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June 25, 2010

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As a bonus to our Free Weekly Newsletter subscribers, we are now offering a FREE
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This This week's free download is our report on APPLE INC (AAPL). ValuEngine
has issued a BUY recommendation for APPLE INC (AAPL). Based on the information
we have gathered and our resulting research, we feel that APPLE INC has the
probability to OUTPERFORM average market performance for the next year. The
company exhibits ATTRACTIVE company size, risk and 5-year annualized return.
APPLE INC designs, manufactures and markets personal computers and related
personal computing and communicating solutions for sale primarily to education,
creative, consumer, and business customers. In addition, they design, manufacture,
and market a variety of "must-have" personal electronic devices such as the iPod,
iPhone, and new iPad.
APPLE INC often skews between a buy and hold rating according to our model
calculations, but regardless, the share price has been on the rise since late 2008. The
wild popularity and commercial success of the iPod, iPhone, and--now--iPad has
been a difficult factor for our models to quantify.
Currently, the stock has slightly negative forecast prices, but when compared
to the rest of our universe it is still strong. Its worst factor is its valuation-- which is almost
equal to its current share price, but we have seen in the past that the Fair Value figure
for AAPL is tough to get a handle on due to the company's ability to continually
invent new product lines just as the steam is running out of old ones.
In addition, AAPL's old-line computer business keeps benefiting from all of the
more portable gadgets as consumers who purchase iPods and iPhones become
more likely to make their next PC purchase a fully compatible APPLE INC PC with a
familiar operating system. All of the iPad hype--the WSJ noted this week that APPLE
has sold three MILLION units in juts 80 days--has overshadowed the fact that APPLE just
re-vamped its Mac-Mini PCs to provide far better performance, lower power
consumption, an HDMI port, and a bunch of other slick features--at a slightly higher
price point which should buttress their bottom line even more.
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Index started week Thursday Close 4 day change 4 day change % ytd
DJIA 10452.46 10152.8 -299.66 -2.87% -2.66%
NASDAQ 2341.11 2217.42 -123.69 -5.28% -3.36%
RUSSELL 2000 673.12 633.17 -39.95 -5.94% 0.81%
S&P 500 1122.79 1073.69 -49.1 -4.37% -3.84%

Summary of VE Stock Universe

Stocks Undervalued 70.66%
Stocks Overvalued 29.34%
Stocks Undervalued by 20% 38.85%
Stocks Overvalued by 20% 11.64%
Sector Change MTD YTD Valuation Last 12- P/E Ratio
Basic Industries -2.10% -0.97% 12.16% 9.36% undervalued 45.63% 23.83
Capital Goods -1.50% -1.01% 3.89% 8.80% undervalued 34.49% 19.01
Consumer Durables -1.77% -1.75% -0.89% 11.13% undervalued 49.67% 20.91
Consumer Non-Durables -1.33% -0.75% 0.48% 10.23% undervalued 38.52% 18.38
Consumer Services -1.46% -2.99% 3.25% 12.24% undervalued 36.88% 21.26
Energy -1.82% 2.69% -7.84% 5.88% undervalued 36.08% 21.28
Finance -0.95% -0.77% 6.07% 8.47% undervalued 20.62% 18.4
Health Care -0.68% -2.52% 2.57% 15.33% undervalued 24.72% 19.57
Public Utilities -0.77% 2.79% -5.66% 6.64% undervalued 19.86% 17.27
Technology -1.73% -1.04% 3.17% 17.11% undervalued 41.44% 23.87
Transportation -0.99% -0.25% 3.98% 12.83% undervalued 34.98% 20.05

Sector Talk
--Finance Sector Stocks

Below, we present various top-five lists for the Software and EDP Industry from
our Institutional software package (VEI). We included liquidity requirements of 100k
Top-Five Finance Sector Stocks--Short-Term Forecast Returns
Last 12-M
Ticker Name Mkt Price Valuation(%)
MTG MGIC INVT CORP WIS 7.9 146.32 113.51
PFBC 2.2 -75 -44.16
EQR EQUITY RESIDENTIAL 42.95 -12.04 103.17
MAC MACERICH COMPANY 38.95 -24.59 134.64
CLFC 5.7 -56.39 117.56
Top-Five Finance Sector Stocks--Long-Term Forecast Returns
Last 12-M
Ticker Name Mkt Price Valuation(%)
MTG MGIC INVT CORP WIS 7.9 146.32 113.51
PFBC 2.2 -75 -44.16
EQR EQUITY RESIDENTIAL 42.95 -12.04 103.17
MAC MACERICH COMPANY 38.95 -24.59 134.64
CLFC 5.7 -56.39 117.56

Top-Five Finance Sector Stocks--Composite Score

Last 12-M
Ticker Name Mkt Price Valuation(%)
KFN 7.72 -52.42 739.13
UTR UNITRIN INC 27.26 -28.3 133.79
AXP 41.06 -27.19 82.98
AMP 37.76 -25.11 60.82

Top-Five Finance Sector Stocks--Most Overvalued

Last 12-M
Ticker Name Mkt Price Valuation(%)
CIT C.I.T. GROUP INC-A 35.72 170.68 N/A
MTG MGIC INVT CORP WIS 7.9 146.32 113.51
COBZ COBIZ FINANCIAL INC 6.73 132.77 18.07
SBIB 5.04 127.33 -18.31

VE Premium Website Stock Analysis subscribers can find complete valuation,

forecast, and ratings data on every individual equity in the Finance Sector HERE.
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I have really enjoyed reading your morning briefing report and following
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--Catching Up with TK Ng
Defining Alpha with Visual Finance
Former ValuEngine Analyst and Quant Guru Tk Ng published the following on his new
blog Technifundamentals this week. It has been edited for presentation in our
newsletter. The complete version--along with other content of interest, can be found
Let's check out the results* for the MNS portfolio we created a few weeks ago:

*As of June 19th, 2010

After two weeks, our monthly re-balance market-neutral portfolio is down 1.42
% while the S&P500 is up 5.18 %. That's because of our Short position via the ProShares
S&P500 ETF/ (Ticker symbol SH). If not for SH, our tech-dominated portfolio would be
up 2.32 %. We are underperforming the Index, but we still have two weeks to see
whether the tech stocks will power on. Still, the lesson to be learned from this is that
we should not ignore the basic fact that the natural tendency of stocks is to have an
upward bias. Thus, giving a 50% weight to the Short position may sometimes be a
drag on performance.

Can we use visual finance to devise an algorithm of use for adjusting the
allocation of our strategy? Yes. We can use ValuEngine and our Viscovery SOMine
Software to create a Self-Organizing Map (SOM) that provides insights into the
market's possible direction and then adjust our portfolio accordingly.

A SOM of the component stocks of the S&P500 is constructed. This SOM

represents the basic topology of the market. We also create six stock portfolios
based on the Long and Short sides of the three ValuEngine benchmark portfolio
strategy screens. Remember that the VE Standard Strategy= Valuation; VE Forecast
Strategy= Growth, and VE Star Strategy= Quality.* We then plot our initial basket
against the backdrop of the S&P500 component stocks.

*NOTE: Subscribers can run screens for the long sides of the benchmark portfolio
strategies HERE

Prior to overlaying on the SOM, each of our ValuEngine picks are labeled with
their benchmark strategy, the sector they belong to, and whether they are Long or
Short positions. The position of a label is approximately the position of the node on the
SOM that the stock occupies. The S&P500 component stocks are not labeled and the
empty spaces represent the nodes on the SOM that they occupy.
Here is our initial SOM:

B=Basic Industries, C=Capital Goods, D=Consumer Durables, ND=ConsumerNonDurables, S=Consumer

Services, E=Energy, F=Finance, H=HealthCare, T=Technology, TP=Transportation, U=Public Utilities.
V=Valuation, G=Growth, Q=Quality. L=Long, S=Short.

Our SOM is composed of three natural clusters: S1-- the biggest cluster--
contains 66.33 % of our stock population and it is where most of the S&P500 stocks are
located. S2 contains 21.90 % of the stock population and is mostly occupied by our
ValuEngine short picks. S3 contains 17.77 % of the stock population and is mostly
occupied by our ValuEngine long selections.
To get a sense of the market's direction, we first look at the integrity of S2 and S3
clusters and their degree of dis-similarity with the market as represented by the
S&P500 (the data set from which our SOM is constructed). We do this by checking
out our SOM cluster statistics.
Here are our SOM stats:

Our stats provide an insight into the degree of dis-similarity between cluster S2
and S3 and the overall market. The degree of dis-similarity is measured by the length
of the bars on the bar chart which measures the deviation of the Mean of the cluster
from the Mean of the entire data set. S2 and S3 have relatively long bars as
compared with S1-- which contains most of the S&P500 component stocks. However,
S2-- which contains our short picks, is not a 'tight' homogeneous cluster and there are
big empty spaces in between individual equities.
On a SOM, this is an indication that the clustering is not 'strong' and thus S2 is not
a strong indicator of market direction--in this case bearishness since the cluster
contains the short picks. Cluster S3, which contains the L stocks, is also not a
distinctive, cohesive cluster. Other than an area at the top, S3 also has many empty
spaces. Thus it doesn't provide a strong signal either--thus it isn't bullish.

At best , the slightly better clustering characteristics of S3 as compared to S2

provides a small signal that the market outlook is slightly positive. Based on this
exercise, the overall outlook of the market is thus ambivalent. It could be up or it
could be down.

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

If you have any comments or questions, send them to

Treasury Yields
The $38 billion 5-Year note auction had a neutral result with
a yield of 1.995, a bid-to-cover of 2.58 and indirect bid of 35%. The
US Treasury auctioned $30 billion of 7-Year notes yesterday. The
30-Year fixed rate mortgage is at a record low of 4.76%, but
mortgage applications declined. The problem is that the spread
versus the 10-Year has widened to 166 basis points-- from 115
where it was when the Fed stopped buying mortgage securities on March 31st. A
4.25% mortgage would make it a lot easier to refinance mortgages.

The daily chart for the 10-Year shows the longer-term trading range between
the 200-day simple moving average at 3.544 and 3.061 with a daily pivot at 3.180,
and annual resistances at the floor at 2.999 and 2.813.
Commodities and Forex

Comex Gold--The daily chart shows declining technical momentum, but Monday’s
all time high of $1266.5 was a failed test of my monthly resistance at $1265.9. The 21-
day and 50-day simple moving averages provide key supports at $1228.4 and

Nymex Crude--The daily chart still shows overbought technical momentum with oil
below its 50-day and 200-day simple moving averages and annual pivot at $77.05,
$77.04 and $77.05. The 21-day is support at $74.41. Today’s resistance is $79.91.

The Euro--The daily chart shows rising technical momentum as strength reached my
quarterly resistance at 1.2450 on Monday. The 21-day simple moving average is
support at 1.2208.

Major Indices

The Dow--

Daily: The 21-day simple moving average is support at 10,183 with the 200-day and
50-day simple moving averages at 10,350 and 10,556. My annual pivot has been a
magnet at 10,379. A close below the 21-day shifts the daily chart to negative as
technical momentum rolls over. My call remains that the April 26th high at 11,258
ended the bear market rally since March 2009, and starts the second leg of the multi-
year bear market.

Housing and the FOMC

New Home Sales Plunge as Tax Credits Expire - New Home Sales for May
plunged 32.7% to an annual rate of just 300,000 units, the lowest pace since record
keeping began in 1963. This should not be a surprise as 33% of new home sales were
generated because of tax credits, which expired on April 30th. Remember that
homebuilders peaked in share price in July 2005 and new home sales are down 78%
from that peak. Complicating a housing recovery is high unemployment, job security
and banks continue to employ tight credit conditions.

My concerns are clearly stated by the Fed – “Housing starts remain at a

depressed level. Financial conditions have become less supportive of economic
growth on balance, largely reflecting developments abroad. Bank lending has
continued to contract in recent months.”
It was housing that caused stress in the banking system beginning in 2007.
Housing is beginning to drag the economy again, and stress in the banking system
continues, but is buoyed by low interest rates, which has just not helped Main Street
USA. Strategists argue whether or not the economy is headed for a double-dip or not.
Looking at housing and the unemployment rate the economy is still in its first dip. After
all, the National Bureau of Economic Research (NBER) has yet to time stamp
recession’s end. Without an end there can not be a double-dip.

Can the NBER declare the Recession over with an unemployment rate of 9.7% when
the rate was 4.6% when it began?

--The ValuTrader Model Portfolio Newsletter

The ValuTrader Model Portfolio Newsletter is based on ValuEngine Chief Market
Strategist Richard Suttmeier's proprietary market analytics. Suttmeier combines his
technical analysis expertise with ValuEngine's proprietary valuation, forecast, and
ratings data for more than 4000 equities trading on US markets to come up with a 20
stock portfolio tailored to current market conditions. With ValuTrader, subscribers
access Suttmeier's "Buy and Trade" strategy with a portfolio designed to function well
in both up and down markets.
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