Richard Suttmeier is the Chief Market Strategist at www.ValuEngine.com.

ValuEngine is a fundamentally-based quant research firm in Newtown, PA. ValuEngine

covers over 7,000 stocks every day.

A variety of newsletters and portfolios containing Suttmeier's detailed research, stock picks,
and commentary can be found at http://www.valuengine.com/nl/mainnl

February 22, 2011 – The ValuEngine Valuation Warning Intensifies

The ValuEngine Valuation Warning intensifies as only 31.4% of all stocks are undervalued with 68.6%
of all stocks overvalued. Only 13.9% of all stocks are undervalued by 20% or more and 36.2% are
overvalued by 20% or more. Compare this to March 2009, 91% of all stocks were undervalued with
9% overvalued. There were 76% of stocks undervalued by 20% or more and only 7% of stocks
overvalued by 20% or more. We are just two weeks away from the anniversary of the March 5, 2009
multi-year lows as stocks continue to rise to new multi-year highs today.
In addition to the ValuEngine Valuation Warning is the technical warning that all major equity averages
remain extremely overbought on their weekly charts. The only stock index in today’s stock indices
scorecard that did not reach a multi-year high last week was Dow Utilities. The only index that’s above
its 2007 high is the NASDAQ 100 (NDX) at 6.8% above its November 2007 high. The NASDAQ
remains 1% below its October 2007 high. The laggard is Utilities at 26% below its January 2008 high.
• Given this environment we cannot rule out strength to my annual risky levels at 13,890 Dow
Industrial Average, 1562.9 SPX, 3243 NASDAQ, 2589.81 NDX, 6131 Dow Transports and
978.58 Russell 2000. The key will be a weekly close above my quarterly risky level at 2853 on
the NASDAQ.
• This week’s pivots are 12,401 Dow Industrials, 1345.0 SPX, 2831 NASDAQ, 2405.1 NDX,
414.82 Utilities, 5241 Dow Transports, and 815.37 Russell 1000 and 483.39 SOX.
• The NASDAQ is approaching my quarterly risky level at 2853.
Today’s Stock Indices Scorecard:
Key Levels for the Major Equity Averages
• The Dow Industrial Average (12,391) remains extremely overbought with daily and weekly
pivots at 12,350 and 12,401. The 21-day simple moving average rises to 12,114 as support with
my annual risky level at 13,890.
• The S&P 500 (1343.0) remains extremely overbought with daily and weekly pivots at 1341 and
1345. The 21-day simple moving average rises to 1313 with my annual risky level at 1562.9.
• The NASDAQ (2834) remains extremely overbought with daily and weekly pivots at 2833 and
2831. The 21-day simple moving average rises to 2767 with my quarterly risky level at 2853
and annual risky level at 3243.
• The NASDAQ 100 (NDX) (2392) remains extremely overbought with daily and weekly pivots at
2403.6 and 2405.1. The 21-day simple moving average rises to 2340 with my quarterly risky
level at 2438.3 and annual risky level at 2589.8.
• Dow Transports (5296) has become overbought with weekly and daily pivots at 5241 and
5387. The 21-day simple moving average rises to 5157 and annual risky level at 6131.
• The Russell 2000 (834.82) remains extremely overbought with weekly and daily pivots at
815.37 and 835.65. The 21-day simple moving average rises to 803.87 with my annual risky
level at 978.58.
10-Year Note – (3.591) My annual value level is 3.791 with weekly and daily risky levels at 3.529 and
3.513. The 50-day simple moving average is 3.432.
Comex Gold – ($1387.7) Is back above its 50-day simple moving average at $1371.8 with a daily
pivot at $1380.7 and monthly risky level at $1412.4. My annual pivot remains at $1356.5.
Nymex Crude Oil – ($86.05) Weekly, daily and monthly value levels are $85.39, $84.41 and $75.86
with annual and monthly pivots at $87.52 and $91.83. Annual, semiannual and quarterly risky levels
are $99.91, $101.92, $107.14 and $110.87.
The Euro – (1.3694) Today’s value level is 1.3568 with this week’s risky level at 1.3868.
Bank Failure Friday – The FDIC closed four more banks last Friday and three were publicly traded
and on the ValuEngine List of Problem banks.
• 25 banks failed in 2008
• 140 banks failed in 2009 with a peak of 50 in the third quarter
• 157 banks failed in 2010
• 22 banks have failed year to date in 2011
• 344 banks have failed since the end of 2007
• I still predict 500 to 800 bank failures in total by the end of 2012 into 2013.
The publicly traded banks were Habersham Bank (HABC), Clarkesville, Georgia, Charter Oakes
Bank (CHOB), and San Luis Trust Bank (SNLS), San Luis California. These banks are on the
ValuEngine List of Problem Banks with overexposures to both C&D and CRE loans: The C&D ratios to
risk-based capital were 639.3%, 239.5% and 245.8% versus the 100% maximum guideline, and
1239.7%, 814.8% and 587.6% for CRE loans versus the 300% maximum guideline. The banks’ real
estate loan pipelines were 98.4%, 96.5% and 100% where 60% is a healthy pipeline. The FDIC
continues to be slow in closing banks that no longer deserve to service Main Street USA.
The FDIC is ignoring the guidelines for exposures to C&D and CRE loans in choosing banks to take
over the assets of failed banks. Banks are getting a back-door bailout with favorable loss-sharing
arrangements with the FDIC.
Three of the banks that acquired the assets of Friday’s failed banks were also in violation of the
regulatory guidelines for exposures of risk-based capital to construction and development loans and to
Commercial real estate loans. SCBT National Association (SCBT) has risk ratios of 145% for C&D
loans and 423.7% for CRE loans that are 89.3% funded. Bank of Marin (BMRC) has a risk ratio of
67.4% for C&D loans, which is fine, but has a 485.2% exposure for CRE loans with a loan pipeline
that’s 78.7% funded. First California Bank (FCAL) has a risk ratio of 41.5% for C&D loans, which is
fine, but has a 358.2% exposure to CRE loans with a loan pipeline of 86.9%. ValuEngine rates each of
these banks a HOLD. The FDIC policy of rewarding banks with overexposures to real estate loans is
deciding which banks fail and which banks survive, which is wrong.
That’s today’s Four in Four. Have a great day.
Richard Suttmeier
Chief Market Strategist
ValuEngine.com, (800) 381-5576
Send your comments and questions to Rsuttmeier@Gmail.com. For more information on our products and services visit
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and
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“I Hold No Positions in the Stocks I Cover.”