannual risky levels at $76.76, $77.05
and $83.94. Crude oil continues to trade between its August 25th low at $70.76 and
my annual pivot at $77.05.
The Euro--(1.2705) Quarterly and monthly value levels are 1.2167, 1.1721 and 1.1424
with daily, weekly and semiannual risky levels at 1.2752, 1.3168 and 1.4733. The euro is
between its August 24th low of 1.2591 and its 50-day simple moving average at
1.2849. The Euro had strength that failed between its 50-day simple moving average
at 1.2843 and its 200- day simple moving average at 1.3298. The euro is now below
both, which should bring selling pressure to stocks.

Major Indices

The major equity averages still straddle monthly pivots at 10,164 on Dow
Industrials, 1074.9 S&P 500, 2196 NASDAQ, 4364 Dow Transports, and 652.82 on Russell
2000.

• Strength on the Dow should stall between my annual pivot at 10,379 and my
semiannual risky level at 10,558.
• The S&P 500 held my annual value level at 1014.2 on July 1st and returned to
my semiannual pivot at 1100.7. The 200-day simple moving average is a barrier
at 1115.56.
• The NASDAQ has been under the influence of semiannual and annual pivots
at 2223, 2242 and 2250 below its 200-day simple moving average at 2272.
• Dow Transports have been trading between my annual pivot at 4324 and my
semiannual pivot at 4467. Transports can provide either upside or downside
leadership with a semiannual value level at 3530 and an annual risky level at
4955.
• The Russell 2000 has been the laggard versus its monthly pivot at 652.82 and
the key level to hold on weakness is my semiannual pivot at 592.92.
• The worst performer the SOX should be a leader, but it’s stuck well below its
50-day and 200-day simple moving averages at 340.20 and 349.93.

The Dow--

Daily: (10,415) Monthly and quarterly value levels are 10,164 and 7,812 with annual
and daily pivots at 10,379 and 10,432, and weekly, semiannual and annual risky levels
at 10,515, 10,558 and 11,235. My annual risky level at 11,235 was tested at the April
26th high of 11,258.01. The 50-day simple moving average is 10,286 with the 21-day at
10,249, and 200-day simple moving average as resistance at 10,452. Longer term, I
still predict Dow 8,500 Before 11,500.
--The ValuEngine Forecast 22 Market Neutral
Strategy Newsletter
Our Forecast 22 Market Neutral Strategy Newsletter portfolio recently posted a
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term effects are very beneficial to the bottom line.

For a market neutral strategy with significant volatility-reducing benefits, our

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 Since inception, we are up more than 35%, our average monthly return is @1.5%, our
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