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August 4, 2011ATTENTION Investors and Finance Professionals:

If you are reading this you should sign up for ValuEngine's award-winning stockvaluation and forecast service

NO OBLIGATION, 14 Day FREE TRIAL!CLICK HERE

Valuation UpdateMarket Declines Lead to Reversal of ValuEngine.com Market/SectorOverviews

The ValuEngine Valuation Model tracks more than 5500 US equities, ADRs,and foreign stock which trade on US exchanges. The model calculates a level ofmispricing or valuation percentage for each equity based on what the stockshould be worth if the market were totally rational and efficient--an academic

exercise to be sure, but one which allows for useful comparisons betweenequities, sectors, and industries.

We track valuation figures and use them as a metric for making calls aboutthe overall state of the market. Whenever we see levels in overvaluation levels inexcess of @ 60% for the overall universe and 27.5% for the overvalued by 20% ormore categories, we issue a valuation watch. When overvaluation exceeds 65%,we issue a valuation warning. This is a time for investors to keep a closeeye and the market and to consider booking some profits and perhapshedging against a move to the downside.

We began our last Valuation Watch on April 28th with the SP 500 at 1355

and the overvaluation figures almost hitting 62%. Significantly, our Chief MarketStrategist Richard Suttmeier, using both the fundamentally-based Valuation Modelcalculations as well as his own read of the technicals, called for a 1000 pointdecline in the Dow during his May media appearances.

Shortly thereafter, the market declined significantly into June, recovered a

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bit, then took off on the latest plunge. So, where are we at now? Consider thetables below. Here you can see that the Market and Sector valuations have prettymuch reversed themselves.

MARKET VALUATION 04/28/11 08/04/11Stocks 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 VALUATION 04/28/11 08/04/11

Aerospace 8.67% overvalued 7.62% undervalued

Auto-Tires-Trucks 9.34% overvalued 13.13% undervalued

Basic Materials 10.35% overvalued 9.84% undervalued

Business Services 9.75% overvalued 8.03% undervalued

Computer and Technology 9.95% overvalued 11.35% undervalued

Construction 5.34% overvalued 8.82% undervalued

Consumer Discretionary 6.96% overvalued 11.13% undervalued

Consumer Staples 10.28% overvalued 4.93% undervalued

Finance 7.64% overvalued 9.15% undervalued

Industrial Products 10.11% overvalued 12.04% undervalued

Medical 5.14% overvalued 12.85% undervalued

Multi-Sector Conglomerates 16.31% overvalued 8.11% undervalued

Oils-Energy 20.39% overvalued 6.87% undervalued

Retail-Wholesale 8.22% overvalued 6.69% undervalued

Transportation 13.49% overvalued 4.12% undervalued

Utilities 12.61% overvalued 0.32% overvalued

sp500 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 tellus its duration and depth. At today's levels, we are now flirting with a drop of 10%from the May 2nd highs. In this case, we got a warning back in May that hasindeed presaged 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 anupward climb. We simply do not possess the long-term historical data necessaryto complete a better study of the metric.

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