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September 4, 2009

MARKET OVERVIEW

Thursday 4 day 4 day

Index started week ytd
close change change %
DJIA 9542.91 9344.61 -198.3 -2.08% 6.52%
NASDAQ 2011.14 1983.2 -27.94 -1.39% 25.61%
RUSSELL 2000 577.02 562.49 -14.53 -2.52% 12.61%
S&P 500 1025.21 1003.24 -21.97 -2.19% 11.10%

Summary of VE Stock Universe

Stocks Undervalued 59.07%
Stocks Overvalued 40.93%
Stocks Undervalued by 20% 30.88%
Stocks Overvalued by 20% 22.12%

SECTOR OVERVIEW

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

MReturn
Basic Industries 1.80% 2.65% 49.77% 11.03% overvalued -17.30% 23.68
Capital Goods 0.64% 0.84% 24.84% 12.21% overvalued -25.61% 18.54
Consumer Durables 0.00% -0.33% 46.78% 3.02% overvalued -25.22% 22.62
Consumer Non-Durables 0.36% 0.64% 37.22% 4.63% overvalued -9.97% 20.07
Consumer Services 1.23% 1.09% 47.03% 1.54% undervalued -18.68% 20.43
Energy 1.81% 1.07% 24.84% 2.89% overvalued -37.60% 15.24
Finance 0.71% 0.23% 19.43% 5.18% overvalued -20.96% 18.19
Health Care 0.43% 0.74% 48.29% 10.37% undervalued -9.41% 18.06
Public Utilities 0.57% 0.53% 12.15% 7.62% undervalued -15.73% 15.72
Technology 1.45% 1.82% 51.32% 5.28% undervalued -14.68% 23.41
Transportation 1.71% 1.09% 19.11% 5.86% overvalued -28.94% 16.02
Sector Talk--Retail Goods
Retail is a key sector for the "green shoots" crowd because back-to-school sales provide a
good indicator if the US consumer feels more secure--as indicated by both the timing and
level of spending. However, as has been so typical these days, the news seems to be more of
the "not as bad as it used to be" variety rather than outright "good."
Yesterday's Wall Street Journal reported that "retailers delivered some of their best sales
in almost a year, with apparel retailers and discounters benefiting from early back-to-school
buying. But department stores continued to struggle last month." The WSJ article included
the following sales figures from major retailers:
Target reported a smaller than expected 2.9% same-store sales decline
TJX Cos. posted a same-store sales increase of 5%
Ross Stores Inc. reported a 6% gain, both topping analysts' estimates
Gap posted a much smaller than expected 3% decline
Abercrombie posted a bigger-than-projected 29% decline
Aeropostale had record August results as sales rose 9%
Macy's Inc. posted an 8.1% drop
J.C. Penney Co. had a 7.9% decline
Kohl's Corp. posted a surprise 0.2% increase
Below, we provide the top-twenty retail goods firms from our database in terms of 1-Month
return Forecast Return %. Keep in mind that we are still seeing what appear to be " too-
good-to-be-true" levels in our forecast figures due to the crazy share price and earnings
fluctuations caused by the market crash and recent bounce. This isn't a data error, the
models really do come up with these numbers in their calculations--and indeed, the models
have correctly forecast some 35-38% 1-Month gains recently!
As you can see, for the most part the firms found here aren't the big names mentioned
above. In addition, we find very few buy-rated stocks in our list with only Stein Mart (SMRT)
and Kirkland's (KIRK) achieving "4-Engine" status along with decent short and longer-term
forecast return figures.

Last 12- Forecast 1- Forecast

Mkt Valuation VE P/E
Ticker Name M Month 1-Yr
Price (%) Rating Ratio
Retn(%) Retn(%) Retn(%)
CWTR COLDWATER CREEK INC 6.97 -20.67 3 -10.06 33.97 247.18 N/A
WSM WILLIAMS SONOMA INC 18.8 53.18 3 8.67 18.55 111.36 110.81
TWB TWEEN BRANDS INC 7.55 7.5 3 -32.1 9.79 26.73 N/A
US AUTO PARTS NETWORK
PRTS 5.48 6.13 3 106.02 7.9 33.31 N/A
INC
ANN ANNTAYLOR STORES CORP 13.23 -8.83 3 -48.08 7.07 15.91 N/A
DDS DILLARD INC 11.09 53.48 3 -15.02 3.71 -0.13 N/A
SMRT STEIN MART INC 12.13 -16.36 4 200.25 3.19 8.78 N/A
 Ticker Name Mkt Valuation VE Last 12- Forecast 1- Forecast P/E
Price (%) Rating M Month 1-Yr Ratio
Retn(%) Retn(%) Retn(%)
KIRK KIRKLAND'S INC 13.72 16.17 4 496.52 1.96 10.44 15.08
DSCM DRUGSTORE.COM INC 2.33 -17.86 3 -3.32 1.81 -6.93 N/A
HAR HARMAN INTL INDS INC 27.54 34.13 3 -18.04 1.19 -9.85 N/A
JAS JO-ANN STORES INC 26.59 18.76 3 1.68 0.97 -2.93 20.66
CHS CHICO'S FAS INC 12.39 -24.52 4 102.78 0.8 -5.45 127.73
NDN 99 CENTS ONLY STORES 13.32 -15.69 4 49.66 0.61 -7.85 27.75
CPY CPI CORPORATION 12.62 -44.29 3 -4.83 0.26 -20.4 11.98
LAD LITHIA MOTORS 12.36 97.67 3 155.37 0.26 -11.08 37.45
JCG J CREW GROUP INC 33.49 -18.33 4 12.65 0.23 -6.32 46.19
CAB CABELAS INC 15.06 -16.85 4 19.52 0.21 -10.72 13.32
USTR UNITED STATIONERS INC 46.37 10.66 3 -7.59 0.19 -9.71 13.03
PSMT PRICESMART INC 18.16 -44.12 4 -10.54 0.13 -7.25 12.39
M MACY'S INC 14.95 -0.35 3 -29.48 0.13 -12.55 15.11

What's HOT
--Latest Back Test Results

Here at ValuEngine we are engaged in an ongoing research process to further develop and
check the efficacy of our proprietary stock valuation and forecast models. One of the ways we
do this is via live forward-tracking performance of the models with our Benchmark Portfolio
Strategies and our various newsletters. Another way we check our models is via a program of
regular back testing.
We recently completed a historical back test and the complete results are now available
in our research library. We also present some of the most important results here in our
weekly newsletter.
First up, we have our average return and volatility tables which cover the life of our
database. As you can see, the models significantly outperformed the S&P 500 with the
exception of the VE Standard's performance for the past 12 months. The VE Standard
Strategy does NOT diversify its portfolios. The sector diverse VE Forecast Strategy does
feature sector diversity, so even during the worst markets since the Great Depression, it still
managed to double the performance of its benchmark--albeit while suffering losses.
Average Return and Volatility Tables

VE Standard Strategy
January 1991 to July 2009
MNS Portfolios

Portfolio MNS 20 MNS 50 MNS 75 MNS 100 S&P 500

LTM Return -54.34% -38.74% -26.70% -25.92% -25.11%
Last 5Y Return 151.25% 135.19% 127.19% 92.60% -16.09%
Average Monthly Return 2.28% 2.08% 2.08% 1.86% 0.59%
Average Monthly Turnover 45.68% 41.20% 38.17% 36.31% N/A
Average Annual Return 31.04% 28.08% 28.06% 24.76% 7.32%
Annual Volatility 26.65% 20.35% 17.79% 16.79% 15.51%
Max Drawdown -54.34% -45.26% -42.57% -46.77% -49.01%
Sharpe Ratio 1.16 1.38 1.58 1.47 0.47
Sortino Ratio 1.73 1.91 2.19 1.88 0.59
Correlation with S&P 500 -0.12 -0.13 -0.13 -0.09 1

VE Forecast Strategy
January 1991 to July 2009
MNS Portfolios

Portfolio MNS 22 MNS 50 MNS 75 MNS 100 S&P 500

LTM Return -11.11% -11.82% -11.38% -12.13% -25.11%
Last 5Y Return 335.72% 185.35% 123.56% 101.55% -16.09%
Average Monthly Return 2.68% 2.23% 2.07% 1.94% 0.59%
Average Monthly Turnover 81.62% 75.54% 72.26% 69.59% N/A
Average Annual Return 37.36% 30.26% 27.84% 25.93% 7.32%
Annual Volatility 19.85% 14.30% 12.54% 11.51% 15.51%
Max Drawdown -30.12% -19.63% -18.66% -18.07% -49.01%
Sharpe Ratio 1.88 2.12 2.22 2.25 0.47
Sortino Ratio 2.98 3.23 2.97 3.02 0.59
Correlation with S&P 500 0.04 0.05 0.06 0.08 1
 Next up, we have wealth accumulation charts for the life of our database for our smallest
portfolios--20 or 22 stocks. These are based on an initial investment of $1000, fully invested
at all times, with no cash in the account--shorts leveraging the purchase of longs. As you can
see, both the long-only and market neutral portfolios of both strategies significantly
outperformed the S&P 500.

Wealth Accumulation

VE Standard Strategy
January 1991 to July 2009
20 Stock Portfolios
VE Forecast Strategy
January 1991 to July 2009
22 Stock Portfolios

Finally, we have the 3-year wealth accumulation chart which encompasses the recent
market swing. Once more we see that while the portfolios took major hits in the market crash,
they still outperformed the S&P in almost all configurations and the VE Forecast portfolios still
performed very well-- with the MNS version more than doubling the S&P 500. Again, to find
out more about our recent back test, download the full results HERE.
VE Standard Strategy
July 2006 to July 2009
20 Stock Portfolios
VE Forecast Strategy
July 2006 to July 2009
22 Stock Portfolios

SUTTMEIER SAYS
--Commentary from ValuEngine Chief Market Strategist Richard Suttmeier

The Latest from the Federal Reserve

It’s the Fed’s job to tell the public that their policies are working. I would
not describe “smaller downside risks” as signaling the end of Recession,
nor would I say that if Q3 2009 GDP is on the plus side of zero, the
Recession is over.
 With the quantitative easing due to cease by year's end, the FOMC expects the pace of
recovery to “pick-up” in 2010. But how can this be? With no job growth, more foreclosures
and domino banks failing, the Federal Reserve will be wrong again. This is not conducive to a
rising GDP. As long as the banking system continues to shed assets, GDP will decline. If you
want a real leading economic indicator, don't look to the FOMC, check out the FDIC's
Quarterly Banking Profile.
If you want to" read between the lines" in the latest FOMC minutes, check out the
disclaimers, which note the following:
Most determinants of spending remained weak on balance. In particular, the weak labor market
continued to place significant strains on household income, and earlier declines in net worth were still
holding back spending.
Conditions in the nonresidential construction sector generally remained quite poor, with spending in
most major categories staying on a downward trajectory through June. Vacancy rates continued to rise,
property prices fell further, and, as indicated by the July Senior Loan Officer Opinion Survey, financing
for nonresidential construction projects became even tighter.
Commercial bank credit contracted further in June and July. All major loan categories declined,
apparently reflecting the combined effects of weaker demand for most types of loans, some substitution
from bank loans to other funding sources, and an ongoing tightening of lending standards and terms.
Most FOMC participants saw the economy as likely to recover only slowly during the second half of this
year, and all saw it as still vulnerable to adverse shocks.
In the residential real estate sector, home sales, prices, and construction had shown signs of
stabilization in many areas and were increasing modestly in others, but a still-sizable inventory of unsold
existing homes continued to restrain homebuilding. Commercial real estate activity, in contrast, was
being weighed down by deteriorating fundamentals, including declining occupancy and rental rates; by
falling prices; and by difficulty in refinancing loans on existing properties.

The Realities on Main Street

Revenues in US Cities fell in fiscal year 2009 for the first time in seven years. According to
the National League of Cities, weak growth in property taxes and sharp declines in sales
taxes, income taxes and state aid contributed to a 0.4% decline in city revenues with
expenses up 2.5%. This resulted in the worst outlook in the 24 years since this survey began.
There is no relief in sight, as tax revenue are expected to lag any economic recovery.

The default rate on commercial mortgages more than doubled in the second quarter year
over year to 2.88% of outstanding balances. Commercial mortgage-backed securities account
for 22% of the $3.4 trillion in commercial real estate debt. Defaults could pass 7% by the end
of the year.
Wednesday’s minutes of the August 11 / 12 FOMC meeting indicate that the federal funds
rate will stay at zero to .25% for the foreseeable future. Thus, the Federal Reserve does
NOT see an end to the Recession!

–The ValuTrader Model Portfolio Newsletter and Weekly ETF Report

NEW Suttmeier Products Available NOW!

ValuEngine Chief Market Strategist Richard Suttmeier has two new ValuEngine newsletters,
the Weekly ETF Report and the ValuTrader Model Portfolio. Both products are now available
for subscription. The ETF report features technical analysis for more than 25 of the most
popular Exchange Traded Funds and provides advanced traders with everything they need to
access the directional plays made available via index, commodity, currency, and sector
ETFs. The ETF Report is published every Monday and includes:
• Suttmeier's Technical Analysis and VE Market and Sector Overview Data
• Coverage of Popular Index ETFs such as SPY and QQQQ
• Sector Plays via XLB, XLI, XLY, XLP, IYC, XLE, XLF, XLV, XLU, XLK, IYT, DUG, and SKF
• Leveraged Index Plays via SSO, DDM, QLD, DXD, SDS, QID, and TWM
• Fixed Income Plays via TLT
• Commodity Plays via DIA, GLD, and GSG

The new ValuTrader Model Portfolio presents Suttmeier's best portfolio ideas in an easy to
follow format. Suttmeier analyzes dozens of fundamental ValuEngine data points as well as
technical factors for over 4,000 stocks, synthesizes the data, and provide subscribers a
portfolio of 20 stock positions--allocated long, short, or both as determined by market
conditions. This newsletter is designed to allow the individual investor access to the power of
ValuEngine's quant-methods and models harnessed to Suttmeier's technical expertise and
market-timing knowledge. ValuTrader is also published weekly and each edition includes:

• A 20 Stock Portfolio Allocated According to Market Conditions--Including Short Positions

when Appropriate
• Technical Pivot, Support, and Risk Levels and Key ValuEngine Data Points--Valuation,
Rating, and Forecast--for Each Portfolio Selection
• Email Alerts for Buy and Sell Calls

You can subscribe or find out more by clicking the logos below.
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clients. In addition to our retail website and software package, we have contracts with major
banks and investment advisors such as UBS, Deutsche Bank, Wachovia Securities, and
others.
In an effort to further our reach into the professional finance space, we have now partnered
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an even larger audience of investment professionals.
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ValuEngine at Support@ValuEngine.com or (800) 381-5576

Steve Hach
Senior Analyst
ValuEngine.com