ISI International Strategy & Investment Group Inc.

deGraafs Weekly
Survival Guide to
the Markets
March 17, 2009

ISI Technical Team:

Jeffrey S. deGraaf, CMT, CFA

(212) 446-5629

jdegraaf@isigrp.com

John Kolovos, CMT

(212) 446-9416

jkolovos@isigrp.com

Craig S. Peskin

(212) 446-5628

cpeskin@isigrp.com

Three Conditional Factors Support

Equities in the Intermediate-term
1) Generational Oversold Condition
2) Generational Sentiment Extreme
3) New Lows Contracting Since Oct

3/17/2009

ISI Group

Master Price Proximity Oversold

S&P 500 Index
1500

1000

500

As oversold as 2001 and 2002

Master Price Proximity Indicator

-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5

Extreme Overbought

Extreme Oversold

1990

1992

3/17/2009

1993

1994

1995

1996

1997

1998

1999

2000

2001

ISI Group

2002

2003

2004

2005

2006

2007

2008

200

Deviation From Trend is Extreme

S&P 500 Index

1600
1500
1400
1300
1200
1100
1000

74s extreme was 29%

900
800

87s extreme was 21%

700

Price as a Percent from its 200 Day Moving Average

15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40

J A

S O N D 2006 M A M J

3/17/2009

J A

S O N D 2007 M A M J

ISI Group

S O N D 2008 M A

M J

S O N D 2009 M

Only in 31 and 32 Did We Have

Larger Deviations from Trend
S&P 500 Index

35
30
25
20
15

10

We have to go back to
1931 & 1932 to find a
similar deviation from trend

Price as a Percent from its 200 Day Moving Average

50
40
30
20
10
0
-10
-20
-30

current level

-40
-50

1929

3/17/2009

1930

1931

1932

ISI Group

1933

1934

RYDEX Model Just off Peak Levels

S&P 500 Index

1600
1500
1400
1300
1200
1100
1000
900
800
700

Rydex Model
20
Outperform

15
10
5
0
-5

Underperform

-10
2001

3/17/2009

2002

2003

2004

2005

ISI Group

2006

2007

2008

2009

Highest Bear Readings in a

Generation
S&P 500

1500
1000

500

AAII Bearish Readings

70
65
60
55
50
45
40
35
30
25
20
15
10
5
87

1988

1989 1990

3/17/2009

1991 1992

1993

1994 1995 1996

1997 1998

1999

2000 2001

ISI Group

2002 2003

2004

2005 2006 2007

2008 200

Consensus Inc. at 8-yr Low

S&P 500

1600
1500
1400
1300
1200
1100
1000
900
800
700

85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10

Consensus Inc. Stock Indices

Euphoric

Apocalyptic

1998

1999

3/17/2009

2000

2001

2002

2003

2004

ISI Group

2005

2006

2007

2008

2009

GE Capitulation Served as
Microcosm to Broader Sentiment
General Electric Company

40
30
20

Spikes in CDS and

Volume suggest nearterm liquidation.

10

1000

GE Capital CDS

500

0
70000
60000
50000
40000
30000
20000
10000
x10000
t

3/17/2009

Nov

Dec

2008

Feb

Mar

Apr

May

Jun

Jul

Aug

ISI Group

Sep

Oct

Nov

Dec

2009

Feb

Mar

52 Week New Lows Contracted

S&P 500 (SP50)
Price - Close or Current Intraday

1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

52 WEEK NEW LOWS AS % OF ISSUES

100%
80%
60%
40%
20%
0%

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

ISI Group

10

Correlation Contracting
S&P 500 (SP50)
Price - Close or Current Intraday

1,600
1,500
1,400
1,300
1,200
1,100

Stock selection continues to

show it has a fighting chance in
this tape.

1,000
900
800
700

2002

2003

2004

2005

2006

2007

2008

AVERAGE 65 DAY CORRELATION

0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00

2002

2003

2004

2005

2006

2007

2008

ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

ISI Group

11

Conditional Elements Meet

Momentum
=
=

Momentum
Confirmation

=
=

+
+

3/17/2009

+
Momentum
Confirmation

ISI Group

12

One of the Most Powerful Clusters

of Thrust Weve Seen in Years
Date
3/11/2008
3/18/2008
9/30/2008
10/13/2008
10/28/2008
11/13/2008
11/21/2008
11/24/2008
12/16/2008
3/10/2009
3/12/2009
Average

3/17/2009

1d%chg A/D Ratio U/D Ratio

3.71%
4.9
9.2
4.24%
8.1
19.7
5.42%
4.2
9.2
11.58%
19.1
18.9
10.79%
4.0
20.4
6.92%
2.8
12.7
6.32%
1.7
4.0
6.47%
7.7
13.7
5.14%
5.6
16.8
6.37%
12.8
26.9
4.07%
9.0
17.9
6.46%

7.2

ISI Group

15.4

TRIN
0.53
0.41
0.45
1.01
0.20
0.22
0.43
0.56
0.33
0.48
0.50
0.47

VOL%
21%
18%
15%
25%
18%
34%
53%
30%
-5%
48%
22%
25%

13

NYSE A/D Ratio

xx x
x x

xx
++

NYSE Composite Index

x x xx
x xx

+
++

10000

x
x xx

x x

++
+ ++ +

+ + ++

2 internal days of
accumulation

+ A/D Ratio > 3:1

- A/D Ratio < -3:1

x xx x x
x xx
xx
++
+ xx x
x
+
x x
x
xx x
xx xxxx x x
xx x x
x
+ ++ x
+
xx
+
++
xx
++ +
+
+
+
+
+
+
+
+
+++

9000
8000
7000
6000

5000

4000

NYSE Advance Decline Ratio

10
0
-10
-20
NYSE Up Volume to Down Volume Ratio
0

-50

Dec

3/17/2009

2008

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

ISI Group

Oct

Nov

Dec

2009

Feb

Mar

14

We Have to Go Back to August of

82 to Find More Impressive Thrust
170
165
160
155
150
145
140
135
130
125
120

S&P 500 Index

115
110
105

+
+

100
95
10

NYSE Advance Decline Ratio

5
0
-5
-10
NYSE Up Volume to Down Volume Ratio

N D

3/17/2009

1981

1982

ISI Group

Highest A/D Volume

Ratio x Sept 07

1983

40
30
20
10
0
-10
-20
-30
-40
S

15

In 38 A/D Had a Similar Cluster

Taking Stocks Temporarily Higher
S&P 500 Index

19
18
17
16
15
14
13
12

Breadth
Thrust

11

10

+
+

9
8

NYSE Advance Decline Ratio

20
15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40

3/17/2009

O N D

1937 M A

M J

O N D

1938

A M J

ISI Group

S O N D

1939 M

A M

S O

16

In Early 87 the Thrust Didnt Quite

Match Todays Breadth
350

S&P 500 Index

Breadth
Thrust

300

250

200

NYSE Advance Decline Ratio

15
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40

6 Feb Mar Apr

3/17/2009

May Jun

Jul

Aug Sep

Oct

Nov Dec

1987

Mar

ISI Group

Apr

May Jun

Jul

Aug

Sep

Oct

Nov Dec

17

Standard Deviation of Bear

Bounces in Todays Market
S&P 500 Index

1600
1550
1500
1450
1400
1350
1300
1250
1200
1150
1100
1050
1000
950
900
850
800
750
700
650
600

4 stdev = 1168
3 stdev = 1077

Anything +3 stdev has never been

seen in the U.S. while still in a bear
market. 1938 bounce was the
closest at 59% (equal to 1057 SPX)

3/17/2009

S O

D 2008

M A

2 stdev = 987
1 stdev = 896

ISI Group

N D

2009

M J

18

Well Get Concerned > 60%

S&P 500 (SP50)
Price - Close or Current Intraday

1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

% OF ISSUES ABOVE THE 50 DAY MOVING AVERAGE

100%
80%
60%
40%
20%
0%

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

ISI Group

19

721 is 50% Retracement

S&P 500 Index
1050

Retracing Thursdays confirmation

day would be negative, and
reasserts the importance of 721.
Under that level, and the picture
becomes more muddled.

1000
950
900
850
800

0.0%

733.4
720.7

38.2%
50.0%
61.8%

750

700

100.0%

650
13
er

20

27

3/17/2009

3
10 17
November

24

8
15
December

22 29 5
12
2009

20 26

2
9
17 23
February

ISI Group

2
9
March

16

23

30 6
April

13

20

Some Resistance at 804 First

S&P 500 (10.000x30.000-H/L)

1350
1300
1250
1200
1150
1100
1050
1000
950
900
850
800
750
700
650

2008

3/17/2009

S 09 16

06

10

13 17 23 24

28 29

ISI Group

N 10

17

20 D 04 16 2009

M :

21

Bear Market is Not Over

Date Beginning Date End Magnitude Duration
9/16/1929
7/8/1932
-86.2%
704
3/10/1937 4/28/1942
-60.0%
1,284
10/9/2007
3/9/2009
-56.8%
355
3/24/2000 10/9/2002
-49.1%
637
1/19/1906 11/15/1907
-48.5%
459
1/11/1973 10/3/1974
-48.2%
436
6/17/1901 11/9/1903
-46.1%
602
11/3/1919 12/21/1920
-44.2%
283
11/21/1916 12/19/1917
-40.1%
268
11/29/1968 5/26/1970
-36.1%
369
8/25/1987 12/4/1987
-33.5%
71
5/29/1946 6/13/1949
-29.6%
761
11/19/1909 7/30/1914
-29.0%
1,178
12/11/1961 6/26/1962
-27.7%
136
11/28/1980 8/12/1982
-27.1%
430
2/9/1966 10/7/1966
-22.2%
167
8/2/1956 10/22/1957
-21.6%
307
7/16/1990 10/11/1990
-19.9%
62
9/21/1976
3/6/1978
-19.4%
366
8/3/1959 10/25/1960
-13.9%
311

3/17/2009

ISI Group

22

Bear Trend Persists

1800

1700

Trend Following: 1

1600
1500

Trend Following: 2

1600

1600
1550
1500
1450
1400
1350
1300
1250
1200
1150
1100

Trend Following: 3

1700

1500

1400

1400
1300

1300

1200
1200
1100

1050

1100

1000

1000

1000

950
900

900

900

800

850
800

800

750
700

700

700

650

S O N D 2008

A M J J A S O N D 2009

N D 2008 M A

M J

A S O N D 2009 M

1700

Trend Following: 4

Jun

Jul

Aug Sep Oct

Nov Dec

2009

Mar
1700
1600
1500
1400
1300

Trend Following: 5

1600

1500
1400

1200
1300

1100

1200

1000

1100

900
800

1000

700
900
100
800
50
700
0

Oct

Nov Dec 2008

3/17/2009

Mar Apr

May Jun Jul

Aug Sep Oct

Nov Dec 2009

Mar

ISI Group

2008

2009

23

If You Bought Today and Were Repeating

the 1930s
U.S. Stocks - Total Return Index
2.5
Forward Total Returns - Monthly
(Jan. 31, 1931 -52.8% from Peak)
1y
-52.09%
2y
-17.66%
3y
-25.65%
4y
-1.04%
5y
46.89%
6y
64.35%
7y
28.47%
8y
30.61%
9y
17.83%
10y
27.19%

1.5

Four years later

returns were still
negative.

0.5

From a percentage
decline, we are
here (-52.8% from
peak)

0
1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

3/17/2009

ISI Group

24

Treasuries Still in an Uptrend

US 10 YEAR NOTE

130
125
120
115
110
105
100

90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15

Con Inc. Treasury Bonds Bullish Sentiment

Overly Optimistic

Overly Pessimistic

2001

3/17/2009

2002

2003

2004

2005

ISI Group

2006

2007

2008

2009

25

Inflation Proportion is Beginning to Expand

U.S. 10 Year Yield versus Attribution
200%

4.50%
10 Year Yield
(right scale)

Real Yield / Inflation / Default Risk

180%
160%

3.50%

140%

3.00%

120%

2.50%

100%

ISI Group Inc. - Technical Analysis Research

R
h

2.00%
Default Risk

80%

1.50%
Inflation

60%

1.00%

40%

0.50%
Real Yield

20%
0%
12/11/2007

0.00%
-0.50%
2/12/2008
Real Yield

3/17/2009

4.00%

4/15/2008

6/17/2008

Inflation Expectations

8/19/2008

10/21/2008

Default Risk (CDS)

ISI Group

12/23/2008

2/24/2009

U.S. 10 Year Yield

26

AAA CMBX Showing Stress

3/17/2009

ISI Group

27

Fed Balance Sheet About to Expand

Again w/ TALF
2,800,000

2,400,000

Securities held outright (mostly Treasuries)

Term Auction Credit + Discount window
AMLF
Maiden Lane LLC
Maiden Lane III LLC

Repurchase Agreements
PDCF
CPFF
Other assets
Credit Extended to AIG

2,000,000

1,600,000

1,200,000

800,000

400,000

0
Jan 2008

Mar 2008

May 2008

Jul 2008

Sep 2008

Nov 2008

Jan 2009

Mar 2009

Source: Federal Reserve Board; ISI Economic Research

3/17/2009

ISI Group

28

Oil Trend Bearish But Improving

Crude Oil
Trend Following: 1

150
140
130
120

160
150
140
130
120
110

Trend Following: 2

110
100

Trend Following: 3
150

100

90

100

90

80

80

70

70

60

60

50

50

40

50

40

30

Aug

Sep

Oct

Nov

Dec

2009 Feb

Mar

30

Jul

Aug

Sep

Oct

Nov Dec
160
150
140
130
120
110

Trend Following: 4

2009

Mar

Aug

Sep

Oct

Nov

Dec

2009

Feb

Mar

Trend Following: 5

150

100

100
90

80

50

70
60
50

100

40
50

30

Apr

May

3/17/2009

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2009

Feb

Mar

Apr

ISI Group

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

2009

Feb

Mar

29

GOLD Sentiment is Elevated

1100
1000

GOLD SPOT $/OZ

900
800
700
Largest Holders of Gold
U.S.
Germany
IMF
France
Italy
SPDR Gold Trust (GLD)
Switzerland
Japan
Netherlands
China

Tonnes
8,134
3,413
3,217
2,487
2,452
1,057
1,040
765
613
600

600
500
400

300
100

Consensus Inc. Gold Bullish Sentiment

Overly Optimistic

90
80
70
60
50
40
30
20

Overly Pessimistic

10
2003

2004

2005

2006

2007

2008

2009

Source: Consensus Inc., IMF, Bloomberg

3/17/2009

ISI Group

30

Copper with a Modest Breakout

Copper High Grade COMEX Continuous
450

400

350

300

250

200

150

un

Jul

Aug

3/17/2009

Sep

Oct

Nov

Dec

2008 Feb

Mar

Apr

May

Jun

ISI Group

Jul

Aug

Sep

Oct

Nov

Dec

2009 Feb

Mar

31

Our 25 Portfolio
Outperforming SPX
110
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

108
106
104
102
100
98
96

Symbol
S
AKAM
AMZN
DHI
MYL
TSO
CF
MS
DF
NEM
GME
SVU
GS
WFMI
NTRS
FCX
AZO
TSN
MCK
LIFE
WPI
YHOO
JAVA
MU
STJ

Company Name
Sprint Nextel Corp.
Akamai Technologies Inc.
Amazon.com Inc.
D.R. Horton Inc.
Mylan Inc.
Tesoro Corp.
CF Industries Holdings Inc.
Morgan Stanley
Dean Foods Co.
Newmont Mining Corp.
GameStop Corp. (Cl A)
SUPERVALU Inc.
Goldman Sachs Group Inc.
Whole Foods Market Inc.
Northern Trust Corp.
Freeport-McMoRan Copper & Gold Inc.
AutoZone Inc.
Tyson Foods Inc. (Cl A)
McKesson Corp.
Life Technologies Corp.
Watson Pharmaceuticals Inc.
Yahoo! Inc.
Sun Microsystems Inc.
Micron Technology Inc.
St. Jude Medical Inc.

107.65

102.92

94
92
90
2/27/2009

3/1/2009

3/3/2009

3/5/2009
S&P 500

3/17/2009

3/7/2009

3/9/2009

3/11/2009

3/13/2009

Top 25 (Mkt-Cap Wgt)

ISI Group

32

Sector Ranking of Our Top 25%

S&P Names as a % of Sectors
Based on performance from 11/20/08 & 1/6/09
# of Stocks
# of Stocks
in Sector Sector
in Top125
9
Telecommunication Services
5
75
Information Technology
36
54
Health Care
21
39
Energy
10
80
Consumer Discretionary
20
40
Consumer Staples
9
29
Materials
6
34
Utilities
5
81
Financials
9
59
Industrials
4

3/17/2009

ISI Group

%
55.6%
48.0%
38.9%
25.6%
25.0%
22.5%
20.7%
14.7%
11.1%
6.8%

33

Breadth Stronger than

Price in Technology
S&P 500 / Information Technology -SEC (SP701)
Price
450
400
350
300
250
200
Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

ADVANCE-DECLINE LINE
800
600
400
200
0
-200
-400
-600
-800
-1,000
Oct-06
Jan-07
Apr-07
ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

Jul-07

Oct-07

Jan-08

ISI Group

Apr-08

Jul-08

Oct-08

Jan-09

34

Breadth Improving in
Health Care
S&P 500 / Telecommunications Services -SEC (SP793)
Price
180
160
140
120
100
80
Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

ADVANCE-DECLINE LINE
200
150
100
50
0
-50
Oct-06
Jan-07
Apr-07
ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

Jul-07

Oct-07

Jan-08

ISI Group

Apr-08

Jul-08

Oct-08

Jan-09

35

Bullish Breadth Divergence

in Energy
S&P 500 / Energy -SEC (SPN01)
Price
650
600
550
500
450
400
350
300
Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

ADVANCE-DECLINE LINE

1,000
800
600
400
200
0
-200

Oct-06
Jan-07
Apr-07
ISI GROUP INC. - TECHNICAL ANALYSIS

3/17/2009

Jul-07

Oct-07

Jan-08

ISI Group

Apr-08

Jul-08

Oct-08

Jan-09

36

Fresh Breakout in Top 25

WHOLE FOODS MARKET INC
WFMI

Food Retail
Mkt Cap: $2018.94
USD

80
70
60
50
40
30

200
50 day moving avg

20

10
Millions

59.2
29.6

2004

3/17/2009

2005

2006

2007

ISI Group

2008

37

Legal Stuff
ANALYST CERTIFICATION: The views expressed in this Report accurately reflect the personal views of those
preparing the Report about any and all of the subjects or issuers referenced in this Report. No part of the
compensation of any person involved in the preparation of this Report was, is, or will be directly or indirectly
related to the specific recommendations or views expressed by research analysts in this Report.
DISCLOSURE: Neither ISI nor its affiliates beneficially own 1% or more of any class of common equity securities of
the subject companies referenced in this Report. No person(s) responsible for preparing this report or a member of
his/her household serve as an officer, director or advisory board member of any of the subject companies. Neither
ISI nor its affiliates have any investment banking or market making operations. At various times these reports
mention clients of ISI from whom ISI has received non-investment banking securities related compensation in the
past 12 months.
The person(s) responsible for preparing this report regularly trade the constituents of the CRB index, currencies,
fixed income securities and stock indices.
DISCLAIMER: This material is based upon information that we consider to be reliable, but neither ISI nor its affiliates
guarantee its completeness or accuracy. Assumptions, opinions and recommendations contained herein are
subject to change without notice, and ISI is not obligated to update the information contained herein. Past
performance is not necessarily indicative of future performance. This material is not intended as an offer or
solicitation for the purchase or sale of any security.

3/17/2009

ISI Group

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