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May 4, 2011

VALUATION WATCH: Valuation at current levels is considered to be within


"normal" range and therefore the Valuation Watch is OFF.

Valuation Summary
ValuEngine.com Market Valuation Watch is Off
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. 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. When overvaluation exceeds 65%, we issue a
valuation warning.
Our last Valuation Watch took place from March 30th to April 13th. We began
that Valuation Watch with the SP 500 at 1319 and saw it rise to 1335 before dropping
to 1314. At that time we saw our overall valuation figures approach the Valuation
Warning level of 65%-- but they peaked at 64.27%. Since that mid-April dip, the
market resumed its upward climb.
We began our latest Valuation Watch on April 28th with the SP 500 at 1355 and
the overvaluation figures almost hitting 62%. As of today, the market is at 1356.62 and
the overvaluation figure is at 57.48% while the overvaluation by 20% or more figure
has receded to 23.67%. Therefore, we have removed our Valuation Watch.
Why the decline in valuations if the market is at roughly the same level?
1. the models re-evaluate the entire universe after every trading day. As new earnings and EPS
estimates are developed, our valuation readings can change. Better earnings at a given
market price level tend to reduce overvaluation valuation levels.
2. At the end of every month we complete a major database update which effects overall
model parameters and calculations.

Our watches and warnings let us know that the model thinks things are
overheated, but they cannot tell us when a correction will occur, nor can they tell us
its duration and depth. In some cases the market heads for a long dive, in others we
see juts a momentary drop before the market resumes an upward climb. We simply
do not possess the long-term historical data necessary to complete a better study of
the metric. We will continue to watch and track the overvaluation metric so that we
may add to our dataset.

MARKET OVERVIEW
Summary of VE Stock Universe
Stocks Undervalued 42.52%
Stocks Overvalued 57.48%
Stocks Undervalued by 20% 16.43%
Stocks Overvalued by 20% 23.67%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E
MReturn Ratio
Aerospace -0.92% -0.87% 12.60% 6.18% overvalued 17.57% 19.08
Auto-Tires-Trucks -0.88% -0.82% -1.65% 4.70% overvalued 36.66% 20.25
Basic Materials -2.15% -2.06% -1.96% 2.58% overvalued 38.42% 25.23
Business Services -0.76% -0.56% 6.57% 8.15% overvalued 8.98% 38.66
Computer and Technology -1.68% -1.55% 11.35% 5.97% overvalued 23.16% 45.33
Construction -1.22% -1.17% -0.41% 2.01% overvalued -3.68% 50.01
Consumer Discretionary -0.67% -0.61% 7.01% 4.50% overvalued 6.63% 29.7
Consumer Staples -0.96% -0.88% -1.95% 7.23% overvalued 12.54% 21.24
Finance -0.55% -0.50% 3.22% 4.64% overvalued 2.88% 25.38
Industrial Products -1.10% -1.02% 6.95% 6.97% overvalued 18.59% 32.38
Medical -0.95% -0.85% 14.73% 3.37% overvalued 10.33% 35.06
Multi-Sector Conglomerates -0.91% -0.87% 5.72% 11.94% overvalued 23.42% 28.47
Oils-Energy -2.35% -2.19% 7.71% 12.88% overvalued 30.74% 48.92
Retail-Wholesale -0.88% -0.84% 6.49% 4.48% overvalued 12.87% 34.72
Transportation -1.20% -1.14% 0.04% 6.98% overvalued 11.10% 20.5
Utilities -0.44% -0.42% 6.73% 10.65% overvalued 17.25% 23.93