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October 2, 2009

MARKET OVERVIEW

Thursday 4 day 4 day

Index started week ytd
close change change %
DJIA 9663.23 9509.28 -153.95 -1.59% 8.40%
NASDAQ 2101.92 2057.48 -44.44 -2.11% 30.31%
RUSSELL 2000 600.18 583.75 -16.43 -2.74% 16.86%
S&P 500 1045.38 1029.85 -15.53 -1.51% 14.05%

Summary of VE Stock Universe

Stocks Undervalued 60.91%
Stocks Overvalued 39.09%
Stocks Undervalued by 20% 31.64%
Stocks Overvalued by 20% 20.56%

SECTOR OVERVIEW

Sector Change MTD YTD Valuation Last 12- P/E Ratio

MReturn
Basic Industries -2.93% 0.83% 58.22% 9.15% overvalued 4.37% 25.11
Capital Goods -2.69% 0.17% 31.59% 6.00% overvalued -8.09% 20.41
Consumer Durables -2.52% 0.98% 56.41% 3.48% undervalued -13.69% 25.91
Consumer Non-Durables -1.84% 0.09% 42.12% 4.54% overvalued 3.60% 20.95
Consumer Services -2.60% 0.09% 54.59% 0.51% undervalued -1.24% 21.17
Energy -3.83% -0.13% 33.16% 8.77% overvalued -16.99% 18.71
Finance -1.61% 0.29% 22.59% 1.41% undervalued -9.05% 19.2
Health Care -2.01% 0.26% 55.55% 11.71% undervalued 10.25% 19.32
Public Utilities -2.01% 0.12% 15.79% 8.24% undervalued -2.28% 15.29
Technology -2.81% 0.07% 61.73% 7.85% undervalued 6.01% 25.44
Transportation -2.49% -0.08% 22.53% 3.54% overvalued -11.03% 17.74
Market Talk
--Overall Universe Undervaluation Declines

Below, we have the recent history chart for our overall universe undervaluation figures vs.
the S&P 500. This chart tracks stocks which are calculated to be undervalued by 20% or
more. As you can see, the readings spiked in December '08-January '09, began to recede as
the market recovered from its March '09 low, and have now begun to recede to what we
would consider a more "normal" level. Our model now has the market at a level not seen
since November, 2007.

Below we have a chart that tracks universe undervaluation in excess of 20% that covers the
entirety of our historical database and dates back to 1991. As you can see from this chart, in
the past whenever the undervaluation in excess of 20% or more figure has spiked above 50%
and then receded, we have had a fairly robust market bottom call. However, if you look at
the 2001-2003 downturn you find that the figure receded then increased again. This was
indicative of the fact that the bottom was not a "v-shaped" recovery as occurred in the
aftermath of the LTCM debacle in the late 90s.
 But as you can see, even in that "w" shaped recovery, the level of undervaluation greater
than 20% did not recede to the sort of level we see now until the markets were well on their
way to recovery. Of course, there is no guarantee that a double dip will not now occur--and
plenty of analysts (including our own Chief Market Strategist) find that the market up trend
has run its course and a correction is imminent, but this chart certainly looks more
encouraging than it did a few months ago.

What's HOT--The VE Stock of the Day

Chief Market Strategist Richard Suttmeier's Morning Briefing VE Stock of the Day.

Cisco Systems (CSCO) – Cisco Systems, Inc. engages in the design, manufacture, and sale
of Internet Protocol (IP)-based networking and other products related to the communications
and information technology (IT) industry and in the provision of services associated with these
products and their use. The stock is rated a HOLD according to ValuEngine with fair value at
$19.37, which makes the stock 19.2% overvalued. rating.
 Analysis – The daily chart for Cisco shows flat to declining momentum with the 21-day and
50-day simple moving averages at $22.84 and $22.23. My quarterly value level is $17.79 with
semiannual risky level at $24.42.

Courtesy Google Finance

Suttmeier Says
--Commentary and Analysis from Chief Market Strategist Richard Suttmeier

If you have any comments or questions, send them to Rsuttmeier@Gmail.com

Treasuries
For the 10-Year note the weekly and monthly supports are 3.457,
3.677 daily resistance at 3.194, and the 200-day simple moving average
at 3.125, last tested on May 21st. Risk aversion trumps increasing
supply, and the flight to quality is a warning for stocks.

Commodities
For gold, I show semiannual and monthly supports at $991.7 and $978.8 with quarterly and
semiannual resistances at $1094.4 and $1,101.9.
Copper ended Thursday below its 21-day and 50-day simple moving averages at 281.33
and 277.45--which is another warning against the global growth story. To prove the global
growth story, copper needs to breakout above the 200-week simple moving average at
291.93.
For crude oil, my annual pivots are $68.81 and $66.51 with monthly and quarterly
resistances at $82.98 and $83.16. A weekly close above the 200-week simple moving
average at $75.00 remains upside key.
Housing and Financials
On Thursday, Bernanke defended a “Council of Regulators” to monitor systemic risks. There
is already a Congressional Oversight Panel that was put in place to advise the US Treasury
about TARP issues. The COP is being ignored as Treasury will not order fresh stress tests as
advised by COP.
This is what will happen to any “Council of Regulators.” We need to appoint regulators who
know what the heck they are doing! The US Treasury, Federal Reserve and FDIC ignored
their on regulatory guidelines for C&D and CRE loans, and the banking system is suffering
because of their lack of oversight. Bernanke's latest proposal will only result in a circle of
regulators that will point fingers at one another when the next financial crisis hits.
The Housing Sector Index (HGX) ended Thursday below its five-week modified moving
average at 103.01 / 102.16. If it stays there today, the weekly chart shifts to negative. HGX is
suffering the same fate as the now "cash-less for clunkers"automakers and provides a similar
warning for the home builders once the $8,000 first time home buyer tax credit sunsets on
November 30th. I predict that some of these first time buyers will be in default by year
end.
The America’s Community Bankers Index (ABAQ) was just above its 50-day and 200-day
simple moving averages at 149.21 and 147.26 on Wednesday--and ended below them on
Thursday at 148.92 and 149.41. Today is Bank Failure Friday. Can the FDIC afford to close
any banks this evening?
The Regional Banking Index (BKX) was above its 21-day and 50-day simple moving
averages at $46.39 and $44.63 on Wednesday, but closed Thursday below the 21-day at
$46.41 and held the 50-day at $44.80.

Major Indices
Thursday’s market declines resulted in levels that straddle key monthly pivots-- 9306 is
monthly support on the Dow, 1033.3 is the monthly pivot on the S&P 500, and 2183 is
monthly resistance on the NASDAQ. This should be the trading range until the Ides of
October. All of this downside risk began with the Key Reversal Day on September 23rd.
The Dow closed below its 21-day simple moving average at 9,644 with the 50-day as
support at 9,450. A close today below the five-week modified moving average at 9,457 would
be another warning.
The S&P 500 also closed below its 21-day at 1046 with the 50-day as support at 1021. A
close today below the five-week modified moving average at 1022 would be another warning.
The NASDAQ also closed below its 21-day at 2088 with the 50-day as support at 2032. A
close today below the five-week modified moving average at 2036 would be another warning.
We are in for a period of lower highs as the multi-year bear market returns.
--A Unique Look at the Markets
Chinese artist Chen Wen Ling provides commentary on the fate of Bernie Madoff and the
perils of a Bull Market built on lies--the Chinese ideogram for flatulence--"放屁"--is also slang
for deception and lies.

"What You See Might Not Be Real"

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