April 30, 2010

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MARKET OVERVIEW

Thursday 4 day 4 day

Index started week ytd
Close change change %
DJIA 11205.11 11167.3 -37.81 -0.34% 7.06%
NASDAQ 2529.85 2511.92 -17.93 -0.71% 9.48%
RUSSELL 2000 741.58 737.74 -3.84 -0.52% 17.45%
S&P 500 1217.07 1206.78 -10.29 -0.85% 8.08%

Summary of VE Stock Universe

Stocks Undervalued 41.28%
Stocks Overvalued 58.72%
Stocks Undervalued by 20% 18.28%
Stocks Overvalued by 20% 29.83%

SECTOR OVERVIEW
Sector Change MTD YTD Valuation Last 12- P/E Ratio
MReturn
Basic Industries 1.52% 7.09% 20.31% 13.84% overvalued 84.00% 27.7
Capital Goods 1.69% 8.24% 21.02% 17.57% overvalued 60.05% 23.69
Consumer Durables 1.81% 10.06% 18.42% 19.08% overvalued 79.21% 24.29
Consumer Non-Durables 1.11% 4.46% 12.42% 5.74% overvalued 67.89% 19.75
Consumer Services 1.33% 8.38% 20.86% 8.34% overvalued 66.81% 23.94
Energy 0.93% 4.36% 6.05% 12.37% overvalued 70.22% 22.45
Finance 1.01% 6.47% 16.59% 11.17% overvalued 39.53% 19.75
Health Care 2.13% 5.54% 13.92% 1.57% overvalued 58.83% 23.11
Public Utilities 0.81% 1.44% 2.43% 4.51% overvalued 39.35% 16.67
Technology 1.32% 7.01% 15.08% 1.90% overvalued 71.56% 28.99
Transportation 1.51% 7.18% 16.63% 11.18% overvalued 61.60% 22.52
 VALUATION WATCH: Our models find that overvaluation is approaching
levels typically seen when a market correction is imminent. Overvalued
stocks now make up 61% of our universe and 31% of the universe is
calculated to be overvalued by 20% or more. All sectors are now
calculated to be overvalued.

Index Talk
--The S&P 500
Below, we present the key ValuEngine data points for the S&P 500 from our
Institutional software package (VEI). Remember that our ratings system has a bias
toward larger market caps so big companies have a leg up to high ratings due to
their size. As always, remember that in almost all years our ratings are predictive and
4 and 5-Engine stocks outperform the broader markets.

Top-Five S&P 500 Stocks--Short-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
CMA COMERICA INCORPORATED 41.91 35.36 93.67
C CITIGROUP INCORPORATED 4.56 -64.28 46.15
AMD ADVANCED MICRO DEVICES INC 9.72 -54.03 176.92
FITB FIFTH THIRD BANCORP 14.87 -2.06 261.8
EK EASTMAN KODAK CO 6.94 -61 90.66

Top-Five S&P 500 Stocks--Long-Term Forecast Returns

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
CMA COMERICA INCORPORATED 41.91 35.36 93.67
C CITIGROUP INCORPORATED 4.56 -64.28 46.15
FITB FIFTH THIRD BANCORP 14.87 -2.06 261.8
HBAN HUNTINGTON BANCSHARES INC 6.87 N/A 136.08
GNW GENWORTH FINANCIAL INC 18.09 52.25 714.86
Top-Five S&P 500 Stocks--Composite Score
Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
AMD ADVANCED MICRO DEVICES INC 9.72 -54.03 176.92
SLM SLM CORP 12.64 -46.7 152.8
EK EASTMAN KODAK CO 6.94 -61 90.66
PRU PRUDENTIAL FINANCIAL INC 65.23 -8.19 135.06
AES AES CORP 11.7 -27.89 72.82

Top-Five S&P 500 Stocks--Most Overvalued

Last 12-M
Ticker Name Mkt Price Valuation(%)
Retn(%)
CIT C.I.T. GROUP INC-A 40.77 300 N/A
AKAM AKAMAI TECHNOLOGIES 39.63 276.93 97.56
REGIONS FINANCIAL
RF 8.65 197.65
CORPORATION 86.83
TIE TITANIUM METALS 16.06 185.25 143.33
IACI IAC/INTERACTIVECORP 22.77 123.84 36.76

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forecast, and ratings data on every individual equity in the S&P 500 HERE.

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What's Hot
--Catching Up with TK Ng
ADRs and Visual Finance

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
HERE.

ADRs have "grown up." Five years ago, with the exception of those ADRs from
established Europeans firms, ADRs were considered a good but more risky
investment. For historical and geographical reasons, the European and Latin
American companies were the first to list on US Exchanges. But the Asian companies
are fast catching up. Now, with the U.S. economy expected to grow at a much
slower pace than the economies of Asia and even some Latin American countries,
the picture for ADRs is quite different.
The biggest companies in the developing nations of the so-called BRICs and
others are now catching up with Western companies in terms of management,
innovation and financial clout. Chinese battery maker BYD has attracted Warren
Buffet while the Chinese "Google" Baidu, India's Tata Motors, Brazil's Rio Tinto, and
Australia's BHP have all shown that they are among the world-class multinationals.
This week we will use the fundamental data of ValuEngine and the visual
analytics of our Viscovery software to compare the quality of a variety of ADRs with
the components of the DOW.
Self-Organizing Maps [SOMs] are a class of Artificial Intelligence that cluster
objects according to their degree of similarity. SOMs are able to simultaneously take
into account many variables representing the characteristics of the objects, and
place them in clusters. Within each cluster and on the map as a whole, the distance
of an object [node] on the map relative to all other nodes, is a measure of the
degree of similarity of the object to its 'siblings'.
When we use VE data to construct a SOM, there are more than 20 variables
[characteristics] of each stock that are taken into account. These include
fundamentals like P/E, M/B, analyst estimates and surprise, volatility, Sharpe Ratio, 5-
year return etc.
 The image below is a SOM of ADRs and DOW stocks. Only ADRs with market
cap >US$1 Billion, and minimum average daily volume of >250000 shares were
considered. There were 169 ADRs in this group--ValuEngine covers @ 542 ADRs on any
trading day. 64 were European companies [37 %], 56 were Asian [33 %], 45 were
Latin American [26 %] , 4 were from Australia, and 3 were African.

European ADRs = E, Asian=F, Latin America=L, Australia=A, Africa=K, DJIA stocks = X.

We got 3 clusters when we asked the Viscovery software to create this SOM. As
you can see, there is no "natural" regional grouping of European, Latin American, or
Asian ADRs as they are distributed among the three clusters. However, all of the DJIA
stocks--with the exception of Boeing in S3 and Alcoa in S1--are found together in S2.
 Now we can look at the statistics for each individual cluster from our SOM. For
each variable, the statistics are expressed as deviation of the Mean of the range of
the cluster from the Mean of the entire data set for that variable--so as to standardize
the different unit values of each variable, and the length all the bars are inter-
comparable.
This chart tells us a lot about the quality of the ADRs.

Let's compare S2-- which has the DJIA stocks, with S3-- which is all ADR.
Valuation: This is the first bar from the left. As shown by the arrows drawn from
"valuation %" S2 stocks are undervalued [negative valuation %] while S3 stocks are
overvalued. We would find that stocks in S3 are thus priced for greater potential
growth.
Average Volume: S3 stocks have much lower Average Volume than S2 stocks. Thus
we see that the ADRs can present liquiduty issues for investors.
Last 12-m Return %: Big advantage to the ADRs.
Sharpe Ratio: The ADRs in S3 have a much higher Sharpe Ratio..
Forecast Predictions: It looks like the ValuEngine models think that ADRs are due for a
correction. The DOW stocks have higher values than the ADRs in S3 . However,
always keep in mind that the VE models forecast based on the latest data including
analysts' expectations. If high-growth ADRs outperform the most optimistic expected
earnings, then the forecast will be wrong.
PE Ratio, M/B Ratio and P/S Ratio: The ADRs have very high values for these three
variables--not good fundamentally, but can also be seen as being priced for higher
future growth.
Beta: The ADRs in S3 have very high Betas and are more sensitive to general market
changes.
As you can see, the ADRs are different from American big caps. If you like the
ADR story, but are afraid of their volatility, why not consider those ADRs which have
the highest Sharpe Ratio? Viscovery will make it easy to select them. Below we have
a map of the Sharpe Ratio variable. The "redder the better."
 Below are the stocks which are best in terms of Sharpe Ratio.
Last 12-
Mkt Valuation Sharpe Ratio
Ticker Company Name Mon Retn Sector
Price (%) Ratio Rank
(%)
CONSUMER
ABV CIA DE BEBIDAS DAS AMERICAS 95.56 0.45 83.84 0.86 100
NON_DURABLES
AIXG AIXTRON 34.75 -28.48 386.69 0.82 100 CAPITAL GOODS
BIDU BAIDU INC 621.38 12.59 180.93 0.66 98 TECHNOLOGY
CONSUMER
CTRP CTRIP.COM INTERNATIONAL LTD. 37.92 -75 156.91 0.83 100
SERVICES
NEW ORIENTAL EDUCATION & CONSUMER
EDU 94.09 35.46 80.42 0.83 100
TECH GR SERVICES
HPQ HEWLETT PACKARD CO 53.28 11.64 51.49 0.75 99 TECHNOLOGY
LFC CHINA LIFE INSURANCE CO LTD 66.92 -10.44 31.63 0.78 99 FINANCE
CONSUMER
MCD MCDONALDS CORP 70.34 8.35 33.47 0.76 99
SERVICES
NVO NOVO NORDISK A S 79.03 17.41 71.77 0.79 100 HEALTH CARE

VE Premium Website Stock Analysis subscribers can find complete valuation,

forecast, and ratings data on every individual equity listed above HERE.

--The ValuEngine View Newsletter

It can be a big job sorting through which stocks in the ValuEngine universe
represent the best risk/reward. Some investors like to do it themselves, but others
would prefer having a professional money manager do the heavy lifting. That’s why
we offer the ValuEngine View newsletter.
Each month Eric Stokes, a hedge fund manager and Principal at Reed-Stokes
Capital Partners, reviews the top selections generated by VE’s models and carefully
researches each one. The very best 15 ideas are then selected for inclusion in our
model portfolio.
Stokes selects the stocks AND explains why he has included them in the
portfolio via in-depth analysis. Here's an example:
Canadian energy trusts have been on our radar screen from time to time and we are
taking a position in Baytex Energy Trust (BTE) this month. Birds of this stripe are characterized
by healthy dividend pay outs, which in turn are generated by oil and natural gas
production. Moreover, there is no waiting around for payments; dividends are paid each
month. In the case of BTE the yield is currently 5%. What is interesting about all of these trusts
is the upcoming change in Canadian law that will take effect in 2011, whereby these
companies will no longer be exempt from Canadian income taxes. BTE announced plans
at the beginning of December to convert to a growth and income-oriented company. The
worry of course is that BTE and others will no longer be able to afford the same dividend
and we don't know for sure how that will play out. But when BTE outlined its plans for next
year it actually increased its per share distribution by 50%, from $0.12 to $0.18. That will raise
the yield to almost 8%. The company attributed the increase to organic production growth
of oil (and to a lesser extent natural gas) accompanied by the relatively healthy price of
oil. At least for the near term investors ought to be reassured that BTE will continue to
generate excellent dividend income.

To Find our More, Please Click the Logo Below

Suttmeier Says
--Commentary and Analysis from Chief Market
Strategist Richard Suttmeier
If you have any comments or questions, send them to [email protected]

Treasury Yields

Weekly and semiannual supports are 3.983 and 4.250 with

daily and semiannual pivots at 3.723 and 3.675, and monthly and
quarterly resistances at 3.607 and 3.467. The daily chart shows a
technical momentum divergence that favors higher yields, but
that changes given a close today richer than my semiannual
pivot at 3.675.

Commodities and Forex

Comex Gold-- Weekly, semiannual, annual, quarterly and annual supports are
$1146.2, $1139.7, $1115.2, $1052.8 and $938.7 with daily, semiannual and monthly
resistances at $1178.4, $1186.5 and $1202.5. Rising MOJO favors some upside but
today’s close needs to be above $1186.5.

Nymex Crude Oil-- Annual and quarterly supports are $77.05 and $58.41 with
weekly and daily resistances at $86.26 and $86.51. Annual and semiannual
resistances: $97.29 and $97.50. Flat MOJO suggests that oil should have a problem
grinding through $86.51 today.

The Euro-- Daily and quarterly supports are 1.3130 and 1.2450 with weekly,
monthly and quarterly resistances at 1.3401, 1.4081, 1.4145 and 1.4478. Declining
MOJO reflects limited near term upside.

Major Indices

The Dow-- Annual and quarterly supports are 10,379 and 7,490 with a daily pivot
at 11,165, and monthly, annual, semiannual and weekly resistances at 11,228, 11,235,
11,442 and 11,483.
 On my DOW Daily chart there’s an up trend resistance line that connects highs
going back to November 2009. We now have declining momentum with the 21-day
simple moving average at 11,045. A close today below 11,045 shifts the daily chart to
negative and indicates risk to the 50-day and 200-day simple moving averages at
10,783 and 10,132.

On my weekly chart the Dow ended last week above its 200-week simple
moving average at 11,134 with the 61.8% Fibonacci Retracement of the October
2007 to March 2009 low at 11,246. This level was tested on Monday with a new high
for the year at 11,258. The technical momentum indicates an even more overbought
condition. The weekly chart remains positive but overbought on a close this week
above its 5-week modified moving average at 10,886. My annual pivot is 11,235 with
semiannual and weekly resistances at 11,442 and 11,483. I still predict Dow 8,500
before Dow 11,500.

NASDAQ-- Monthly and semiannual supports are 2415 and 2392 with daily and
weekly resistances at 2530, 2549 and 2620. Semiannual, annual and quarterly supports
are 2258, 2250 and 1833 with annual support at 1659.

The S&P 500-- Annual support is 1014.2 with annual, semiannual and monthly
pivots at 1179.0, 1194.6 and 1199.6, and daily and weekly resistances at 1211.3, 1224.5
and 1254.3. Quarterly support is 805.4 with semiannual resistance at 1281.1.

Some Thoughts on Goldman Sachs and Regulation

Goldman Sachsis accused of repackaging subprime mortgages into derivative

mortgage structures that they thought would fail--thus resulting in the price
depreciation of the securities over time. To market the long side of the deal to clients,
the Goldman Sachs sales force had to tell a positive story of about the potential
performance of the structure. This explanation-- if done properly-- explains the risk /
reward of the security to the sophisticated clients who would decide whether or not
to buy or to sell the product. In the case in question, the Goldman sales force may or
may not have known that the Paulson Hedge Fund--who had a hand in mortgage
selection-- wanted to sell the deal short.

In my judgment, based on the case as reported so far, Goldman did not commit
fraud. If anything, they may have knowingly oversold the long side so that they could
be short the structure. They had no responsibility to disclose to buyers that Paulson
was shorting-- or that Goldman was joining the short-side. What may be unethical is
establishing a structure with the high probability that it was not suitable for long-side
investors. In my own career as a market-maker, I would at times use customer flow to
go long or short, but I never created an investment structure designed to decline in
price.

Congress must understand trading and market-making in the fixed-income

markets if they hope to enact successful reforms! I hope our regulators, policy
makers, and legislators keep the following in mind:

· You cannot eliminate market-making or position trading to facilitate customer

business.

· You can eliminate proprietary trading in FDIC-insured financial institutions, as

their priority is customer service. By definition Prop Trading is a Risk Book that the
company takes on making a bet on market direction or structure. Without
clients as contra-parties these trades are usually done through the inter-dealer
market such as Cantor Fitzgerald, which I previously described. Prop Trading
puts firm capital at risk, which is fine in financial institutions that do not hold
deposits of customer funds.

· Derivatives that cannot be marked to market, or that reside in off balance

sheet trusts should be banned. These are just too risky and will continue to be
financial weapons of mass destruction.

· Financial Reform should enforce FASB accounting rules that require mark-to-
market accounting and eliminate off balance sheet trusts. There should be no
hidden assets or accounting schemes to temporarily remove assets at
quarters’ end.

· Eliminating “too big to fail” is a difficult issue because those that were bailed
out by TARP or involved in massive takeovers of other large institutions in 2008
are now even bigger. Ways to mitigate the risks are to raise capital
requirements, raise margin requirements, de-lever the Pension Fund
Commodity Asset class. Limit financial institutions to a maximum of 10% of total
assets as measured by the FDIC. This would require Bank of America and JP
Morgan to spin off business units.

· For community and regional banks, the FDIC and other financial regulators
need to establish a program that encourages mergers so that no FDIC insured
financial institution is overexposed to Construction & Development Loans or
Commercial Real Estate Loans. This will also require that many institutions must
raise capital from the public.
 · I have suggested a Primary Banker designation for strong community and
regional banks as FDIC consolidation institutions.

· I have suggested REHAB – Real Estate & Housing Asset Bank to take over OREO
in order to facilitate short sales and foreclosure sales-- even if eminent domain
is required for the good of a community.

Upcoming Media Appearances

I'll be appearing on a variety of financial media programs the week of May 10th.
We'll begin the week with appearances on CNBC's Worldwide Exchange at 5:30am
and Yahoo's Tech Ticker at 7:30am. I will also appear on BNN's program from the
NASDAQ. I will post additional appearances as they approach.

Training Tip
--Check the Web for ValuEngine Updates, Bulletins,
and Stock Picks
Checking our web content can be good for your portfolio ! Our Chief Market
Strategist Richard Suttmeier famously called the bottom of the recent Bear Market on
March 5th, 2009 and made a call for a big market rally in one of our bulletins soon
thereafter. Lately, our Forecast Model has been on fire and regular readers of our
Daily Bulletins were tipped off to the following stocks:
Avanir Pharma (AVNR)--up 25% in just 8 days
Eastman Kodak (EK)--up 31% in 2 weeks
Borders Group (BGP)--up 70% in 2 weeks
Palm (PALM)--sold short for a 57% gain since January
UAL Corp (UAUA)--up 202% since November
Our Website features Daily Bulletins most trading days that can be found
HERE. Our Scribd.com Page features our Daily Bulletins as well as Chief
Market Strategist Richard Suttmeier's Four-in-Four Report HERE Chief Market
Strategist Richard Suttmeier publishes regularly at Seeking Alpha.com HERE
--The ValuEngine FDIC Report
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.

Our latest ValuEngine FDIC Report UPDATE for April, 2010 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 may
download it now HERE.

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