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Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews

Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews

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Published by ValuEngine.com
We began our last Valuation Watch on April 28th with the SP 500 at 1355 and the overvaluation figures almost hitting 62%. So, where are we at now? Consider the tables below. Here you can see that the Market and Sector valuations have pretty much reversed themselves as the market has plunged almost 10%.
We began our last Valuation Watch on April 28th with the SP 500 at 1355 and the overvaluation figures almost hitting 62%. So, where are we at now? Consider the tables below. Here you can see that the Market and Sector valuations have pretty much reversed themselves as the market has plunged almost 10%.

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Categories:Types, Business/Law
Published by: ValuEngine.com on Aug 04, 2011
Copyright:Attribution Non-commercial

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08/05/2011

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August 4, 2011
Market Declines Lead to Reversal of ValuEngine.com Market/Sector Overviews
The ValuEngine Valuation Model tracks more than 5500 US equities, ADRs, andforeign stock which trade on US exchanges. The model calculates a level ofmispricing or valuation percentage for each equity based on what the stock shouldbe worth if the market were totally rational and efficient--an academic exercise to besure, but one which allows for useful comparisons between equities, sectors, andindustries.We track valuation figures and use them as a metric for making calls about theoverall state of the market. Whenever we see levels in overvaluation levels in excessof @ 60% for the overall universe and 27.5% for the overvalued by 20% or morecategories, we issue a valuation watch. When overvaluation exceeds 65%, we issuea valuation warning.
This is a time for investors to keep a close eye and the market and to consider booking some profits and perhaps hedging against a move to thedownside.
We began our last Valuation Watch on April 28th with the SP 500 at 1355 andthe overvaluation figures almost hitting 62%. Significantly, our Chief Market StrategistRichard Suttmeier, using both the fundamentally-based Valuation Model calculationsas well as his own read of the technicals, called for a 1000 point decline in the Dowduring his
 
Shortly thereafter, the market declined significantly into June, recovered a bit,then took off on the latest plunge. So, where are we at now? Consider the tablesbelow. Here you can see that the Market and Sector valuations have pretty muchreversed themselves.
MARKET VALUATION04/28/1108/04/11
Stocks Undervalued
38.25% 69.89%
Stocks Overvalued
61.75% 30.11%
Stocks Undervalued by 20%
16.36% 31.81%
Stocks Overvalued by 20%
30.28% 9.97%
sp500
1355.66 1260.34
SECTOR VALUATION04/28/1108/04/11
Aerospace8.67% overvalued7.62% undervaluedAuto-Tires-Trucks9.34% overvalued13.13% undervaluedBasic Materials10.35% overvalued9.84% undervaluedBusiness Services9.75% overvalued8.03% undervaluedComputer and Technology9.95% overvalued11.35% undervaluedConstruction5.34% overvalued8.82% undervaluedConsumer Discretionary6.96% overvalued11.13% undervaluedConsumer Staples10.28% overvalued4.93% undervaluedFinance7.64% overvalued9.15% undervaluedIndustrial Products10.11% overvalued12.04% undervaluedMedical5.14% overvalued12.85% undervaluedMulti-Sector Conglomerates16.31% overvalued8.11% undervaluedOils-Energy20.39% overvalued6.87% undervaluedRetail-Wholesale8.22% overvalued6.69% undervaluedTransportation13.49% overvalued4.12% undervaluedUtilities12.61% overvalued0.32% overvaluedsp500
1355.66 1260.34
Our watches and warnings let us know that the model thinks things areoverheated, but they cannot tell us when a correction will occur, nor can they tell usits duration and depth. At today's levels, we are now flirting with a drop of 10% fromthe May 2nd highs. In this case, we got a warning back in May that has indeedpresaged a "correction" some two months later.In the past, we have found that in some cases the market heads for a longdive, in others we see just a momentary drop before the market resumes an upwardclimb. We simply do not possess the long-term historical data necessary to completea better study of the metric.

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