Ned Davis Research Group

NDR Nine Rules Of Research

April 3, 2009

Robert C. Schuster, CFA, CMT, Chief Operating Officer

 Current Positions, 2009 Expectations

Global Allocation: Overweight/Bullish: Underweight/Bearish:

Stocks
»» Cash (by 13%) »» Stocks (by 7%)
Cash
48% »» Bonds (by 6%)
23%

Bonds
29% »» Japan »» Pacific ex. Japan
»» Europe ex. U.K. »» U.S.

2009: Likely to overweight stocks,

overweight emerging markets.
U.S. Allocation:

Cash Stocks
10% 55% Marketweight:
Bonds »» Stocks
35%
»» Bonds
»» Cash

GLOBAL STOCK MARKET TREND

• Current: Bottoming process. COMMODITIES
2009: Advance into Q3. Potential 1200-1300 on • Gold: Bullish.
S&P 500. 2009: Secular uptrend.
STYLE & MARKET CAP • Commodities: Bottoming.
2009: Secular uptrend.
• Current: Growth over Value.
• Neutral on small vs. large
2009: Likely to favor small.

1
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 NDR Broad Calls for 2009 (as of right now)

„„ 2009 should be a year of mean reversion

from historical extremes
»» Stock rallying, and outperforming bonds

»» Credit Spreads narrowing

»» Volatility receding

»» Emerging Markets outperforming with small caps

»» Gold and commodities should strengthen

„„ Secular Themes Intact

»» Bear Market in US Stocks

»» Bull in Gold, Commodities, and Emerging Markets

2
Ned Davis Research Group
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 RULE #1: Don't Fight the Tape
The Trend Is Your Friend

Daily Data 3/29/2007 - 3/31/2009 (Log Scale)

S&P 500 vs. 200-Day Moving Average
1565.15
1566 1539.18
1553.08 1566
1526 1515.96 1526
1486 1490.72 1486
1448 1426.63 1448
1410 1406.70 1407.22
1395.42 1410
1374 1374
1338 1338
1305.32
1304 1310.50 1304
1270 1273.37 1270
1237 1237
1205 S&P 500 Gain/Annum When: 1214.91 1205
11/11/1929 - 3/31/2009
1174 1174
1144 200-Day Moving
Average:
Gain/
Annum
%
of Time
1144
1114 Is Rising 7. 5 67. 3 1114
1086 * Is Falling -0. 7 32. 7 1086
1058 Moving average direction 1058
1030 based on reversals 1030
of 0.5% or greater. 1005.75
1004 1004
978 978
953 953
934.70
928 928
904 904
881 881
858 858
848.92
836 3/31/2009 836
814 814
805.22
793 S&P 500 (Solid Line) = 797.87 793
773 773
753
200-Day MA (Dashed Line) = 1011.34 753
752.44
733 200-Day MA is Falling 733
714 714
696 696
678 676.53
678
A M J J A S O N D J F M A M J J A S O N D J F M
(S094) 2008 2009

3
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Please see important disclosures at the end of this document.
 RULE #1: Don't Fight the Tape
Go with Mo

Weekly Data 7/19/1968 - 3/27/2009 (Log Scale)

Standard & Poor's 500 Stock Index
S
1946 S S 1946
Profitable Long Trades: 93% S
1579 Gain/Annum: 10.4%
S S S 1579
1282 Buy-Hold Gain/Annum: 5.2% 1282
S
1041 Latest Signal 12/29/2006 = 1418.30 B 1041
B
845 S = Switch into Commercial Paper S B B B
845
686 Signal Dates: 12/27/1968 - 3/27/2009 S B 686
S
557 S B
557
S S
452 B 452
367 S
S
367
298 B B 298
S
242 S B B
242
196 SS 3/27/2009 = 815.94 196
S B BB
159 S S S S S S S
159
129 S B 129
105 B
105
Signals Generated When Rate of Change:
85 B
B Rises Above Lower Bracket = Buy
85
69 B B B B B B
Falls Below Upper Bracket = Sell 69
B
56 B
B 56
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
60 60
55 Equally Weighted 1700 55
50 Stock Geometric Index 50
45 (Two-Week Front-Weighted Moving Average) 45
40 40
35 Overbought 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
-5 -5
-10 -10
-15 -15 h
-20 -20 ris m
-25 Oversold -25 Beaentu
-30 -30 m
-35 -35
mo
-40 -40
-45 -45
-50 -50
-55 -55

(S108) Value Line Geometric Index 26-Week Rate of Change Source: Value Line

4
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 RULE #2: Don't Fight the Fed
Stay in Harmony with Interest Rates

Weekly Data 1/08/1965 - 3/27/2009 (Log Scale)

Value Line Geometric Index
502 502
441 Value Line Gain/Annum When: 441
388 Gain/ % 388
341 Baa Yield Momentum Is: Annum of Time 341
299 * Above 6% -11. 6 24. 2 299
263 Between -3% and 6% -1. 3 43. 4 263
231 -3% and Below 15. 8 32. 4
231
203 203
178 178
157 157
138 138
121 121
106 106
93 93
82 82
72 72
63 63
56 56 es
49 3/27/2009 = 199.8 49
ratat
t h
ter
mat
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
3/27/2009 = 11.4%
36 36
32 32
28 Bond Yields Rising 28
24 24
20 20
16 16
12 12
8 8
4 4
0 0
-4 -4
-8 -8
-12 -12
-16 Yields Falling -16

(S875A) Moody's Baa Bond Yield (26-Week Change)

5
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 RULE #2: Don't Fight the Fed
Money Moves Markets - Excess Liquidity

Monthly Data 1/31/1960 - 2/28/2009 (Log Scale)

Standard & Poor's 500 Stock Index
S
2051 S 2051
Profitable Long Trades: 90%
1643 Signals Generated When Liquidity Growth: S 1643
Gain/Annum: 7.4%
1317 Buy-Hold Gain/Annum: 5.4%
Rises Above 0.4 = Buy 1317
1056 Latest Signal 10/31/2008 = 968.75 Falls Below -5.6 = Sell 1056
846 S = Switch into Commercial Paper B
B 846
678 S
B B
678
543 S 543
436 436
349 349
280 280
S
224 S
B 224
180 S
S&P 500 Gain/Annum When:
180
S
144 S (1/31/1960 - 2/28/2009) 144
115 B 115
Liquidity Growth Is: Gain/ %
93 S Annum of Time
93
B
74 B
74
* Above 0.4 10. 6 40. 2
59 B 59
B Between -5.6 and 0.4 6. 5 40. 6
48 48
38 -5.6 and Below -6. 8 19. 2
38
B r
l fo d
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 fue ks (an
c ly
27 27 stoentualn)
24 24
ev latio
inf
21 21
18 18
Excess Liquidity
15 Year-to-Year Change Bullish 15
12 12
9 9
6 6
3 3
0 0
-3 -3
-6 -6
-9 -9
Economic Growth Rates Exceed
-12 Liquidity Growth Rates -12
Bearish
-15 -15
-18 2/28/2009 = 27.4 -18
(S835) M2 Money Supply minus Industrial Production x PPI Commodities

6
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 RULE #3: Beware of Crowds at Extremes
Psychology and Liquidity Link

Monthly Data 10/31/1980 - 2/28/2009 (Log Scale)

NDR Total Market Value vs Money Market Fund Assets / NDR Total Market Value
17102.05
18082.49 18646
NDR Total Market Value Gain/Annum When: 15978
NDR Total Market Value
Money Market Fund Assets/ Gain/ % 13692
(Billions, Scale Right)
NDR Total Market Value: Annum of Time 11733
* Above 10.80 9. 6 89. 4 2/28/2009 = 8289.3 10054
9715.02
10.80 and Below -12. 5 10. 6 9322.61 8615
7383
6326
5421
3541 4645
2907 3981
2382.00
2386 3411
1959 2923
1862.00
1608 2505
1320 2146
Total Money Market Fund Assets
1083 1839
(Scale Left In Billions)
889 1576
2/28/2009 = $3906
730 1351
613.84
599 1157
570.10
492 1055.64

404
331 ord
272
276.66
Source: Investment Company Institute rec
223
183 196.81
150 43.9
Money Market Fund Assets / NDR Total Market Value 38.3
123
(Scale Right) 33.4
101
2/28/2009 = 47.1% 29.1
25.4
22.2
19.3
High Liquidity 16.9
14.7
12.8
11.2
Low Liquidity 9.8
8.5
7.4
1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
(S423)

7
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Please see important disclosures at the end of this document.
 RULE #3: Beware of Crowds at Extremes
Relative Relationships Revert

Monthly Data 12/31/1926 - 2/28/2009 (Log Scale)

Stock/Bond Relative Performance
30.2 30.2
22.9 Ratio: 22.9
17.3 S&P 500 Total Return Index / 17.3
13.1 Barclays Capital Long-Term Treasury Bond Total Return Index* 13.1
10.0 10.0
7.6 7.6
5.7 5.7
4.3 4.3
3.3 2/28/2009 = 9.4 3.3
2.5 2.5
1.9 1.9
1.4 1.4
1.1 1.1
0.8 0.8
0.6 0.6
0.5 0.5
0.4 0.4
0.3 0.3
*Ibbotson data prior to 1973.
0.2 0.2
Scale = % Points
140 S&P 500 Total Return (Y/Y) Minus 140
120 Long-Term Gov't Bond Total Return (Y/Y) 120
100 2/28/2009 = -52.1% 100
80 3.0 Std Dev 80
60 2.0 Std Dev 60
40 40
1.0 Std Dev
20 20
0 Mean 0
-20 -1.0 Std Dev -20
-40 -2.0 Std Dev -40
-60 -60
-3.0 Std Dev
1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005
(AA032)

8
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Please see important disclosures at the end of this document.
 RULE #3: Beware of Crowds at Extremes
Valuation = Long-Term Extremes in Psychology

Monthly Data 11/30/1980 - 2/28/2009 (Log Scale)

Russell 1000 Growth Price/Book Value Ratio
539 539
431 Russell 1000 Growth Gain/Annum When: 431
(11/30/1980 - 2/28/2009)
345 345
276 P/B Ratio Gain/ % 276
221 Dev. From Trend is: Annum of Time 221
176 Above 10% 1. 5 31. 9 176
141 * Below 10% 7. 6 68. 1 141
113 Russell 1000 Growth Index 113
90 90
72 72
58 58
46 46
37 2/28/2009 = 215.4 37
12 12
Russell 1000 Growth Price/Book Value Ratio (Solid Line)
9 9
24-Month Average (Dashed Line)
7 7

5 5

4 4

3 3
2/28/2009 = 2.4 (actual)
2 2/28/2009 = 3.8 (24-Month Average) 2

40 Russell 1000 Growth P/B Deviation from Two-Year Average (%) 2/28/2009 = -36.4% 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
-40 -40
1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
(AA348_RSL)

9
Ned Davis Research Group
Please see important disclosures at the end of this document.
 RULE #3: Beware of Crowds at Extremes
General Crowd Psychology Impacts the Markets

Monthly Data 2/28/1967 - 3/31/2009 (Log Scale)

Dow Jones Industrial Average
19769 Oct 2007
19769
16025 DJIA Gain/Annum When: Jan 2000 16025
(2/28/1969 - 2/28/2009)
12990 Jun 1998 12990
10530 Consumer Gain/ % 10530
8536 Confidence is: Annum of Time
8536
6920 Above 110 -0. 2 22. 1 6920
5609 Between 66 and 110 6. 3 65. 1 Mar 2003 5609
4547 * 66 and Below 9. 6 12. 9 4547
3686 Sep 1987
Feb 1989
3686
2988 2988
2422 2422
Feb 1992
1963 1963
Jan 1991
1592 Dec 1972 1592
Oct 1968
1290 1290
1046 1046
848 848
687 Oct 1982 687
557 May 1980 557
452 Dec 1974
2/28/2009 = 7062.9 452

1970 1975 1980 1985 1990 1995 2000 2005

150 150
140 140
130 Extreme Optimism = Bearish for Stocks 130
120 120
110 110
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 Extreme Pessimism = Bullish for Stocks 20

(S1060A) Consumer Confidence (Conference Board) Source: The Conference Board

10
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 RULE #4 Rely on Objective Indicators
Indicators are not perfect but by being objective, it gives you consistency.
Use observable evidence not theoretical.
Daily Data 3/30/2005 - 3/31/2009 (Log Scale)
Standard & Poor's 500 Index
1531 3/31/2009 = 797.87 1531
1465 1465
1402 1402
1342 1342
1284 1284
1229 1229
1176 1176
1126 1126
1078 1078
1031 1031
987 987
945 S&P 500 Gain/Annum When:
945
904 904
865 CBOE 3-Day Equity Gain/ % 865
Put/Call Ratio is: Annum of Time
828 828
Above Upper Band 15. 7 26. 1
793 * Between Bands 5. 0 55. 1
793
759 Below Lower Band -6. 3 18. 8
759
726 726
695 Analysis Dates = 3/20/1986 - 3/30/2009 695
M J S N J M M J S N J M M J S N J M M J S N J M
2006 2007 2008 2009

108 108
104 104
100 100
96 96
92 Extreme Pessimism -- Bullish 92
88 88
84 84
80 80
76 76
72 72
68 68
64 64
60 60
56 56
52 52
48 Extreme Optimism -- Bearish 48

(DAVIS95) CBOE Three-Day Equity Put/Call Ratio

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 RULE #5 Disciplined
Anchors One's Exposure to Facts Not Gut Reactions

Monthly Data 3/31/1986 - 2/28/2009 (Log Scale)

NDR Global Balanced Account Model (Equity Allocation Constrained)
725 725
Model Equity Line
601 3/31/1986 - 2/28/2009 GPA = 8.33% 601
499 Std. Dev. of 12-Month Returns = 9.336% 499
414 Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash) 414
343 3/31/1986 - 2/28/2009 GPA = 6.36% 343
Std. Dev. of 12-Month Returns = 9.987%
285 285
236 236
196 196
162 162 n
135 135 itio n
2/28/2009 = 626.7 posored i
112 2/28/2009 = 411.6 112 h e
anc jective
Model Equity % (Min = 40%, Max = 70%) ob denc
80 80 evi
70 70
60 60
50 50
40 40
30 30
Dashed Lines = Benchmark Weights 2/28/2009 = 48.1%
Model Bond % 2/28/2009 = 28.8%
60 60
50 50
40 40
30 30
20 20
10 10

45 2/28/2009 = 23.1% 45
40 Model Cash % 40
35 35
30 30
25 25
20 20
15 15
10 10
5 5
1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009
(I 0 4 0 0 0 )

12
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 RULE #6: Remain Flexible
Adapt to changes in data, the environment, the markets.

Weekly Data 2/02/2007 - 3/27/2009

Junk Bonds, Baa Bonds, and T-Bill Rate
23 23
Barclays High Yield Corporate Yield ( )
22 Moody's Baa Bond Yield ( ) 22
90-Day T-Bill Rate ( ------ )
21 21

20 20

19 19

18 18

17 17

16 don't fight fed turned into 16

15
2/23 -- T-Bill Rates don't fight market rates 15
Start to Decline from
High of 5.1%
14 14

13 13

12 12

11 11

10 10

9 9

8 8

7 7

6 6

5 5

4 4

3 3

2 2

1 1

0 0
F M A M J J A S O N D J F M A M J J A S O N D J F M
(DAVIS98) 2008 2009

13
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Please see important disclosures at the end of this document.
 RULE #7: Risk-Averse
Being Right
Daily Data 3/13/1957 - 3/31/2009 (Log Scale)
Standard & Poor's 500 Index
SSS S SS S
2211 2211
Profitable Trades: 74% S
SS SS SS
S S
1710 Gain/Annum: -3.1% right but loses S 1710
SSS
1322 Overall Gain: -80.1% S 1322
1022 Latest Signal 6/17/2008 = 1350.93 S 1022
B BBB B
790 S S BB B BB B 790
SSS BB BB BB B
611 S S
B
611
472 B BB 472
SS S SSS
365 B 365
SS
282 S SSSS BB 282
218 S BBB 218
S SS BB
SS S
169 SS
SS
S SS S SSS S S S SS
SS SS BBB 169
SS SS S BB
130 S SS
B 130
SSS S BB
101 SSSSS SS BB BBB 101
78 S S
BB
BB
78
BB (Example of a Mean Reversion Indicator)
60 B
BB B B B
BB B BB BBBB B BBBB BB
B
60
B B BB B
47 Signals Generated When Stochastic Crosses: 47
BBBB B B
36 BBBBB B Above 72 = Sell 36
28 B Below 33 = Buy 28
1962

1967

1972

1977

1982

1987

1992

1997

2002

2007
95 95
90 90
85 85
80 80
75 75
70 70
65 65
60 60
55 55
50 50
45 45
40 40
35 35
30 30
25 25
20 20
15 15
10 10
(NED_
2) 32-Period Stochastic (19-Period Moving Average)
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See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.

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 RULE #7: Risk-Averse
Making Money
Daily Data 3/13/1957 - 3/31/2009 (Log Scale)
Standard & Poor's 500 Stock Index
S
2124 S S
S 2124
Profitable Trades: 52%
1652 Gain/Annum: 5.8% not right as often, but makes money S S
1652
1284 Overall Gain: 1793.1% 1284
998 Latest Signal 12/21/2007 = 1484.46 998
B
776 S B B
B 776
604 B 604
SS
469 469
S
365 S 365
284 S
B 284
221 S B B 221
171 SS S
S
SS S S
B
B 171
S S
133 S 133
104 SS
S B 104
81 B 81
S B (Example of a Trend Following Indicator)
63 B B B B B B B 63
B
49 B B
Signals Generated When: 49
38 B B
B
50-Day MA Crosses Below 200-Day MA = Sell 38
29 B
B 50-Day MA Crosses Above 200-Day MA = Buy 29
1962

1967

1972

1977

1982

1987

1992

1997

2002

2007
1379 1379
1128 1128
923 50-Day MA ( ) 923
755 3/31/2009 = 789.8 755
618 618
200-Day MA (------)
505 3/31/2009 = 1011.3
505
413 413
338 338
277 277
226 226
185 185
151 151
124 124
101 101
83 83
68 68
56 56
45 45
(NED_
1) 50-Day vs 200-Day Moving Averages
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15
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 RULE #8: Money Management Matters
99Be humble and flexible -- be able to turn emotions upside down and be open minded.
99Let profits run and cut losses short.
99Think in terms of risk, including opportunity risk of missing a bull market.
99Buy the rumor, sell the news.
Daily Data 3/29/2007 - 3/31/2009 (Log Scale)
S&P 500 vs. 200-Day Moving Average
1565.15
1566 1539.18
1553.08 1566
1526 1515.96 1526
1486 1490.72 1486
1448 1426.63 1448
1410 1406.70 1407.22
1395.42 1410
1374 1374
1338 1338
1305.32
1304 1310.50 1304
1270 1273.37 1270
1237 1237
1205 S&P 500 Gain/Annum When: 1214.91 1205
11/11/1929 - 3/31/2009
1174 1174
1144 200-Day Moving
Average:
Gain/
Annum
%
of Time
1144
1114 Is Rising 7. 5 67. 3 1114
1086 * Is Falling -0. 7 32. 7 1086
1058 Moving average direction 1058
1030 based on reversals 1030
of 0.5% or greater. 1005.75
1004 1004
978 978
953 953
934.70
928 928
904 904
881 881
858 858
848.92
836 3/31/2009 836
814 814
805.22
793 S&P 500 (Solid Line) = 797.87 793
773 773
753
200-Day MA (Dashed Line) = 1011.34 753
752.44
733 200-Day MA is Falling 733
714 714
696 696
678 676.53
678
A M J J A S O N D J F M A M J J A S O N D J F M
(S094) 2008 2009

16
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 RULE #9: Those who do not study history are condemned to repeat its mistakes.

Monster Rallies in Secular Bear Markets

363 363
316 316
X 48%
276 276
240 240
209 209
182 X 182
159 DJIA 11/13/1929 Bear Market Low 159
O N D J F M A M J J A S O N D J F M
1930 1931
159 X 159
147 147
136 60% 136
126 126
116 116

lys 107 107

r ral ar 99 DJIA 3/31/1938 Bear Market Low 99

e e X
nst rb M A M J J A S O N D J F M A M J J
mo ecula ts 1939

in s arke
21381 X 21381

m 20173 20173
19034 19034
17959 51% 17959
16945 16945
15988 15988
15085 15085
14234 Nikkei 225 8/18/1992 Bear Market Low 14234
X
J A S O N D J F M A M J J A S O N D J F M
1993 1994
22953 X 22953
21473 21473
20089 20089
18794 56% 18794
17583 17583
16450 16450
15389 15389
14397 Nikkei 225 7/03/1995 Bear Market Low 14397
X
J J A S O N D J F M A M J J A S O N D J
1996 1997
21085 X 21085
19947 19947
18871 18871
17852 17852
16889 62% 16889
15977 15977
15115 15115
14299 14299
13528 13528
12798 Nikkei 225 10/09/1998 Bear Market Low 12798
X
S O N D J F M A M J J A S O N D J F M A M
(HOT200812171_C) 1999 2000

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 Breaking Down Stock returnS
Breaking Down Stock Returns
Why Macro Market and Sector Analysis Is So Vital

Key PoInt: Market, Sector & Industry influences account for 2/3 of stock returns.

12% Sector 17%

Sector &
Industry 49%
Factors 37% Industry 32%

19%
Market
31%
Market &
Company
51% Specific
Company 32% Factors
20% Specific

1964 2007
Original Study Current Study
by Benjamin King by Ned Davis Research

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 Post Waterfall Decline Performance
Four Phases of Post Waterfall Declines

DJIA Performance Around Waterfall Declines (1929-2002)

132.0 Historical Cycle DJIA ( ) 132.0
All cycles indexed to 100 at end of Waterfall Decline.
130.0 130.0
128.1 128.1
126.2 1 2 3 4 126.2
124.3 124.3
122.5 122.5
120.7 120.7

Bear Market Bottom

118.9 Waterfall Decline 118.9
117.1 117.1
115.4 115.4
113.7 113.7
112.0 112.0

Earnings Trough
Recession End
110.3 110.3
108.7 108.7
107.1 107.1
105.5 105.5
103.9 103.9
102.4 102.4
100.9 100.9

113 Historical Cycle 10-Day Smoothing of NYSE Volume ( ) 113

107 107
101 101
95 95
90 90
85 85
80 80
75 75
71 71
67 67
63 63
59 59
56 56
-63 -42 -21 0 +21 +42 +63 +84 +105 +126 +147 +168 +189 +210 +231 +252
IF0818E_C <--Days Before--> <--Days After-->
 Copyright 2008 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html. For data vendor disclaimers refer to www.ndr.com/vendorinfo/.
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 Sector Performance in Each Phase

S&P Sector Performance During Various Market Phases

2009 expected timeframe

1 2 3
Waterfall To Bear Market Bear Market Bottom To Recession Recession End To Earnings Growth Following Earnings Growth
S&P 500 Sector Bottom End Trough Trough

Health Care Outperform Underperform Marketperform Marketperform

Consumer Staples Outperform Marketperform Underperform Marketperform
Energy Outperform Underperform Marketperform Underperform
Telecom Services Marketperform Underperform Underperform Marketperform
Utilities Marketperform Underperform Outperform Marketperform
Financials Underperform Marketperform Marketperform Outperform
Industrials Underperform Outperform Marketperform Marketperform
Consumer Discretionary Underperform Outperform Outperform Outperform
Materials Underperform Outperform Outperform Marketperform
Information Technology Underperform Outperform Underperform Marketperform
Waterfall to Bear Market Bottom Phase: 10/4/1974 - 12/6/1974, 10/19/1987 - 12/4/1987, 7/23/2002 - 10/9/2002. Bear Market Bottom to Recession End Phase: 12/6/1974 - 3/31/1975, 4/21/1980 -
7/31/1980, 8/12/1982 - 11/30/1982, 10/11/1990 - 3/31/1991, 9/21/2001 - 11/30/2001. Recession End to Earnings Growth Trough Phase: 3/31/1975 - 9/30/1975, 7/31/1980 - 3/31/1981, 11/30/1982
- 12/31/1982, 3/31/1991 - 12/31/1991, 11/30/2001 - 12/31/2001. Post Earnings Growth Trough Phase (63 day performance following these dates): 9/30/1975, 3/31/1981, 12/31/1982, 12/31/1991,
12/31/2001. Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only. Outperform determined by either batting average of 80% or higher, or excess return of
200 bps or more. Underperform determined by either batting average of 20% or less, or excess return of -200 bps or less.
Ned Davis Research, Inc. NDH0808.8

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 Phase One: Sector Performance

S&P Sector Performance From Waterfall Decline To

Bear Market Bottom (3 Cases Since 1974)

sort Mean Mean Batting

S&P 500 Sector criteria % Gain # of Days Average %
Health Care 11.7 44 100

en ess Consumer Staples 7.3 44 100

e n siv s
k
def wor Energy 5.0 44 100
Telecommunication Services 1.9 44 67
Utilities 0.3 44 67
Financials -2.5 44 33
Industrials -4.6 44 0
a
h bet Consumer Discretionary -5.0 44 0
hig ags Materials -5.3 44 0
l
Information Technology -6.0 44 33
S&P 500 0.4
Waterfall to Bear Market Bottom Phase: 10/4/1974 - 12/6/1974, 10/19/1987 -
12/4/1987, 7/23/2002 - 10/9/2002. Recession only really occurred with the 1974 case.
Days = trading days. Batting average = % of cases outperforming the S&P 500 (Cap-
Weighted). Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior
to 9/11/1989. Price only.
Ned Davis Research, Inc. NDH0808.3

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 Phase Two: Sector Performance

S&P Sector Performance From Bear Market Bottom to Recession End (5 Cases Since 1974)
Mean Mean sort Batting
S&P 500 Sector % Gain # of Days criteria Average % 5-year
beta
Consumer Discretionary 39.5 78 100

a Information Technology 38.9 78 100

h bet p 1.18
g
hi ves u Industrials 31.2 78 100
mo
Materials 29.6 78 80

Consumer Staples 25.8 78 60

Financials 32.2 78 40

es Health Care 23.8 78 20

e n siv r
def ip ove Telecommunication
fl 12.3 78 20
Services 0.82
Energy 12.4 78 0

Utilities 7.6 78 0

S&P 500 26.1

Bear Market Bottom to Recession End Phase: 12/6/1974 - 3/31/1975, 4/21/1980 - 7/31/1980, 8/12/1982 - 11/30/1982,
10/11/1990 - 3/31/1991, 9/21/2001 - 11/30/2001. Recession only really occurred with the 1974 case.
Days = trading days. Batting average = % of cases outperforming the S&P 500 (Cap-Weighted).
Sector performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only.
Ned Davis Research, Inc. NDH0808.5

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 Phase Three: Sector Performance

S&P Sector Performance From Recession End

To Earnings Growth Trough
(5 Cases Since 1974)
Mean Mean sort ia Batting
er
S&P 500 Sector % Gain # of Days crit Average %
Consumer Discretionary 7.0 106 80
Materials 6.9 106 80
Utilities 4.1 106 80
Energy 6.4 106 60
Financials 2.8 106 60
Industrials 6.0 106 40
Health Care 5.7 106 40
Consumer Staples 3.8 106 20
Telecommunication Services 1.0 106 20
Information Technology -1.3 106 20
S&P 500 5.2
Recession End to Earnings Growth Trough Phase: 3/31/1975 - 9/30/1975, 7/31/1980 - 3/31/1981,
11/30/1982 - 12/31/1982, 3/31/1991 - 12/31/1991, 11/30/2001 - 12/31/2001. Days = trading
days. Batting average = % of cases outperforming the S&P 500 (Cap-Weighted). Sector
performance based on S&P/MSCI GICS sectors. NDR estimates prior to 9/11/1989. Price only.
Ned Davis Research, Inc. NDH0808.6

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 NDR Guess for First Half of 2009

1st Half 2009 S&P 500 Sector Outlook (Update 2/6/2009)

Total
S&P 500 Sector Performance Score
Financials UPSIDE MEAN 30.00
REVERSION
Materials POTENTIAL 22.50
(EXPECTED
Information Technology OUTPERFORMERS) 22.00

Industrials 21.00

Consumer Discretionary 20.50

Energy 14.50

Telecommunication Services 14.00

Health Care downSIDE MEAN 7.50

REVERSION
Utilities POTENTIAL 7.00
(EXPECTED
Consumer Staples underPERFORMERS) 6.00

High #s = best.
Total Performance Score based on 2x ranking of Beta factor,
0.5x ranking of 44-day mean reversion factor,
and 0.5x ranking of 1-year mean reversion factor.
Ned Davis Research, Inc. T_TNT0903.1

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 NDR Nine Rules of Research

1. Don't fight the tape

2. Don't fight the Fed

3. Beware of crowds at extremes

4. Rely on objective indicators

5. Disciplined

6. Remain flexible

7. Risk-averse

8. Money management matters

9. Those who do not study history are

condemned to repeat mistakes

25
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 Biographical Sketch

Robert C. Schuster, CFA, CMT, is the Chief Operating Officer. As Chief Operating
Officer, Robert manages all operational departments, including the Research
departments and Information Technology departments; in doing so Robert is
responsible for the implementation of NDR strategy and allocation of resources.
Robert is the chair of the Leadership Council, whose primary responsibility is to set
the direction for NDR strategy.
Since joining the firm in 1989, Robert has held the positions of Managing Director
of Custom Research Services (1995 - 2004), and Analyst for the Bond/Economic and
Custom Research Services Departments (1989 -1995).
Robert graduated with honors from the University of Illinois with a Bachelor of
Science in Finance. Robert has earned the Chartered Financial Analyst and Chartered
Market Technician designations. He is also a member of the CFA Institute, CFA Tampa Robert C. Schuster, CFA, CMT
Chief Operating Officer
Bay, and the Market Technicians Association. His paper on “S&P Group Lead Time
Analysis” was published in the Market Technicians Association Journal.

Ned Davis Research Group

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