October 14, 2011

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MARKET OVERVIEW

Index
DJIA NASDAQ RUSSELL 2000 S&P 500

started week
11104.64 2522.72 664.58 1158.15

Thursday Close
11478.1 2620.24 698.82 1203.66

4 day change
373.46 97.52 34.24 45.51

4 day change %
3.36% 3.87% 5.15% 3.93%

ytd
-0.26% -0.48% -10.31% -3.52%

Summary of VE Stock Universe

Stocks Undervalued Stocks Overvalued Stocks Undervalued by 20% Stocks Overvalued by 20% 83.00% 17.00% 51.04% 4.90%

SECTOR OVERVIEW
Sector
Aerospace Auto-Tires-Trucks Basic Materials Business Services Computer and Technology Construction Consumer Discretionary Consumer Staples Finance Industrial Products Medical Multi-Sector Conglomerates Oils-Energy Retail-Wholesale Transportation Utilities

Change
-0.06% -1.01% -0.92% -0.39% 0.44% -0.45% 0.01% 0.20% -0.90% -0.60% 0.25% -0.34% 0.40% -0.28% 0.42% 0.19%

MTD
9.64% 18.09% 14.23% 12.10% 14.58% 14.44% 13.52% 9.21% 9.47% 14.30% 9.41% 12.52% 16.44% 10.88% 15.29% 6.69%

YTD
3.65% -30.74% -22.98% -8.77% -9.82% -26.48% -13.75% -15.61% -12.82% -18.01% -5.72% -14.01% -21.07% -3.99% -12.72% -5.20%

Valuation
19.07% undervalued 17.77% undervalued 21.33% undervalued 19.55% undervalued 21.35% undervalued 26.25% undervalued 20.17% undervalued 11.98% undervalued 21.25% undervalued 23.63% undervalued 24.06% undervalued 15.93% undervalued 23.11% undervalued 17.01% undervalued 16.73% undervalued 7.67% undervalued

Last 12MReturn
-0.75% 3.17% -2.90% -2.55% -0.84% -17.70% -2.84% -2.13% -7.11% -0.07% -0.32% -2.41% 24.60% 7.19% -5.83% 1.53%

P/E Ratio
22.07 31.13 32.92 28.82 34.83 36.56 29.95 17.58 18.37 17.99 29.15 20.73 34.8 28.11 24.18 20.65

Sector TalkBasic Materials Stocks

Below, we present the latest data on leading Basic Materials Sector Stocks 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 Sector Stocks--Short-Term Forecast Returns

Ticker
DQ MERC YONG TRX CXDC

Name
DAQO NEW ENERGY MERCER INTL SBI YONGYE INTL INC TANZANIAN ROYAL CHINA XD PLASTC

Mkt Price
3.75 6.91 4.5 3.63 4.21

Valuation(%)
-21.66 -41.12 N/A N/A -36.8

Last 12-M Retn(%)

-70.5 33.66 -47.37 -50.88 -22.75

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

Ticker
AG IAG MERC BZ NGD

Name
FIRST MAJESTIC IAMGOLD CORP MERCER INTL SBI BOISE INC NEW GOLD INC

Mkt Price
16.55 20.25 6.91 5.7 11.27

Valuation(%)
10.56 -21.21 -41.12 -27.74 -8.29

Last 12-M Retn(%)

120.37 12.38 33.66 -16.42 53.13

Top-Five Basic Materials Stocks--Composite Score

Ticker
LYB MERC EMN BASFY DAR

Name
LYONDELLBASEL-A MERCER INTL SBI EASTMAN CHEM CO BASF AG-ADR NEW DARLING INTL

Mkt Price
28.06 6.91 37.15 70.19 12.97

Valuation(%)
-30.14 -41.12 -65 -27.83 -42.73

Last 12-M Retn(%)

4.9 33.66 -3.38 4.4 29.96

Top-Five Basic Materials Stocks--Most Overvalued

Ticker
NXG KS IPHS ARJ AZC

Name
NORTHGATE MNRLS KAPSTONE PAPER INNOPHOS HLDGS ARCH CHEMICALS AUGUSTA RSRC CP

Mkt Price
3.64 16.02 44.86 47.04 3.75

Valuation(%)
44.22 40.53 36.39 26.51 25.51

Last 12-M Retn(%)

23.81 25.06 36.31 31.69 -8.31

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What's Hot
The Hard Trade
Yaron Sadan of Osher Capital on Commodities
ValuEngine is pleased to announce another addition to our stable of high quality investment newsletters. Our latest premium newsletter comes to us from Yaron Sadan and is called "The Hard Trade." Sadan is the founder and president of Osher Capital Advisors, LLC (Osher). Before starting Osher, Sadan worked in the private wealth management group of Goldman Sachs.

Oil and Energy

As the worlds growth is being recognized for what it is, namely anemic if not outright negative, oil and the industrial commodities have come off a good 30+%. As readers are aware, energy has been a big focus area for my strategy, so this move has not been without its pain, and the question, as always is what to do going forward.

For reference, heres oils monthly chart:

What we can clearly see is that oil has room on either side, and arguments can be made on a fundamental basis that it should go in one direction or the other. Additionally, more detailed technical analysis can also lead you to expect different outcomes depending on your own bias. The real question for me is what did I see in the energy exposure oh so many months and percentages ago? As you may recall, the thinking behind energy was based on which opposing force would win out. On the one hand, I pointed to slowing growth as a negative for oil. The number one factor on this side of the argument was that a slowing China would represent less marginal demand. That has come to pass. On the other hand, I expected increased political turmoil, social unrest, and geopolitical tension to lead to hoarding of strategic assets, energy being the most important one. That has not come to pass yet. These two opposing forces have been playing out in energy across the spectrum, and so far, a slowing world economy and a China on the brink of economic upheaval have prevailed.

That being said, the seeds of unrest have already been sown. The Arab Spring, the Occupy Wall Street protests, the China currency bill, and the increased rhetoric of nationalism are all working towards increasing trade barriers and cross border tensions. Additionally, the unfounded backlash against nuclear energy in Europe as a result of the Japanese nuclear reactor tragedy only serves to provide a base for the other energy sources as Germany, and indeed much of Europe, and Japan itself, all look for new energy replacements.

The Hard Trade Premium Newsletter is now available on our website HERE

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--(2.176) Semiannual, quarterly and annual value levels are 2.414, 2.669 and 2.690 with daily and monthly pivots at 2.155 and 2.222, the 50-day simple moving average at 2.074, and weekly, and semiannual risky levels at 1.776 and 1.672, which was tested on September 23rd. Commodities and Forex Comex Gold-- ($1669.3) Semiannual and annual value levels are $1469.9 and $1,356.5 with semiannual and daily pivots at $1644.8 and $1659.1, and quarterly, weekly and monthly risky levels at $1738.4, $1760.1 and $1811.4, and the September 6th all time high at $1923.7. The 200-day simple moving average is $1539.6 with the 50-day at $1750.6. Nymex Crude--($84.58) The October 4th year-to-date low is $74.95 with my weekly value level at $82.35, the 50-day at $84.87, the 200-week at $83.57, and daily, monthly, quarterly and annual risky levels at $89.35, $98.51, $100.34, $99.91 and $101.92.

The Euro--(1.3794) Weekly, and quarterly value levels are 1.3345 and 1.2598 with daily, monthly and semiannual risky levels at 1.3953, 1.4579, 1.4752 and 1.4872. The daily chart shows the 50-day simple moving average at 1.3938 trading below the 200-day at 1.4066 in whats called a Death Cross. Major Indices Equity Technicals: The daily technicals are positive and nearing overbought territory. The weekly technicals shift to positive on weekly closes above the five-week modified moving averages at: 11,218 Dow Industrials, 1175.0 SPX, 2511 NASDAQ, 2203 NDX, 4472 Dow Transports, 685.04 Russell 2000, and 358.05 SOX. We can have positive weekly charts, but if the closes are below 11,491 Dow and 1210.7 SPX the configuration could be a false signal. Equity Fundamentals: Stocks remain fundamentally cheap, but not as cheap as they were at the October 4th lows. 83.0% of all stocks are undervalued / 17.0% of all stocks are overvalued. In March 2009 we saw 91.1% of all stocks undervalued. All sixteen sectors are undervalued, fifteen by double-digit percentages, but only eight by 20.2% to 26.3, as the 30-Year bond yield starts to rise putting a drag on valuations. Back in March 2009 the sectors were undervalued by 33% to 45%. Key Levels for the Major Equity Averages Dow --(11,478) The October 4th YTD low is 10,404.49 with the 200-week and 120month simple moving averages at 10,650 and 10,609, my weekly value level at 10,894, the 50-day at 11,196, my annual pivot at 11,491, and daily, monthly and quarterly risky levels at 11,856, 12,091 and 12,507. Semiannual value levels are 9,635 and 8,468.

S&P 500--(1203.7) The October 4th YTD low is 1074.77 with semiannual value levels at 981.3 and 855.7, my weekly value level at 1137.5, the 50-day at 1172.0, my annual pivot at 1210.7, and daily, monthly, quarterly and annual risky levels at 1254.9, 1259.8, 1303.7 and 1562.9. NASDAQ (2620) The October 4th YTD low is 2298.89 with my annual pivot at 2335, semiannual value levels at 2199 and 2049, my weekly value level at 2436, the 50-day at 2501, and daily, monthly, quarterly and annual risky levels at 2741, 2680, 2807 and 3243. NASDAQ 100 (NDX) (2327) The YTD low is 2034.92 with semiannual and annual value levels at 1951, 1861 and 1723, my weekly value levels at 2171, the 50-day and 200-day at 2195 and 2292, my monthly pivot at 2312, and daily, quarterly and annual risky levels at 2419, 2440 and 2590. Dow Transports (4588) The October 4th YTD low is 3950.66 with my semiannual value level at 3868, semiannual and weekly value levels at 4335 and 4108, the 50-day at 4451, and daily, monthly, annual and quarterly risky levels at 4896, 4980, 5179 and 5359. Russell 2000 (698.81) The October 4th YTD low is 601.71 with semiannual value levels are 577.47 and 530.04, my weekly value level at 641.17, the 50-day at 683.69, and daily, monthly, annual and quarterly risky levels at 747.93, 778.77, 784.16 and 802.96. The SOX (376.60) The October 4th YTD low is 322.24 with annual and semiannual value levels at 270.98, 258.97 and 204.67, my weekly value level at 345.74, my monthly pivot at 363.01, the 50-day at 353.95, and daily and quarterly risky levels at 397.58 and 417.63.
Note: For my technical momentum metrics--"MOJO"--I use whats called 12x3x3 slow stochastic readings from daily, weekly and monthly charts. The scale is zero to 10.0 where above 8.0 is overbought and below 2.0 is oversold.

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