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EquitiEs, CommoditiEs & AssEt AlloCAtion– trEnds intACt or in troublE?
November 8, 2006Schroders
Tim Hayes, CMT Chief Investment Strategist
Ned Davis Research Group
Ned Davis Research (NDR) is an independent, institutional research company with global reach. Since 1980, NDR has provided institutional investors with unbiased, "one-stop" investment research. Over the years, NDR’s professional staff has developed a reputation for espousing a disciplined approach to in–depth financial analysis which is supported by the firm’s sophisticated analytic tools, commitment to data integrity, and unsurpassed customer support.
With more than 10 commentary publications, clients receive some of the broadest and most unbiased historical market perspectives on the Street. From asset allocation to sector and group work, individual stocks, economic, or quantitative research projects, NDR offers its clients unparalleled access to over 10,000 charts, reports, models and studies, many of which are illustrated by the firm’s hallmark-rich graphics.
NDR’s underlying database is one of the largest, most consistent and accurate in the industry since the firm dedicates an entire department to scouring and scrubbing data from over 175 different data vendors.
Using services from the Custom Research division, clients are able to work with analysts to design and build proprietary indicators, studies, models, custom screens, analytic testing, or various other sophisticated projects.
With clients in over 30 countries, NDR serves more than 5,000 users worldwide at investment firms, banks, insurance companies, mutual funds, hedge funds, pension and endowment funds, registered investment advisors, equity research departments, and other major financial institutions.
Ned Davis Research Group is comprised of Ned Davis Research, Inc. (NDR) located in Venice, Florida, and Davis, Mendel & Regenstein, Inc. (DMR), an NASD institutional brokerage firm, located in Atlanta, Georgia. DMR is the exclusive provider of NDR’s products and services. The two closely integrated firms presently employ over 70 people ranging from market strategists, economists, quantitative and market analysts, and other market professionals.
about Ndr
Ned Davis Research Group
tAblE oF ContEnts
Position summary 1Global Economy Reflation Theme 2 Interest Rate Cycle 3 - 4 Economic Cycle 5 - 6Asset Allocation models 7 u.s. stock market outlook Composite Assessment 8 Market Internals/Sentiment 9 - 12 Election Influences 13 Last Rate Hike Effects 14 - 16 Earnings/Valuation 17 - 20 Relative Strength 21 - 22Commodity demand theme Correlating Uptrends 23 - 24 Commodity Demand 25 Energy 26 - 25 Gold 27 U.S. Dollar 28 China 29 - 30Addendum Europe A1 - A4 Japan A5 - A10 More U.S. Perspectives A11 - A14 Housing A15 - A19 Styles A20 - A25 Sectors A26 - A28 Currencies and Commodities A29 - A36
Ned Davis Research Group 1
• Economic Growth No better than 3%, working assumption of 2.5% for 2007
• inflation Neutral, headline rate and core rate convergence around 3%
• Fed On hold for rest of 2006, first cut in Q2
• 10-year treasury Trading range of 4.55% to 4.95% - 5%
• bond duration 105% of benchmark
• domestic Allocation 50% stocks (underweight), 30% bonds (marketweight), 15% cash (overweight)
• Global Allocation 62% stocks (overweight), 38% bonds (overweight), 1% cash (underweight)
• style Allocation Neutral on Value vs. Growth, Large vs. Small
• sector Allocation Modest Overweight to Telecom, Industrials, Materials. Underweight to Health Care, Consumer Staples
• regional Allocation Emerging over Developed, selectively in commodity-producing markets. Pacific favored long-term. Watching for peak in European relative strength.
• Commodities Long-term bullish
• Gold Long-term bullish
• u.s. dollar Long term bearish
Position summAry
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.2
(AA404)
Quarterly Data 3/31/1968 - 9/30/2006 (Log Scale)
Gold Spot Price
9/30/2006 = 598.6
Gold Gain/Annum When:
GDP Minus Bond Gain/ %Yield Spread: Annum of Time* Above 0 18. 9 39. 6
0 and Below 0. 3 60. 44049617592
113139171210258318391480591
4049617592
113139171210258318391480591
Nominal GDPYear-to-Year Change
(Bars)9/30/2006 = 5.8%
Long-TermT-Bond Yields
( )9/30/2006 = 4.9%
456789
1011121314
456789
1011121314
Nominal GDP Minus Long-Term Bond Yield
9/30/2006 = 1.0%Concept Courtesy: Comstock Partners-8-7-6-5-4-3-2-1012345
-8-7-6-5-4-3-2-1012345
1970 1975 1980 1985 1990 1995 2000 2005
Gold vs Nominal GDP Minus Long-Term Bond Yields
• Reflation continues ...
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.3
• ... as does the tightening cycle, which is global in scope.
Daily Data 7/01/1948 - 11/02/2006 (Log Scale)
(IE510)
U.S. Fed Funds Rate11/02/2006 = 5.25%
(scale right)
Discount Rate Before 1/2/1989
2
4
6
8
10
12
Bank Of JapanTarget Uncollateralized Overnight Call Rate
11/02/2006 = 0.25%(scale left)
Discount RateBefore 1/16/1998
Dashed Vertical Lines Mark Start Of Easing CyclesSolid Vertical Lines Mark Start Of Tightening Cycles Quantitative Easing
3/19/2001 to 3/9/2006
12345678
European Central BankTarget Discount Rate11/02/2006 = 3.25%
(scale right)
German Data Before 1/1/1999
3
4
5
6
7
8
Bank of EnglandOfficial Bank Rate
11/02/2006 = 4.75%(scale left)
Bank Rate Before 10/16/1972Minimum Lending Rate Before 8/25/1981
Minimum Band Dealing Rate Before 5/6/1997
Target Repo Rate Before 6/8/2006
468
10121416
Central Bank Policy Changes19
53
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.4
(I 4032)
Monthly Data 1/31/1985 - 4/30/2007 (Log Scale)
Global Stock/Bond Total Return Ratio
10/31/2006 = 456.1
Ratio MS World LT Bonds %When Global Yield Curve: GPA TR GPA GPA of Time
Above 1.75% -5. 3 6. 3 12. 3 24. 9* Between 0.5% And 1.75% 7. 7 16. 9 8. 6 49. 8
0.5% And Below -7. 9 -0. 5 8. 0 25. 3Buy/Hold 0. 2 9. 6 9. 3 100. 0
Stock Returns Based on MSCIWorld Total Return Index
Bond Returns Based on LehmanGlobal Long-Term Government
Bond Total Return Index(NDR Estimates Prior to 5/31/1987)299
314329344360377395414434454476498522546572599628657689721
299314329344360377395414434454476498522546572599628657689721
Yield Curve Moved Ahead Six Months10/31/2006 = 0.80%4/30/2007 = 0.19%
Favors Bonds
Favors Bonds
Favors Stocks
Global Yield Curve Composite (10-Year Minus Three-Month)
*Equal-Weighted Composite of Gov't Interest Rates fromU.S., Japan, Euro-Zone, U.K., Switzerland, and Canada
*German data used prior to Euro-Zone data-1.8-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.0
-1.8-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.82.12.42.73.0
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Global Stock/Bond Ratio vs. Global Yield Curve Composite
• Composite global yield curve has flattened, which is negative for stocks versus bonds ...
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.5
(I 4034)
Monthly Data 1/31/1985 - 10/31/2006 (Log Scale)
Global Stock/Bond Total Return Ratio10/31/2006 = 456.1
When G7 Leading Ratio MS World LT Bonds %Index Momentum: GPA TR GPA GPA of Time
Favors Stocks 5. 4 12. 0 6. 3 54. 9* Favors Bonds -5. 8 6. 7 13. 2 45. 1
Buy/Hold 0. 2 9. 6 9. 3 100. 0
Stock Returns Based on MSCIWorld Total Return Index
Bond Returns Based on LehmanGlobal Long-Term Government
Bond Total Return Index(NDR Estimates Prior to 5/31/1987)303
324346369394421450481514549586626669715
303324346369394421450481514549586626669715
OECD G7 Composite Leading Indicator (CLI) Index(Moved Ahead Two Months)
10/31/2006 = 104.86872768084889296
100104
6872768084889296
100104
CLI Six-Month Point Momentum
10/31/2006 = -0.3%Rises One Percentage Point From Trough = Favors Stocks
Falls One Percentage Point From Peak = Favors Bonds-4-3-2-1012345
-4-3-2-1012345
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Stock/Bond Ratio vs. OECD G7 Composite Leading Indicator Index MomentumChart reflects data revisions
• ... and global economic outlook is worsening.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.6
(I 4030)
Monthly Data 1/31/1985 - 10/31/2006 (Log Scale)
Global Stock/Bond Total Return Ratio10/31/2006 = 456.1
When Business Confidence Ratio MS World LT Bonds %Indicators: GPA TR GPA GPA of Time
Favor Stocks (+1 to +2) 6. 0 7. 8 1. 6 26. 1* Mixed (0) 1. 6 11. 6 9. 8 51. 7
Favor Bonds (-2 to -1) -9. 2 7. 3 18. 1 22. 2Buy/Hold 0. 2 9. 6 9. 3 100. 0
Stock Returns Based on MSCIWorld Total Return Index
Bond Returns Based on LehmanGlobal Long-Term Government
Bond Total Return Index(NDR Estimates Prior to 5/31/1987)279
300323347373400430462497534574617663712
279300323347373400430462497534574617663712
10/31/2006 = 148.2 (-1)Composite Rises 1% = Favors Stocks
Composite Falls 0.5% = Favors Bonds
NDR Business SentimentComposite is Equal-
Weighted Average of:U.S. ISM Index
German Ifo IndexJapan Tankan Survey of
Large Manufacturers (Three-Month Smoothing)105110115120125130135140145150
105110115120125130135140145150
Six-Month Momentum of Business Sentiment Composite
10/31/2006 = -3.4% (1)
Sentiment Rises Above 4%Stocks Overbought, Bonds Oversold
Sentiment Falls -3% And BelowStocks Oversold, Bonds Overbought
-12-8-4048
121620
-12-8-4048
121620
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Global Stock/Bond Ratio vs. NDR Global Business Sentiment CompositeChart reflects data revisions.
• Business confidence has peaked.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.7
(I 4000)
Monthly Data 3/31/1986 - 10/31/2006 (Log Scale)
Model Equity Line3/31/1986 - 10/31/2006 GPA = 11.16%Std. Dev. of 12-Month Returns = 8.23%
10/31/2006 = 884.2
Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash)3/31/1986 - 10/31/2006 GPA = 8.46%
Std. Dev. of 12-Month Returns = 9.26%
10/31/2006 = 532.4112137167203247300365445541659802
112137167203247300365445541659802
Model Equity % 10/31/2006 = 61.5%
Dashed Lines Indicate Benchmark Weights153045607590
153045607590
Model Bond % 10/31/2006 = 37.6%
1020304050607080
1020304050607080
Model Cash % 10/31/2006 = 0.9%
5101520253035404550
5101520253035404550
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06
NDR Global Balanced Account Model
(AA500)
Weekly Data 2/06/1981 - 11/03/2006 (Log Scale)
Model Equity Line2/06/1981 - 11/03/2006 GPA = 15.01%
Std. Dev. of 52-Week Returns = 11.83%
11/03/2006 = 3663.0
Benchmark Equity Line (55/35/10 Stocks/Bonds/Cash)2/06/1981 - 11/03/2006 GPA = 11.69%
Std. Dev. of 52-Week Returns = 11.29%
11/03/2006 = 1724.1113157219305425592826
1151160522373118
113157219305425592826
1151160522373118
Model Equity % 11/03/2006 = 54.5%
Dashed Lines Indicate Benchmark Weights20
40
60
80
100
20
40
60
80
100
Model Bond % 11/03/2006 = 28.8%
10203040506070
10203040506070
Model Cash % 11/03/2006 = 16.7%
48
121620242832
48
121620242832
19
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20
06
NDR Balanced Account Model
• Our global and domestic asset allocation models are indecisive toward equities ...
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.8
(S38)
Weekly Data 1/04/1980 - 10/27/2006 (Log Scale)
S&P 500 IndexS&P 500 Gain/Annum When:
Big Mo Gain/ %Composite Model: Annum of Time
Above 75% 28. 8 40. 5* Between 55% and 75% 3. 9 39. 9
55% and Below -10. 7 19. 6119155203266347454594777
10171330
119155203266347454594777
10171330
Big Mo Tape Composite10/27/2006 = 78.1%
153045607590
153045607590
Big Mo External Composite10/27/2006 = 68.8%
153045607590
153045607590
Big Mo Composite Model (50% Tape, 50% External)
10/27/2006 = 73.4%
102030405060708090
102030405060708090
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S&P 500 Index vs. Big Mo Composite Model
• ... and Big Mo is still neutral.
ndr biG mo ComPositE modEl
Chart number Current mode** 11/03/2006 big mo Composite* S38 Neutral 74.0Tape Composite (50%) S035 Neutral 77.3External Composite (50%) S37 Mildly Bullish 70.6External Composite indicatorsindicator Chart number 11/03/2006 monetary:Yield Curve AA47 Bearish Three-Month T-Bill Yield Momentum S945 Bearish Three-Year T-Note Yield Momentum S950 Neutral 10-Year Treasury Yield Deviation from Trend S876 Bullish Long-Term Bond Yield S947 Bullish Economic:Real Monetary Fiscal & Exchange Rate Index AA530 Bullish NDR ISM Leading Index S1101A Bullish Real M2 Minus Industrial Production AA528 Neutral Commodity Price Momentum S972 Bullish Dollar-Adjusted Oil Momentum S992 Bullish sentiment:NDR Crowd Sentiment Composite*** DAVIS65 Neutral II Bull/Bear Sentiment + Monetary S502 Neutral VIX Deviation from Trend*** S0235 Bearish Total Put/Call Deviation from Trend*** S586 Bearish CBOE Five-Day Put/Call*** S0584A Bullish Valuation:Median S&P 500 Earnings Yield S782 Neutral Real Earnings Yield S698A Bullish BAA Yield Minus Earnings Yield AA526 Bullish Earnings Yield Minus T-Bill Yield S790A Neutral Real Bond Yield/Dividend Yield S788 Bullish
Unsmoothed External Composite Reading 71.9External Composite Reading (Five-Week Moving Average) S37 70.6
*BigMoCompositeModelconsistsof50%BigMoTapeCompositeand50%BigMoExternalComposite.**CurrentModebasedonperformanceboxshowninchartregardlessofdirection.***IndicatorreadingupdatedweeklywithBigMoComposite.Chartreadingisupdateddaily,sointra-weekreadingsonthisreportmaydifferfromchart.NedDavisResearch,Inc.SMS_8.RPT
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.9
• Breadth remains divergent ...
(S128)
Weekly Data 7/03/1980 - 10/27/2006 (Log Scale)
10/27/2006 = 12090.26In the past 12 NDR-defined bull markets (last 7 shown)weekly new highs peaked out prior to each majormarket top by a median lead time of 32.5 weeks(We have also signalled current cycle's peak on 1/09/2004)844
981114013251539178920792416280832633792440651215951691680379340
1085512615
844981
114013251539178920792416280832633792440651215951691680379340
1085512615
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
1040
213
1008
731
300
663 614
1129
834668
398
1516
336
1607
1116 1034 1132
475
164
997
539
596
356
566516
272
706
654
243
645857
421
122
405 470324
224
923
428
83
211
590
232
390
237
763
402
606
209326
747Weekly New Highs
Weekly New Lows
Source: Barrons-1600-1225
-900-625-400-225-100
-250
25100225400625900
-1600-1225
-900-625-400-225-100
-250
25100225400625900
Dow Jones Industrial Average
New Highs and New Lows
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.10
• ... as does volume ...
(NDRII11)
Daily Data 9/30/1981 - 11/02/2006 (Log Scale)
S&P 500S&P 500 Gain/Annum When:
Volume Deviation Gain/ %from Trend Is: Annum of Time
Above 105.5 19. 4 45. 4* 105.5 and Below 3. 3 54. 6
11/02/2006 = 1367.3116144178220273337418517639791979
12121500
116144178220273337418517639791979
12121500
11/02/2006 = 3477.9NDR II
SMDaily Volume (millions)
395990
138211322493754
11521762269541226303
395990
138211322493754
11521762269541226303
11/02/2006 = 101.8NDR II
SMVolume Deviation from Trend
90-Day Smoothing/252-day Smoothing
9296
100104108112116120124128132
9296
100104108112116120124128132
1986
1991
1996
2001
2006
NDR Institutional IndexSM
Volume
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.11
• ... and we may have been in a "blow-off" in the DJIA.
blow oFFs From sElECtEd ndr bull mArkEts05/09/1901 - 10/11/2006
blow offdJiA
% Gaintrading
days
05/09/1901 - 06/17/1901 16.1 32
11/13/1905 - 01/19/1906 27.4 56
09/01/1916 - 11/21/1916 20.8 67
08/20/1919 - 11/03/1919 21.5 61
11/27/1922 - 03/20/1923 14.5 92
05/27/1929 - 09/03/1929 29.9 82
02/26/1946 - 05/29/1946 14.2 78
03/16/1948 - 06/15/1948 16.8 74
01/23/1956 - 04/06/1956 12.7 53
09/22/1959 - 01/05/1960 11.2 72
08/09/1968 - 12/03/1968 13.3 67
10/16/1972 - 01/11/1973 14.1 59
07/05/1978 - 09/08/1978 12.7 47
02/13/1981 - 04/27/1981 9.9 50
08/08/1983 - 11/29/1983 10.7 80
05/20/1987 - 08/25/1987 22.9 68
04/27/1990 - 07/16/1990 13.4 55
11/05/1993 - 01/31/1994 9.2 60
03/05/1998 - 07/17/1998 10.6 94
10/15/1999 - 01/14/2000 17.0 64
01/29/2002 - 03/19/2002 10.6 35
07/14/2006-10/26/2006? 13.3 73
median 14.1 64
Currentcasenotincludedinsummarystatistics.
NedDavisResearch,Inc. T_245.RPT
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.12
Daily Data 12/31/1996 - 11/03/2006 (Log Scale)
(DAVIS72)
S&P 500 Gain/Annum When:
Gain/ %VIX Index Is: Annum of Time
Above 28.5 66. 2 13. 7Between 21.5 and 28.5 -0. 3 31. 3
* 21.5 and Below -1. 2 55. 0
11/03/2006 = 1364.30
754.0783.3813.8845.4878.3912.5948.0984.9
1023.21063.01104.41147.41192.01238.41286.61336.61388.61442.71498.8
754.0783.3813.8845.4878.3912.5948.0984.9
1023.21063.01104.41147.41192.01238.41286.61336.61388.61442.71498.8
High Complacency
High Fear 11/03/2006 = 11.2Implied Volatility Index
10.211.011.912.913.915.016.217.518.920.422.023.825.727.730.032.434.937.740.844.0
10.211.011.912.913.915.016.217.518.920.422.023.825.727.730.032.434.937.740.844.0
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
Standard & Poor's 500 Stock Index vs VIX IndexWeekly Data 5/01/1981 - 11/03/2006
(Q2500)
14161820222426283032343638404244464850
14161820222426283032343638404244464850
NASDAQ/DJIA Ratio Gain/Annum When:
Gain/ %Risk Premium is Annum of Time
Above 1.9 0. 7 57. 4* 1.9 and Below -2. 0 42. 6
NASDAQ/DJIA Ratio Gain/Annum When:
Risk Premium is Gain/ %Rising and Annum of Time
Above 1.9 -3. 0 30. 41.9 and Below -4. 0 16. 8
NASDAQ/DJIA Ratio Gain/Annum When:
Risk Premium is Gain/ %Falling and Annum of Time
Above 1.9 5. 4 27. 1* 1.9 and Below -1. 1 25. 9
All Periods = -0.5% GPA
All Periods When Proxy is RISING = -3.5% GPAAll Periods When Proxy is FALLING = 2.2% GPA
Direction of Proxy Determined by Current Value versus Eight Weeks Ago
Current Proxy Direction is: FALLING
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Moody Baa-Rated Bond Yield minus 10-Year Treasury Yield
11/03/2006 = 1.67%0.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.1
0.60.91.21.51.82.12.42.73.03.33.63.94.24.54.85.1
Ratio of NASDAQ Composite / Dow Jones Industrial Average
Equity Risk Premium Proxy
• Complacency evident in low VIX, narrow credit spreads.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.13
• The market has usually had trouble after a mid-term election when control of Congress has changed hands.
dow JonEs industriAl AVErAGE PErCEnt CHAnGE Around mid-tErm ElECtions
dJiA Percent Gain
mid-termyear
Electionday
Change inCongress*
ytd through Election day
Election day toEnd of year
Followingyear
1902 11/4/1902 No -0.01 -0.40 -23.611906 11/6/1906 No -2.36 0.45 -37.731910 11/8/1910 No -14.90 -3.48 0.391914 11/3/1914 No ** ** 81.661918 11/5/1918 Yes 16.46 -5.10 30.451922 11/7/1922 No 22.73 -0.80 -3.251926 11/2/1926 No -3.47 3.95 28.751930 11/4/1930 Yes -27.64 -8.47 -52.671934 11/6/1934 No -2.35 6.65 38.531938 11/8/1938 No 30.81 -2.10 -2.921942 11/3/1942 No 3.24 4.22 13.811946 11/5/1946 Yes -12.46 4.93 2.231950 11/7/1950 No 12.05 4.98 14.371954 11/2/1954 Yes 28.69 11.86 20.771958 11/4/1958 No 26.39 5.99 16.401962 11/6/1962 No -15.78 5.90 17.001966 11/8/1966 No -16.44 -2.99 15.201970 11/3/1970 No -4.03 9.22 6.111974 11/5/1974 No -20.70 -8.67 38.321978 11/7/1978 No -3.74 0.62 4.191982 11/2/1982 No 16.81 2.39 20.271986 11/4/1986 Yes 22.36 0.18 2.261990 11/6/1990 No -9.74 5.98 20.321994 11/8/1994 Yes 2.04 0.10 33.451998 11/3/1998 No 10.09 5.46 25.222002 11/5/2002 No -13.40 -3.88 25.32
median, All Periods: -2.35 0.62 15.80median, Change in Congress: 9.25 0.14 11.52median, no Change in Congress: -2.36 2.39 15.80*ChangeinCongressdefinedasmajoritypartychangingineithertheSenateorHouseofRepresentatives.**NYSEclosedfrom7/31/1914to12/11/1914duetoWorldWarI.
NedDavisResearch,Inc. T_SMF0634
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.14
• Final rate hike of a tightening cycle has usually been followed by weakness. Will oil prices remain low enough, and the housing market strong enough, for a soft landing and 1995 repeat?
(S01722)
Last Interest Rate HikeBy Federal Reserve
Daily Data Starting in 192012 Months = 252 Market Days *At least two consecutive rate increases before a decrease.
Fed Tightening DJIA Change DJIA ChangeEnd Dates* 126 Days Later 252 Days Later
6/1/1920 -5. 23 -15.571/8/1926 -8. 07 -2.588/9/1929 -26. 83 -35.0310/16/1931 -23. 81 -33.721/16/1953 -6. 18 0.388/23/1957 -8. 10 6.849/11/1959 -4. 80 -4.3912/6/1965 -6. 16 -15.754/3/1969 -12. 82 -14.684/25/1974 -22. 07 -2.902/15/1980 9. 24 6.185/5/1981 -10. 86 -12.132/24/1989 21. 78 14. 192/1/1995 21. 90 40. 235/16/2000 -3. 82 2.57Mean -5. 72 -4.42
90.991.291.591.892.192.492.793.093.393.693.994.294.594.895.195.495.796.096.396.696.997.297.597.898.198.498.799.099.399.699.9
100.2100.5100.8101.1101.4101.7102.0102.3102.6
90.991.291.591.892.192.492.793.093.393.693.994.294.594.895.195.495.796.096.396.696.997.297.597.898.198.498.799.099.399.699.9
100.2100.5100.8101.1101.4101.7102.0102.3102.6
Dow Jones Industrial Average Around Last Federal Reserve Interest Rate Hikes
-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6 +7 +8 +9 +10 +11 +12<--- Months Before Peaks ---> <--- Months After Peaks --->
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.15
• Also after final hike, bonds and Value have outperformed, small-caps and NASDAQ have underperformed ...
indEx PErCEnt GAin bEtwEEn lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1
last Hikedate8
First Cutdate
numberof months2 dJiA6 dJtA6 dJuA6 nAsdAq6 small Caps3
s&P 5007
large-CapGrowth4
large-CapValue5
reuters-CrbCCi index
lehman lt Gov’tbonds6
6/1/20 5/5/21 11.1 -11.3 2.4 n/a n/a n/a n/a n/a n/a n/a n/a
1/8/26 4/23/26 3.5 -10.2 -3.0 n/a n/a -15.0 n/a n/a n/a n/a n/a
8/9/29 11/4/29 2.9 -23.8 -7.9 -27.2 n/a -44.2 -18.8 n/a n/a n/a n/a
10/16/31 2/26/32 4.4 -19.9 -35.5 -17.9 n/a -20.4 -16.7 n/a n/a n/a n/a
1/16/53 2/5/54 12.7 2.4 -4.9 4.7 n/a -2.5 7.4 n/a n/a n/a n/a
8/23/57 11/15/57 2.8 -7.7 -22.8 -2.4 n/a -11.5 -8.4 n/a n/a -0.1 n/a
9/11/59 6/10/60 9.0 2.8 -6.7 3.0 n/a 5.4 3.5 n/a n/a -2.2 n/a
12/6/65 4/7/67 16.0 -9.2 -5.6 -8.8 n/a 25.4 3.1 n/a n/a -4.0 n/a
4/3/69 11/13/70 19.4 -18.1 -38.9 -14.1 n/a -39.8 -12.2 n/a n/a 3.8 n/a
4/25/74 12/9/74 7.5 -29.9 -20.1 -16.4 -32.7 -24.7 -24.6 n/a n/a 1.4 n/a
2/15/80 5/30/80 3.5 -3.9 -6.3 -0.8 -7.5 -8.0 -2.1 -1.6 0.2 -7.7 16.3
5/5/81 11/2/81 6.0 -10.9 -8.0 3.9 -6.8 -5.9 -2.3 -2.4 -1.7 -5.2 -0.5
2/24/89 6/6/89 3.4 11.2 6.5 12.6 12.0 12.2 14.0 11.4 11.2 -4.2 7.4
2/1/95 7/6/95 5.1 21.2 19.7 5.6 25.7 16.7 19.1 19.1 16.4 -0.2 13.0
5/16/00 1/3/01 7.6 0.1 5.2 13.7 -29.6 -3.5 -7.4 -19.9 5.1 2.2 9.6
mean 7.6 -7.1 -8.4 -3.4 -6.5 -8.3 -3.5 1.3 6.2 -1.6 9.2
median 6.0 -9.2 -6.3 -0.8 -7.1 -6.9 -2.3 -1.6 5.1 -1.2 9.6
1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.2.Numberofcalendardaysmultipliedby12/365.3.IbbotsonSmallCompanyTotalReturnIndex(monthly)until1979.Russell2000TotalReturnIndexthereafter.4.S&P/BARRA500GrowthTotalReturnIndex(monthly)until1993.S&P/BARRA500GrowthPriceIndex(daily)thereafter.5.S&P/BARRA500ValuedTotalReturnIndex(monthly)until1993.S&P/BARRA500ValuePriceIndex(daily)thereafter.6.Priceonly.7.Totalreturn.8.Boldface=NDR-definedbearmarketinprogress.Boldanditalics=bearmarketstartedwithinfourmonths.
NedDavisResearch,Inc. T_SMF0629.1
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.16
• ... and earnings growth has tended to slow.
s&P 500 PriCE/EArninGs rAtio Around lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1
Earnings y/y % Change3 Price/Earnings ratiolast Hike
dateFirst Cut
datenumber
of months2s&P 500 % Change
As oflast Hike
As ofFirst Cut
As oflast Hike
As ofFirst Cut % Change
08/09/1929 11/04/1929 2.9 -19.4 25.0 22.0 18.9 14.8 -22.0
10/16/1931 02/26/1932 4.4 -19.5 -39.1 -37.1 14.8 13.7 -7.6
01/16/1953 02/05/1954 12.7 1.1 -1.6 4.6 10.8 10.5 -3.4
08/23/1957 11/15/1957 2.8 -9.3 -5.0 0.3 13.0 11.6 -10.6
09/11/1959 06/10/1960 9.0 1.0 19.1 -4.1 16.9 17.1 1.3
12/06/1965 04/07/1967 16.0 -1.4 14.1 2.1 18.2 16.4 -9.9
04/03/1969 11/13/1970 19.4 -17.2 7.0 -9.0 17.3 15.6 -10.1
04/25/1974 12/09/1974 7.5 -26.8 22.9 8.9 10.7 7.2 -32.8
02/15/1980 05/30/1980 3.5 -3.6 20.5 15.0 7.8 7.3 -6.3
05/05/1981 11/02/1981 6.0 -4.7 -4.6 4.3 8.9 8.1 -9.0
02/24/1989 06/06/1989 3.4 12.9 35.7 16.4 12.1 13.0 7.5
02/01/1995 07/06/1995 5.1 17.8 39.8 36.6 15.4 16.1 4.7
05/16/2000 01/03/1901 7.6 -8.1 32.8 3.8 28.8 27.0 -6.3
06/29/2006? ? ? ? 17.9? ? 17.5? ? ?
All Periods:mean 7.7 -5.9 12.8 4.9 14.9 13.7 -8.0median 6.0 -4.7 19.1 4.3 14.8 13.7 -7.6
% P/E Compression 77%secular bulls:
mean 6.6 4.7 17.6 10.8 13.6 13.7 -0.1median 5.1 1.1 19.1 4.6 13.0 13.0 1.3
% P/E Compression 40%secular bears:
mean 8.4 -12.6 9.8 1.3 15.7 13.7 -13.0median 6.7 -12.6 17.3 4.1 16.0 14.2 -9.4
% P/E Compression 100%
1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.2.Numberofcalendardaysmultipliedby12/365.3.Earningsbasedonfour-quartertrailingreported(GAAP)earningspershare.Currentcasenotincludedinsummarystatistics.Shadedareas=NDR-definedsecularbearmarkets.
NedDavisResearch,Inc. T_IS0603.2
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.17
• Earnings growth is mean reverting ...
(S663)
Monthly Data 3/31/1927 - 12/31/2006 (Log Scale)
S&P 500 Gain/Annum When:
Y/Y Earnings Growth Gain/ %Is: Annum of Time
Above 20% 2. 0 23. 7* Between 5% & 20% 5. 5 30. 3
Between -20% & 5% 13. 1 38. 8-20% and Below -14. 8 7. 3
Earnings x 15.910/31/2006 = 1254.5
( )
S&P 50010/31/2006 = 1377.9
( )
69
1422345484
131205319499780
1218
69
1422345484
131205319499780
1218
Y/Y S&P 500 GAAP Earnings Growth (%)
Earnings Growth High
Earnings Growth Low 12/31/2006(E) = 15.7%6/30/2006(A) = 17.6%
-40-30-20-10
010203040506070
-40-30-20-10
010203040506070
Average P/E at Earnings Peaks (Down Arrows) = 12.60Average P/E at Earnings Troughs (Up Arrows) = 18.82
Based on Earnings Reversals of 10%
12/31/2006(E) = $80.906/30/2006(A) = $74.49Trendline = 5.9 % Gain Per Annum
Shaded Area Indicates Estimated Earnings Used
0
1
2
4
10
25
59
0
1
2
4
10
25
59
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
S&P 500 GAAP Earnings Growth
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.18
• ... with negative implications for the stock market.
(SMF0635_C)
Monthly Data 3/31/1927 - 9/30/2006 (Log Scale)
Earnings Growth Higher ThanIt Was 12 Months Ago
S&P 500 Gain/Annum When:
Y/Y Earnings Growth Gain/ %Is Rising And: Annum of Time* Above 15% 8. 7 24. 6
Between 5% & 15% -1. 9 14. 1Between -20% & 5% 14. 1 10. 9-20% and Below 6. 0 2. 2
Earnings Growth Lower ThanIt Was 12 Months Ago
S&P 500 Gain/Annum When:
Y/Y Earnings Growth Gain/ %Is Falling And: Annum of Time
Above 15% -3. 7 6. 7Between 5% & 15% 6. 4 9. 3Between -20% & 5% 11. 7 27. 2-20% and Below -22. 6 5. 15
71014192737517198
135187258356492679938
1295
57
1014192737517198
135187258356492679938
1295
Earnings Growth High
Earnings Growth Low 6/30/2006 (A) = 17.6%9/30/2006 (E) = 18.5%
-40
-30
-20
-10
0
10
20
30
40
50
60
70
-40
-30
-20
-10
0
10
20
30
40
50
60
70
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
New Chart
S&P 500 Index
S&P 500 GAAP Earnings Growth (Year-Over-Year Percent Change)
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.19
(S658)
Quarterly Data 9/30/1954 - 9/30/2006 (Log Scale)
9/30/2006 = 1485.3
S&P Gain/Annum When:9/30/1954 - 9/30/2006
Gain/ %Profit Margin: Annum of Time* Above 6.2 1. 1 17. 8
Between 5.4 and 6.2 7. 3 29. 8Between 3.3 and 5.4 12. 2 45. 73.3 and Below -2. 5 6. 7
283544556987
109137172216272342430541679854
107413501697
283544556987
109137172216272342430541679854
107413501697
9/30/2006 Est. = 7.5%Earnings & Sales Based on Four-Quarter Totals2.332.482.642.823.003.193.403.623.864.114.384.664.965.295.636.006.396.807.25
2.332.482.642.823.003.193.403.623.864.114.384.664.965.295.636.006.396.807.25
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Standard & Poor's Industrial Average
Standard & Poor's Industrial Average Profit Margin (Earnings/Sales) (S1108)
Quarterly Data 3/31/1948 - 9/30/2006
9/30/2006 = 1335.85
S&P 500 Gain/Annum When:
Unit Labor Costs Gain/ %(Y/Y Change) Are: Annum of Time
Above 6 -2. 2 17. 9* Between 3.5 and 6 5. 3 22. 6
3.5 and Below 12. 3 59. 4
1621273443567190
116147188240307392500638815
10401328
1621273443567190
116147188240307392500638815
10401328
Labor Costs Rising
Labor Costs Falling
9/30/2006 = 5.3%
-3-2-10123456789
101112
-3-2-10123456789
101112
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Standard & Poor's 500 Stock Index
Non-Farm Unit Labor Costs (Year-to-Year Change)
Chart reflects data revisions.
• Profit margins are also extreme, and threatened by rising unit labor costs.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.20
(S797)
Weekly Data 3/27/1926 - 10/27/2006
10/27/2006 = 18.5
P/E Ratio Based on S&P 500 GAAP EPSAverage from 3/27/1926 - 10/27/2006 = 15.9 (heavy dashed line)Average from 1/2/1980 - 10/27/2006 = 19.5 (narrow dashed line)
810121416182022242628303234363840424446
810121416182022242628303234363840424446
As of 10/27/2006:Baa Yield = 6.42%
S&P Earnings Yield = 5.41%Spread = 1.01%
Average from 3/27/1926 - 10/27/2006 = -0.17% (heavy dashed line)Average from 1/2/1980 - 10/27/2006 = 3.60% (narrow dashed line)
Monthly Moody's Baa yield data used priorto 1/8/1965, weekly thereafter-13
-12-11-10
-9-8-7-6-5-4-3-2-10123456
-13-12-11-10
-9-8-7-6-5-4-3-2-10123456
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
S&P 500 Index Price/Earnings Ratio
Moody's Baa Bond Yield Minus S&P 500 Earnings Yield
• S&P 500 not cheap from long-term perspective.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.21
• S&P 500 maintaining long-term downtrend versus the EAFE Index ...
Daily Data 12/31/1979 - 11/02/2006
(I 119A)
S&P 500 Total Return IndexLog Scale Right
( )
117141170206248299361436526635766924
111513461624195923642853
MSCI EAFE Total Return Index(U.S. Dollars)Log Scale Left
( )
Source: MSCI178212253301359428509607722861
10251221145417322063245729263485
Ratio moving up =S&P 500 Strength
Ratio moving down =EAFE Strength60
708090
100110120130140150160170180190
60708090
100110120130140150160170180190
1984
1989
1994
1999
2004
S&P 500 Total Return Index vs EAFE Total Return Index
Relative Strength -- Ratio of S&P 500 to EAFE
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.22
↑
• ... and it continues to rank low in Global Market Ranking, which shows continuing relative strength in most commodity-related emerging markets.
1 1 1 Lima Exchange Index Peru 190.97 10879.64 I5064 2 2 2 Indice D.C. Bursatil Venezuela 88.82 37992.02 I5092 3 3 4 Manila Exchange Index Philippines 63.92 2766.86 I5066 4 6 3 Jakarta Exchange Index Indonesia 59.26 1612.92 I5044 5 5 9 Warsaw WIG Index Poland 51.50 47833.42 I5068 6 7 5 BSE 100 India 50.24 6682.47 I5042 7 4 8 ** Madrid General Index Spain 49.64 1505.62 I5076 8 9 7 I.P.C. Mexico 47.65 23169.87 I5056 9 11 11 ** Hong Kong Hang Seng China 45.20 18749.69 I5024 10 10 10 Johannesburg All-Shares Index South Africa 41.16 23590.57 I5072 11 8 6 Colombo Exchange Index Sri Lanka 37.82 2516.00 I5078 12 12 32 ** OBX Stock Index Norway 31.29 342.57 I5062 13 13 12 IGPA Index Chile 29.17 10971.42 I5022 14 15 13 ** Swiss Performance Index Switzerland 28.73 6796.92 I5082 15 14 14 ** Straits Times Singapore 27.84 2722.31 I5070 16 26 19 Taiwan Trade-Weighted Index Taiwan 25.99 7161.61 I5084 17 21 28 Bovespa Index Brazil 25.45 40435.18 I5018 18 19 20 ** All Ordinaries Australia 24.34 5396.90 I5012 19 24 25 ** NZSX 50 FF Gross Index New Zealand 23.88 3778.41 I5060 20 18 22 ** ISEQ Overall Index Ireland 22.73 8544.15 I5046 21 25 18 Mishtanim 100 Israel 22.68 919.02 I5048 22 17 15 ** Stockholm All-Share Index Sweden 21.79 349.41 I5080↑ 23 36 34 Merval Index Argentina 21.04 1841.96 I5010 24 29 27 Kuala Lumpur Composite Malaysia 20.11 998.02 I5054 25 23 16 ** Brussels Bel-20 Index Belgium 19.01 4180.68 I5016 26 16 17 ** Frankfurt Xetra DAX Germany 18.94 6241.15 I5036 27 27 29 ** KFX Copenhagen Denmark 18.78 424.31 I5030 28 31 26 ** Milan MIBtel Index Italy 17.84 30624.00 I5050 29 20 21 ** Amsterdam AEX All-Share Netherlands 16.36 733.25 I5058 30 28 24 ** S&P 500 Index U.S. 13.12 1364.30 I5090 31 37 33 ** Athens Exchange Index Greece 12.23 4177.04 I5038 32 22 23 ** Paris CAC 40 France 11.56 5336.30 I5034 33 32 30 ** London FTSE 100 U.K. 11.24 6148.10 I5088 34 30 38 ** Austrian Traded Index Austria 9.83 4093.19 I5014 35 35 41 Prague PX-50 Index Czech Republic 8.38 1542.10 I5028 36 34 35 ** S&P/TSX Composite Canada 8.34 12239.04 I5020 37 33 31 ** Helsinki HEX General Finland 7.30 9067.78 I5032 38 38 39 Seoul Exchange Index South Korea 5.60 1383.88 I5074 39 42 40 Bangkok SET Index Thailand 3.13 732.30 I5086 40 41 37 Budapest Exchange Index Hungary -2.38 22123.20 I5040 41 40 42 IBB General Index Colombia -3.94 10328.81 I5026 42 39 36 ** TOPIX Index Japan -7.87 1619.02 I5052
↑=ChangefromUnderweighttoMarketweight**=DevelopedMarketOut-Of-SamplePerformanceResults2/9/1996-11/05/2006(WeeklyRebalancing);TopCategoryHasGained26.5%PerAnnum;Equal-WeightedUniverseHasGained10.6%PerAnnum;BottomCategoryHasGained9.2%PerAnnum.
NedDavisResearch,Inc. ICS_1
ndr GlobAl mArkEt indEx rAnkinG
Four Position Current Previous weeks Composite Entry Entry Current Gain/ rank week Ago market reading date Price Price loss (%) Chart
Four developed Previous weeks market Current rank week Ago (**) market Country Composite Price Chart
Full rAnk
OVERWEIGHTRanked 1-3 — Buy/Overweight: 1 1 1 Lima Exchange Index 190.97 02/05/2006 6314.38 10879.64 72.30 I5064 2 2 2 Indice D.C. Bursatil 88.82 03/12/2006 29520.70 37992.02 28.70 I5092 3 3 4 Manila Exchange Index 63.92 10/29/2006 2702.37 2766.86 2.39 I5066Ranked 4-13 After Reaching Ranks 1-3 — Hold/Continue to Overweight: 4 6 3 Jakarta Exchange Index 59.26 08/13/2006 1402.19 1612.92 15.03 I5044 5 5 9 Warsaw WIG Index 51.50 07/09/2006 42875.60 47833.42 11.56 I5068 6 7 5 BSE 100 50.24 11/27/2005 4663.97 6682.47 43.28 I5042 8 9 7 I.P.C. 47.65 11/27/2005 16879.37 23169.87 37.27 I5056 10 10 10 Johannesburg All-Shares Index 41.16 06/04/2006 20874.86 23590.57 13.01 I5072UNDERWEIGHTRanked 30-39 After Reaching Ranks 40-42 — Continue to Underweight: 35 35 41 Prague PX-50 Index 8.38 06/04/2006 1370.40 1542.10 12.53 I5028 39 42 40 Bangkok SET Index 3.13 06/11/2006 670.41 732.30 9.23 I5086Ranked 40-42 — Sell/Underweight: 40 41 37 Budapest Exchange Index -2.38 10/22/2006 22318.67 22123.20 -0.88 I5040 41 40 42 IBB General Index -3.94 09/10/2006 9052.87 10328.81 14.09 I5026 42 39 36 TOPIX Index -7.87 08/06/2006 1571.70 1619.02 3.01 I5052
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.23
(I 0105A)
Daily Data 7/01/1996 - 11/02/2006 (Log Scale)
NDR Global Oil & Gas Sector / NDR Global Composite(Equal-Weighted)
Scale Right11/02/2006 = 69.91
242730343842475258657281
Dow Jones Latin America Index /Dow Jones Developed
Markets IndexScale Left
11/02/2006 = 188.18
52586470788695
104115127140155171188
NDR Australia Composite /NDR Global Composite
Scale Right11/02/2006 = 72.87
2730333640444853586370
Comex Gold Futures IndexScale Left
11/02/2006 = 633.30
269296325358393432475523575632695
S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Global Reflation Theme (II)
(I 0105)
Daily Data 7/01/1996 - 11/02/2006 (Log Scale)
MSCI China Index / MSCI World IndexScale Right
11/02/2006 = 2.96
2
3
4
5
7
10
Dow Jones Emerging Markets Index /Dow Jones Developed Markets Index
Scale Left11/02/2006 = 86.73
42465156616774818997
107117
NDR Global Basic Resources Sector/NDR Global Composite
Scale Right11/02/2006 = 42.18
1719212325273033363943
Reuters-CRB Continuous Commodity IndexScale Left
11/02/2006 = 391.69
191205220236253271291312335359385
S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Global Reflation Theme (I)
• China-driven commodity demand theme still well intact ...
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.24
(STH0618A_C)
Daily Data 7/01/1996 - 11/03/2006 (Log Scale)
London Metals IndexScale Right
11/03/2006 = 3906.1
1047120913961612186121492481286433073818
LeadScale Left
11/03/2006 = 1710
430491560639729831948
1082123414071605
TinScale Right
11/03/2006 = 10190 38154196461450745580613667487421816089749868
NickelScale Left
11/03/2006 = 32690
41845120626776709387
114881406017207210602577531545
ZincScale Right
11/03/2006 = 4340
796936
110112941521178821022472290634164016
S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
London Metals Index and Select Components
(STH0618B_C)
Daily Data 7/01/1996 - 11/03/2006 (Log Scale)
Reuters-CRB Grains and Oilseeds IndexScale Right
11/03/2006 = 264.88
153164176189204219235253272292
Corn Futures*Scale Left
11/03/2006 = 351.38
191205221238256276297319344370398
Wheat Futures*Scale Right
11/03/2006 = 505.75
250272295320347376408443480521
Oats Futures*Scale Left
11/03/2006 = 263.62
109120131144158174190209229251
Orange Juice Futures*Scale Right
11/03/2006 = 197.89
*91-Day Perpetual Futures Contract 6068768595
106119134150168188
S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Agricultural Commodity Perspectives
• ... with several base metals and agricultural commodities back at new highs.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.25
• When freight index has reflected rising demand, commodities and emerging markets have benefited.
Monthly Data 3/31/1991 - 9/30/2006 (Log Scale)
(I 187)
Reuters-CRB Continuous Commodity Index
9/30/2006 = 370.1
Reuters-CRB Index Gain/Annum When:
12-Month % Change Gain/ %Of Cass Freight Index Annum of Time* Above 7% 11. 4 36. 5
Between -3% and 7% 0. 5 45. 2-3% and Below -4. 0 18. 2
189200211222235248261276291307324342361381
189200211222235248261276291307324342361381
Cass Freight Index For Expenditures
9/30/2006 = 2.11.0
1.1
1.2
1.3
1.5
1.7
1.9
2.1
1.0
1.1
1.2
1.3
1.5
1.7
1.9
2.1
Cass Freight Index 12-Month Rate of Change(Three-Month Smoothing)
9/30/2006 = 18.8%-9-4-10149
1625
-9-4-10149
1625
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Reuters-CRB Continuous Commodity Index vs Cass Freight Index For Expenditures MomentumChart title has been changed.
Monthly Data 11/30/1992 - 9/30/2006 (Log Scale)
(I 3161)
Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index
9/30/2006 = 85.0
Emerging/Developed Gain/Annum When:
Cass Freight Gain/ %Index Indicator: Annum of Time* Favors Emerging 5. 2 44. 6
Favors Developed -6. 9 55. 4
4347515559636874808693
100108116125135146157
4347515559636874808693
100108116125135146157
9/30/2006:Cass Freight Index For Expenditures ( )
9/30/2006 = 2.11Five-Month Smoothing ( )
9/30/2006 = 2.10
Five-Month Smoothing Rises 2.7% from Trough = Favors Emerging MarketsFive-Month Smoothing Falls 0.2% from Peak = Favors Developed Markets
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Dow Jones Emerging Markets Index / Dow Jones Developed Markets Index
Cass Freight Index For Expenditures
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.26
Daily Data 10/11/1988 - 11/03/2006 (Log Scale)
(DAVIS60)
Reuters-CRB Energy Index Gain/Annum When:
Energy Sentiment Gain/ %Seven-Day Smoothing: Annum of Time
Above 63 -3. 5 19. 8Between 45 and 63 4. 9 44. 7
* 45 and Below 20. 9 35. 5
11/03/2006 = 533.17
313.7 322.1
482.5
671.0704.5
164.8
227.5
367.8
511.1
445.4
118131145160177195216239264292323357394436482532588650719
118131145160177195216239264292323357394436482532588650719
Extreme Optimism
Extreme Pessimism 11/03/2006 = 33.04
77.579.5
74.0
83.9
71.368.5
23.0
27.0
39.2
29.7
38.036.8
2024283236404448525660646872768084
2024283236404448525660646872768084
D1989M J S D
1990M J S D
1991M J S D
1992M J S D
1993M J S D
1994M J S D
1995M J S D
1996M J S D
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
Reuters-CRB Energy Index
NDR Crowd Sentiment Poll for Energy Futures (Seven-Day Smoothing)
• Energy has lagged, but futures sentiment is extremely pessimistic.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.27
• Resource stocks still supported by commodity momentum, dollar weakness and gold strength.
Weekly Data 1/06/1985 - 10/29/2006 (Log Scale)
(I 8011)
Basic Resources Sector RS Line Gain/Annum
When CRB/Dollar Ratio Gain/ %Momentum Is: Annum of Time* Above 10 5. 2 40. 2
Between -8 and 10 -3. 0 32. 9-8 and Below -7. 7 26. 9
NDR Global Basic Resources Sector/NDR Global Composite
(Equal-Weighted)
10/29/2006 = 42.118202225283236404550566371
18202225283236404550566371
Reuters-CRB Continuous Commodity Index/ Trade-Weighted U.S. Dollar Ratio
10/29/2006 = 453.4180210240270300330360390420450
180210240270300330360390420450
Reuters-CRB Continuous Commodity Index / Dollar Ratio
52-Week Rate of Change(Four-Week Smoothing)
10/29/2006 = 18.0%
-20
-10
0
10
20
30
40
50
-20
-10
0
10
20
30
40
50
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
NDR Global Basic Resources Sector RS Line vs Reuters-CRB/Trade-Weighted U.S. DollarChart title has been changed.
Weekly Data 1/05/1986 - 10/29/2006 (Log Scale)
(I 8010)
NDR Global Basic Resources Sector/ NDR Global Composite
(Equal-Weighted)
10/29/2006 = 42.1
Relative Strength Gain/Annum When:
Smoothed 52-Week % Gain/ %Change of Gold: Annum of Time* Above 12 10. 0 23. 6
Between -12 and 12 -2. 8 65. 8-12 and Below -11. 8 10. 618
202225283236404550566371
18202225283236404550566371
Comex Gold
10/29/2006 = 598.2280320360400440480520560600640680
280320360400440480520560600640680
Gold52-Week Rate of Change(Three-Week Smoothing)
10/29/2006 = 26.3%-20
-10
0
10
20
30
40
50
60
-20
-10
0
10
20
30
40
50
60
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
NDR Global Basic Resources Sector Relative Strength vs Comex Gold Momentum
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.28
(I 241)
Daily Data 11/01/2002 - 11/02/2006 (Log Scale)
U.S. Dollar Index Gain/Annum When:5/08/1980 - 11/02/2006
200-Day Moving Gain/ %Average: Annum of Time
Is Rising 2. 2 55. 8* Is Falling -2. 9 44. 2
Moving average direction based on reversalsof 0.5% or greater.
11/02/2006:U.S. Dollar Index (Solid Line) = 85.34
200-Day MA (Dashed Line) = 86.93200-Day MA is Falling
81.583.285.086.888.690.492.394.296.298.2
100.3102.4104.5106.7
81.583.285.086.888.690.492.394.296.298.2
100.3102.4104.5106.7
Gold Futures Gain/Annum When:11/03/1980 - 11/02/2006
200-Day Moving Gain/ %Average: Annum of Time* Is Rising 4. 7 52. 2
Is Falling -5. 2 47. 8
Moving average direction based on reversalsof 0.5% or greater.
11/02/2006:Comex Gold Perpetual Futures (Solid Line) = 633.30
200-Day MA (Dashed Line) = 608.54200-Day MA is Rising
321335350366383400418436456476497520543567593619647676706
321335350366383400418436456476497520543567593619647676706
N J2003
M M J S N J2004
M M J S N J2005
M M J S N J2006
M M J S N
U.S. Dollar Index vs. 200-Day Moving Average
Gold Futures vs. 200-Day Moving Average
Daily Data 10/15/1979 - 11/02/2006 (Log Scale)
(I 242)
U.S. Dollar IndexScale Right
11/02/2006 = 85.3
81869196
102108114121128135143151160
Comex GoldScale Left
11/02/2006 = 633.3
When Dollar/Gold Ratio Dollar Gold %200-Day Moving Average: GPA GPA GPA of Time
Rising 8. 8 2. 9 -5. 5 47. 4* Falling -7. 4 -2. 9 4. 9 52. 6
Buy/Hold -1. 7 -0. 1 1. 6 100. 0
269295323355389427469515565620680746819
11/02/2006:U.S. Dollar / Gold (Solid Line) = 13.48200-Day MA (Dashed Line) = 14.36
200-Day MA is Falling
Moving Average direction based onreversals of 0.5% or greater.
121620242832364044485256
121620242832364044485256
U.S. Dollar and Gold vs. Dollar / Gold 200-Day Moving Average
19
84
19
89
19
94
19
99
20
04
• Inverse correlation evident in opposite trends and dropping dollar/gold ratio.
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.29
Quarterly Data 12/31/2002 - 9/30/2006
(IE15202)
Mean = 132.5
9/30/2006 = 136.7Not Seasonally Adjusted118
120122124126128130132134136
118120122124126128130132134136
Quarterly Point Change
Business Climate Improving
Business Climate Weakening
9/30/2006 = 0.8Source: Haver Analytics, China National Bureau of Statistics-12
-9-6-30369
1215
-12-9-6-30369
1215
Year-to-Year Point Change
9/30/2006 = 4.7-8-6-4-202468
10121416
-8-6-4-202468
10121416
4 12003
2 3 4 12004
2 3 4 12005
2 3 4 12006
2 3
Chinese Business Climate Index
(IE15000)
Monthly Data 1/31/1985 - 9/30/2006
Industrial ProductionValue Added
Smoothed Year-to-Year Change9/30/2006 = 16.17%
( )
Prime Lending Rate9/30/2006 = 6.12%
( )
Consumer Price IndexYear-to-Year Change
9/30/2006 = 1.5%( )
%
Source: Haver Analytics-2-10123456789
10111213141516171819202122232425262728
-2-10123456789
10111213141516171819202122232425262728
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Chinese Economic Factors
• China's expansion continuing at manageable pace ...
Ned Davis Research Group Pleaseseeimportantdisclosuresattheendofthisdocument.30
(I 0181A)
Reuters-CRB Percent GainEnding 10/31/2006:
Time Period: % Gain
One-Year Prior 17.5%
Six-Years Prior 75.1%
Reuters-CRB Continuous Commodity Index(2000 - 2006)
199
225
255
288
326
369
199
225
255
288
326
369
D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S D2007
M J S D2008
M J S D2009
M J S
MSCI China Index PercentGain Ending 10/31/2006:
Time Period: % Gain
One-Year Prior 54.9%
Six-Years Prior 58.3%
MSCI China Index(2000 - 2006)
151822263137
151822263137
D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S D2007
M J S D2008
M J S D2009
M J S
NASDAQ Percent GainEnding 2/29/2000:
Time Period: % Gain
One-Year Prior 105.3%
Six-Years Prior 492.6%
NASDAQ Composite Index(1994 - 2003)
86011681588215829333985
86011681588215829333985
M J S D1995
M J S D1996
M J S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
DJIA Percent Gain Ending 8/31/1929:
Time Period: % Gain
One-Year Prior 58.2%
Six-Years Prior 306.9%
Dow Jones Industrial Average(1923 - 1932)
476899
145212310
476899
145212310
S D1924
M J S D1925
M J S D1926
M J S D1927
M J S D1928
M J S D1929
M J S D1930
M J S D1931
M J S D1932
M J
Nikkei Percent Gain Ending12/31/1989:
Time Period: % Gain
One-Year Prior 29.0%
Six-Years Prior 293.3%
Nikkei 225 Average(1983 - 1992)
11039
13413
16298
19802
24060
29234
35520
11039
13413
16298
19802
24060
29234
35520
1984M J S D
1985M J S D
1986M J S D
1987M J S D
1988M J S D
1989M J S D
1990M J S D
1991M J S D
1992M J S D
Gold Percent Gain Ending1/31/1980:
Time Period: % Gain
One-Year Prior 189.7%
Six-Years Prior 426.6% Comex Gold(1974 - 1983)
134180241324435583
134180241324435583
M J S D1975
M J S D1976
M J S D1977
M J S D1978
M J S D1979
M J S D1980
M J S D1981
M J S D1982
M J S D1983
Commodities & China Market vs. Bubbles (Log Scale)
• ... and for China and commodities alike, the bubble stage has yet to be reached.
Ned Davis Research Group
AddEndum
Ned Davis Research Group A1
EuroPE
Daily Data 11/03/2004 - 11/03/2006
(IGB4000)
1148.21168.7
1455.0
1048.11075.5
1239.2
Composite Price Line 11/03/2006 = 1489.48 50-Day Smoothing (---)
Current = 400 Issues
Performance Analysis Dates:(9/11/1985 - 11/03/2006)
Current Mode Entry Date: 7/25/2006
Performance When Price & A/D Lines are: % Gain/Annum % of Time
* Both Above Smoothings 33. 3 51. 1
At Least One Below -6. 7 48. 9
960
1020
1080
1140
1200
1260
1320
1380
1440
1500
960
1020
1080
1140
1200
1260
1320
1380
1440
1500
38.4538.98
39.55
38.7138.25
39.88
40.97
43.05
37.34
38.06
37.0037.53
36.67
38.7039.32
Relative Strength Line 11/03/2006 = 44.17 50-Day Smoothing (---)
37
38
39
40
41
42
43
44
45
37
38
39
40
41
42
43
44
45
52.36
52.65 52.70
53.01
53.34
51.96
52.3952.29
52.87 52.81
Composite Advance-Decline Line 11/03/2006 = 53.63 50-Day Smoothing (---)
51.6
52.0
52.4
52.8
53.2
53.6
51.6
52.0
52.4
52.8
53.2
53.6
38 3648
36
50 51
80
% Issues at 30-Day New Highs & New Lows
-75
-50
-25
0
25
50
-75
-50
-25
0
25
50
N D J2005
F M A M J J A S O N D J2006
F M A M J J A S O N
NDR Europe Composite vs. Breadth Indicators Weekly Data 1/05/1986 - 11/05/2006
(IGR4000)
NDR Europe Composite (Log Scale) 11/05/2006 = 1489.5 40-Week Smoothings (---)
167214272347443565721919
117214951907
167214272347443565721919
117214951907
NDR Europe Composite / NDR Global Composite 11/05/2006 = 84.9 40-Week Smoothings (---)5560657075808590
5560657075808590
M+
1+
2+
3+
4-1
-2
Da
sh
ed
Lin
es =
Std
De
v
Sca
le =
% P
oin
ts
-30-25-20-15-10
-505
1015202530354045505560
-30-25-20-15-10
-505
1015202530354045505560
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
NDR Equal-Weighted Europe Composite and Relative Strength
Europe Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices
Ned Davis Research Group A2
Weekly Data 11/09/2003 - 11/05/2006 (Log Scale)
(IGP4000)
Composite PerformanceAnalysis Dates: (10/06/1985 - 11/05/2006)
Composite Performance When % Gain/ %Participation Indicators are: Annum of Time
* Both in Upper Modes 32. 8 29. 1
Mixed 5.2 53. 9
Both in Lower Modes -1.2 17. 0
Buy/Hold 11. 4 100. 0
NDR Europe Composite 11/05/2006 = 1489.48
867905944986
1029107311201169122012731328138614471510
867905944986
1029107311201169122012731328138614471510
Percentage of Composite's Stocks Above Their 10-Week Moving Averages Upside Participation
Downside Participation11/05/2006 = 85.3210
20
30
40
50
60
70
80
90
100
10
20
30
40
50
60
70
80
90
100
Percentage of Composite's Stocks Above Their 40-Week Moving Averages Upside Participation
Downside Participation11/05/2006 = 87.5035404550556065707580859095
100
35404550556065707580859095
100
D J2004
F M A M J J A S O N D J2005
F M A M J J A S O N D J2006
F M A M J J A S O N
NDR Europe Composite Stock Participation IndicatorsWeekly Data 4/12/1992 - 11/05/2006
(I 2104)
Based on Total Return Indices
JP Morgan European Bond Index used prior to 1/3/1995.
When Momentum STOXX Bonds Ratio %Indicator is: TR GPA TR GPA GPA of Time* Above 6% 21. 8 3. 0 18. 3 25. 1
Between -4% and 6% 12. 5 8. 8 3. 4 55. 3-4% and Below -2. 9 11. 1 -12. 6 19. 6Buy/Hold 11. 5 7. 7 3. 5 100. 0
65707580859095
100105110115120125130135140145150155160165170175
65707580859095
100105110115120125130135140145150155160165170175
Six-Week Smoothing ofSix-Week Rate of Change of STOXX Index
Minus Six-Week Rate of Change of Bond Index
FavorsStocks
FavorsBonds
11/05/2006 = 6.9%-30-27-24-21-18-15-12
-9-6-30369
121518212427
-30-27-24-21-18-15-12
-9-6-30369
121518212427
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ratio of Dow Jones Stoxx Index to JP Morgan European Monetary Union Bond Index vs Momentum Indicator
Ned Davis Research Group A3
(IE4230)
Monthly Data 1/31/1991 - 10/31/2006 (Log Scale)
Business Climate
10/31/2006 = 105.385
88
91
94
97
100
103
107
85
88
91
94
97
100
103
107
Expectations
10/31/2006 = 99.28486889092949698
100102105
8486889092949698
100102105
Current Situation
10/31/2006 = 111.8Source: Haver Analytics, Ifo InstituteFor Economic Research, www.ifo.de
82
86
90
94
98
103
108
113
82
86
90
94
98
103
108
113
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Ifo Institute's Survey of Pan-German Business SentimentMonthly Data 1/31/1986 - 10/31/2006
(IE1200A)
European Commission Euro-ZoneEconomic Sentiment Index
10/31/2006 = 110.3768084889296
100104108112116
768084889296
100104108112116
EUCOM IndexMonthly Point Change
10/31/2006 = 1.0
-5-4-3-2-101234
-5-4-3-2-101234
EUCOM Index Year-to-Year Point Change
10/31/2006 = 9.9Sentiment Improving
Sentiment DeterioratingSource: Haver Analytics, European Commission
-20-15-10
-505
1015202530
-20-15-10
-505
1015202530
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
European Commission Euro-Zone Economic Sentiment Indicator
Ned Davis Research Group A4
Monthly Data 1/31/1991 - 10/31/2006
(IE7203)
10/31/2006 = 97.17274767880828486889092949698
100102
7274767880828486889092949698
100102
10/31/2006 = -0.2Source: Haver Analytics-9-8-7-6-5-4-3-2-1012345
-9-8-7-6-5-4-3-2-1012345
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
ISAE Italian Business Confidence Survey
ISAE Business Confidence Survey (Monthly Point Change)
Monthly Data 4/30/1976 - 10/31/2006
(IE6202)
Mean = 100.0
10/31/2006 = 108
Above Normal
Below Normal
757881848790939699
102105108111114117120
757881848790939699
102105108111114117120
Business Climate Improving
Business Climate Weakening
10/31/2006 = 2
Source: Haver Analytics
-5
-4
-3
-2
-1
0
1
2
3
4
5
-5
-4
-3
-2
-1
0
1
2
3
4
5
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
INSEE French Composite Business Climate Indicator
French Business Climate Indicator (Monthly Point Change)
Ned Davis Research Group A5
JAPAn
(IE3000)
Monthly Data 1/31/1966 - 9/30/2006
Industrial ProductionMining and Manufacturing
Smoothed Year-to-Year Change9/30/2006 = 4.48
( )
Three-Month Interest Rate9/30/2006 = 0.34
( )
Consumer Price IndexYear-to-Year Change
9/30/2006 = 0.60( )
%
Source: Economist Magazine, Haver Analytics-16-15-14-13-12-11-10
-9-8-7-6-5-4-3-2-10123456789
101112131415161718192021222324
-16-15-14-13-12-11-10
-9-8-7-6-5-4-3-2-10123456789
101112131415161718192021222324
1970 1975 1980 1985 1990 1995 2000 2005
Japanese Economic FactorsMonthly Data 1/31/1996 - 9/30/2006
(IE3702)
Consumer Price Index ( ) 0.6%Core Consumer Price Index ( ) 0.2%
Seasonally Adjusted
Source: Haver Analytics-1.5-1.4-1.3-1.2-1.1-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.70.80.91.01.11.21.31.41.51.61.71.81.92.02.12.22.32.42.52.6
-1.5-1.4-1.3-1.2-1.1-1.0-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.10.20.30.40.50.60.70.80.91.01.11.21.31.41.51.61.71.81.92.02.12.22.32.42.52.6
M J S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Japanese Consumer Price Measures (Year-to-Year Changes)
Ned Davis Research Group A6
Monthly Data 3/31/1978 - 9/30/2006
(IE3753)
9/30/2006 = 0.6%
CPI Points/Annum When:
Points/ %Operating Rate Is: Annum of Time
Above 109.5 0. 3 21. 1* Between 97.7 and 109.5 0. 0 59. 5
Below 97.7 -0. 6 19. 3
-1
0
1
2
3
4
5
6
7
8
-1
0
1
2
3
4
5
6
7
8
8/31/2006 = 106.3%
Excess Capacity- Disinflationary
Tight Capacity - Inflationary
Source: Haver Analytics889092949698
100102104106108110112114
889092949698
100102104106108110112114
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Japanese Consumer Price Index (Year-to-Year Change)
Japanese Manufacturing Operating Rate
Quarterly Data 6/30/1983 - 9/30/2006
(IE3214)
Tankan Survey of LargeManufacturing Enterprises
9/30/2006 = 24Scale Right
( )
-50-45-40-35-30-25-20-15-10
-505
1015202530354045
*
*
*Survey methodology changed 3/31/2004Data adjusted historically
Tankan Survey of LargeNon-Manufacturing Enterprises
9/30/2006 = 20Scale Left
( )
More Businesses Confident
More Businesses Pessimistic-30-25-20-15-10
-505
101520253035404550556065
Large Manufacturer SentimentQuarterly Index Change
9/30/2006 = 3-20-15-10
-505
1015
-20-15-10
-505
1015
Large Non-Manufacturer SentimentQuarterly Index Change
9/30/2006 = 0Source: Bank of Japan-12
-9-6-30369
-12-9-6-30369
1985 1990 1995 2000 2005
Tankan Survey of Large Enterprises
Ned Davis Research Group A7
(STH0618F_C)
Daily Data 11/03/2003 - 11/02/2006
U.S. DollarScale Right
11/02/2006 = 0.8539
0.9638
0.9800
0.9155
0.8762
0.9111
0.8923
0.8734
0.9205
0.8869
0.8267
0.8402
0.820.830.840.850.860.870.880.890.900.910.920.930.940.950.960.970.98
0.820.830.840.850.860.870.880.890.900.910.920.930.940.950.960.970.98
EuroScale Left
11/02/2006 = 0.6683
0.80330.7928
0.7505
0.7638
0.7272
0.70960.7211
0.70740.7131
0.7219
0.69690.68920.68
0.70
0.72
0.74
0.76
0.78
0.80
0.68
0.70
0.72
0.74
0.76
0.78
0.80
Chinese YuanScale Left
11/01/2006 = 6.73
7.98
8.11
7.92
7.07
7.297.39
7.23
7.62
6.686.76
6.66.76.86.97.07.17.27.37.47.57.67.77.87.98.08.1
6.66.76.86.97.07.17.27.37.47.57.67.77.87.98.08.1
N D J2004
F M A M J J A S O N D J2005
F M A M J J A S O N D J2006
F M A M J J A S O N
Foreign Currencies per 100 Japanese YenWeekly Data 7/09/1982 - 10/27/2006
(IE911)
Euro-Zone 2.17 ( )Switzerland 1.54 ( )U.K. 1.17 ( )
%
German data used prior to 1999, Euro-Zone data used thereafter.-2
-1
0
1
2
3
4
5
6
7
8
-2
-1
0
1
2
3
4
5
6
7
8
Canada 3.47 ( )U.S. 3.05 ( )Japan -0.23 ( )
%
-1
0
1
2
3
4
5
6
7
8
9
-1
0
1
2
3
4
5
6
7
8
9
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Three-Month Real Interest Rates (U.K., Euro-Zone, Switzerland)
Three-Month Real Interest Rates (U.S., Canada, Japan)
Ned Davis Research Group A8
Weekly Data 1/05/1986 - 10/29/2006
(IGR999)
NDR Japan Composite (Log Scale) 10/29/2006 = 434.5 40-Week Smoothings (---)
133155182213249292341399468547641
133155182213249292341399468547641
NDR Japan Composite / NDR Global Composite 10/29/2006 = 24.6 40-Week Smoothing (---)2030405060708090
2030405060708090
Me
an
+1
SD
+2
SD
+3
SD
-1 S
D-2
SD
Sca
le =
% P
oin
ts
-40
-30
-20
-10
0
10
20
30
40
50
60
-40
-30
-20
-10
0
10
20
30
40
50
60
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
NDR Equal-Weighted Japan Composite and Relative Strength
Japan Composite (Y/Y) minus Global Composite (Y/Y) -- NDR Equal-Weighted Indices
Daily Data 5/16/1949 - 11/02/2006 (Log Scale)
(I 364)
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
Shaded Areas - Secular Bear MarketsUp Arrows - Start of Cyclical Bull MarketsDown Arrows - Start of Cyclical Bear Markets
106152218313450646928
133319152752395356798158
1172016837241883474849918
106152218313450646928
133319152752395356798158
1172016837241883474849918
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
Cyclical Turning Points Based on NDR Criteria
127168222293387511675891
11761553205127073575472062318227
1086314342
127168222293387511675891
11761553205127073575472062318227
1086314342
Nikkei 225 Average Bull and Bear Markets - Cyclical and Secular
Dow Jones Industrial Average Bull and Bear Markets - Cyclical and Secular
19
54
19
59
19
64
19
69
19
74
19
79
19
84
19
89
19
94
19
99
20
04
Ned Davis Research Group A9
Weekly Data 6/10/1984 - 10/29/2006 (Log Scale)
(I 379)
10/29/2006 = 16669.0782459263
10407116911313514756165781862520924235072641029670333333744842072
82459263
10407116911313514756165781862520924235072641029670333333744842072Nikkei 225 Gain/Annum When:
CD Rate Gain/ %Point Change Is: Annum of Time
Above 0.1 -8. 5 23. 3* Between -0.3 & 0.1 4. 3 50. 3
-0.3 and Below 8. 2 26. 5
CD Rate
10/29/2006 = 0.28%
12345678
12345678
Two-Week Smoothing
10/29/2006 = 0.10% Points
Bearish
Bullish
26-Week Point Change
-2
-1
0
1
-2
-1
0
1
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Nikkei 225 Average vs. Japan's Three-Month CD Interest Rate (26-Week Point Change) Monthly Data 6/30/1983 - 10/31/2006 (Log Scale)
(I 382)
10/31/2006 = 1010.6
MSCI Japan Index Gain/Annum When:
When Yield Gain/ %Spread Momentum: Annum of Time* Above 0 11. 6 61. 4
Below 0 -6. 3 38. 6393425459497537580627677732791855924999
107911661261136214721591
393425459497537580627677732791855924999
107911661261136214721591
Stock Earnings Yield FallingRelative To 10-Year Gov. Bond Yield
Stock Earnings Yield RisingRelative To 10-Year Gov. Bond Yield
10/31/2006 = 0.21% Points
-5
-4
-3
-2
-1
0
1
2
3
4
-5
-4
-3
-2
-1
0
1
2
3
4
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
MSCI Japan Index
MSCI Japan Earnings Yield Minus Japan 10-Year Gov't Bond Yield (12-Month % Point Change)
New Chart
Ned Davis Research Group A10
EArninGs yiEld PErCEnt From rollinG moVinG AVErAGEs
msCi index Five-year mean 10-year mean 25-year mean Chart
World 22.5 38.6 13.5 IV100
North America 16.7 29.2 -6.3 IV140
World ex. U.S. 27.8 47.4 35.3 IV130
U.S. 16.3 28.9 -7.6 IV200
EAFE 28.4 48.6 37.9 IV110
EAFE ex. Japan 20.5 34.6 8.2 IV120
Europe 21.6 37.9 9.7 IV2000
Europe ex. U.K. 27.5 42.9 11.9 IV2010
Pacific Basin 59.3 92.7 73.0 IV14000
Far East 76.3 114.1 84.3 IV14020
U.K. 14.4 30.2 7.1 IV400
Japan 95.6 171.1 111.6 IV300
France 58.7 78.8 37.0 IV700
Pacific ex. Japan 10.6 5.6 N/A IV14010
Canada 18.9 29.3 16.6 IV500
Germany 45.7 59.5 25.4 IV600
Australia 13.7 16.9 -7.2 IV900
Italy 32.1 47.1 N/A IV800
Emerging -2.5 9.3 N/A IV3000
All Countries World 21.3 37.1 N/A IV3010
NedDavisResearch,Inc. ICS_25.RPT
Ned Davis Research Group A11
(B151)
Daily Data 1/02/1979 - 11/02/2006
%
11/02/2006 = 4.60%13.65
15.84
13.99
10.23
9.09
8.05
7.066.79
5.44
4.614.89
5.25
8.76
9.47
10.12
6.95
7.74
5.19
5.53
4.16 4.22
3.13
3.703.89
3.23.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6
10.010.410.811.211.612.012.412.813.213.614.014.414.815.215.6
3.23.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6
10.010.410.811.211.612.012.412.813.213.614.014.414.815.215.6
19
83
19
88
19
93
19
98
20
03
10-Year Constant Maturity Treasury Note YieldsWeekly Data 1/05/1968 - 11/03/2006 (Log Scale)
(AA408)
93117147184231291365458575723907
11391430179622552832355544645605
93117147184231291365458575723907
11391430179622552832355544645605When 10-Yr/T-Bill S&P 500 LT Bonds Cash Gold %
Yield Spread is: TR GPA TR GPA GPA GPA of TimeAbove 2.6 7. 6 10. 6 4. 8 3. 6 26. 7Between 0.6 and 2.6 19. 6 9. 3 5. 9 5. 6 47. 4
* 0.6 and Below -1. 5 4. 5 8. 0 14. 9 25. 9Buy/Hold 10. 8 8. 4 6. 2 7. 4 100. 0
Stock Returns Based on S&P 500 Total Return (Thin Solid Line)Bond Returns Based on Long-Term Government Bond Total Return (Heavy Solid Line)
Cash Returns Based on 91-Day Treasury Bill Total Return (Thin Dashed Line)Gold Returns Based on New York Spot Gold Prices (Heavy Dashed Line)
Flat or Inverted Yield Curve
Steep Yield Curve
11/03/200610-Year Yield = 4.64%
Three-Month Yield = 4.95%Spread = -0.31%-3
-2
-1
0
1
2
3
4
-3
-2
-1
0
1
2
3
4
19
69
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Stocks/Bonds/Cash/Gold Returns
Yield Curve - 10-Year Minus Three-Month Treasury Yield
morE u.s. PErsPECtiVEs
Ned Davis Research Group A12
ndr-dEFinEd sECulAr & CyCliCAl bull & bEAr mArkEtsndr-defined Cyclical bull markets ndr-defined Cyclical bear markets
date dJiA date dJiA %Gain days date dJiA date dJiA %Gain dayssecular bull market 3/31/1900 - 1/19/1906
9/24/00 38.80 6/17/01 57.33 47.8 266 6/17/01 57.33 11/9/03 30.88 -46.1 87511/9/03 30.88 1/19/06 75.45 144.4 802
secular bear market 1/19/1906 - 8/24/19211/19/06 75.45 11/15/07 38.83 -48.5 665
11/15/07 38.83 11/19/09 73.64 89.7 735 11/19/09 73.64 9/25/11 53.43 -27.4 6759/25/11 53.43 9/30/12 68.97 29.1 371 9/30/12 68.97 7/30/14 52.32 -24.1 668
12/24/14 53.17 11/21/16 110.15 107.2 698 11/21/16 110.15 12/19/17 65.95 -40.1 39312/19/17 65.95 11/3/19 119.62 81.4 684 11/3/19 119.62 8/24/21 63.90 -46.6 660
secular bull market 8/24/1921 - 9/3/19298/24/21 63.90 3/20/23 105.38 64.9 573 3/20/23 105.38 10/27/23 85.76 -18.6 221
10/27/23 85.76 9/3/29 381.17 344.5 2138secular bear market 9/3/1929 - 4/28/1942
9/3/29 381.17 11/13/29 198.69 -47.9 7111/13/29 198.69 4/17/30 294.07 48.0 155 4/17/30 294.07 7/8/32 41.22 -86.0 8137/8/32 41.22 9/7/32 79.93 93.9 61 9/7/32 79.93 2/27/33 50.16 -37.2 1732/27/33 50.16 2/5/34 110.74 120.8 343 2/5/34 110.74 7/26/34 85.51 -22.8 1717/26/34 85.51 3/10/37 194.40 127.3 958 3/10/37 194.40 3/31/38 98.95 -49.1 3863/31/38 98.95 11/12/38 158.41 60.1 226 11/12/38 158.41 4/8/39 121.44 -23.3 1474/8/39 121.44 9/12/39 155.92 28.4 157 9/12/39 155.92 4/28/42 92.92 -40.4 959
secular bull market 4/28/1942 - 2/9/19664/28/42 92.92 5/29/46 212.50 128.7 1492 5/29/46 212.50 5/17/47 163.21 -23.2 3535/17/47 163.21 6/15/48 193.16 18.4 395 6/15/48 193.16 6/13/49 161.60 -16.3 3636/13/49 161.60 1/5/53 293.79 81.8 1302 1/5/53 293.79 9/14/53 255.49 -13.0 2529/14/53 255.49 4/6/56 521.05 103.9 935 4/6/56 521.05 10/22/57 419.79 -19.4 564
10/22/57 419.79 1/5/60 685.47 63.3 805 1/5/60 685.47 10/25/60 566.05 -17.4 29410/25/60 566.05 12/13/61 734.91 29.8 414 12/13/61 734.91 6/26/62 535.76 -27.1 1956/26/62 535.76 2/9/66 995.15 85.7 1324
secular bear market 2/9/1966 - 8/12/19822/9/66 995.15 10/7/66 744.32 -25.2 240
10/7/66 744.32 12/3/68 985.21 32.4 788 12/3/68 985.21 5/26/70 631.16 -35.9 5395/26/70 631.16 4/28/71 950.82 50.6 337 4/28/71 950.82 11/23/71 797.97 -16.1 209
11/23/71 797.97 1/11/73 1051.70 31.8 415 1/11/73 1051.70 12/6/74 577.60 -45.1 69412/6/74 577.60 9/21/76 1014.79 75.7 655 9/21/76 1014.79 2/28/78 742.12 -26.9 5252/28/78 742.12 9/8/78 907.74 22.3 192 9/8/78 907.74 4/21/80 759.13 -16.4 5914/21/80 759.13 4/27/81 1024.05 34.9 371 4/27/81 1024.05 8/12/82 776.92 -24.1 472
secular bull market 8/12/1982 - 1/14/20008/12/82 776.92 11/29/83 1287.20 65.7 474 11/29/83 1287.20 7/24/84 1086.57 -15.6 2387/24/84 1086.57 8/25/87 2722.42 150.6 1127 8/25/87 2722.42 10/19/87 1738.74 -36.1 55
10/19/87 1738.74 7/16/90 2999.75 72.5 1001 7/16/90 2999.75 10/11/90 2365.10 -21.2 8710/11/90 2365.10 7/17/98 9337.97 294.8 2836 7/17/98 9337.97 8/31/98 7539.07 -19.3 458/31/98 7539.07 1/14/00 11722.98 55.5 501
secular bear market 1/14/2000 - ?1/14/00 11722.98 9/21/01 8235.81 -29.7 616
9/21/01 8235.81 3/19/02 11727.34 29.1 179 3/19/02 10635.25 10/9/02 7286.27 -31.5 20410/9/02 7286.27 10/26/2006(?) 12163.66 66.9 1478
Cyclical bull markets # Cases % Gain # days Cyclical bear markets # Cases % Gain # daysAll Cyclical bulls All Cyclical bearsmean 33 85.3 718 mean 33 -30.8 406median 33 65.7 573 median 33 -26.9 363Cyclical bulls within secular bulls Cyclical bears within secular bullsmean 16 109.5 1024 mean 12 -22.8 295median 16 77.2 870 median 12 -19.4 245Cyclical bulls within secular bears Cyclical bears within secular bearsmean 17 62.5 431 mean 21 -35.4 470median 17 50.6 371 median 21 -31.5 525Databegins3/31/1900.Currentcyclicalbullmarketnotincludedinsummarystatistics.DaysarecalendardaysNedDavisReserch,Inc. T_STH0617
Ned Davis Research Group A13
(S0202)
Daily Data 3/31/1900 - 11/02/2006 (Log Scale)
Secular Bull MarketsDJIA Nominal Annualized Gain (GPA)
Dates GPA3/31/1900 - 1/19/1906 8. 08/24/1921 - 9/3/1929 24. 94/28/1942 - 2/9/1966 10. 58/12/1982 - 1/14/2000 16. 8
Secular Bear MarketsDJIA Nominal Annualized Gain (GPA)
Dates GPA1/19/1906 - 8/24/1921 -1. 19/3/1929 - 4/28/1942 -10. 62/9/1966 - 8/12/1982 -1. 51/14/2000 - 11/02/2006? 0. 4
Shaded Areas Indicate Secular Bear Markets
11/02/2006 = 12018.54385273
101141196273380528735
1022142219782751382753237404
10298
385273
101141196273380528735
1022142219782751382753237404
10298
Secular Bull MarketsDJIA Real Annualized Gain (GPA)
Dates GPA3/31/1900 - 1/19/1906 6. 58/24/1921 - 9/3/1929 26. 14/28/1942 - 2/9/1966 7. 38/12/1982 - 1/14/2000 13. 2
Secular Bear MarketsDJIA Real Annualized Gain (GPA)
Dates GPA1/19/1906 - 8/24/1921 -5. 49/3/1929 - 4/28/1942 -10. 12/9/1966 - 8/12/1982 -7. 91/14/2000 - 11/02/2006? -2. 4
DJIA Adjusted Using Quarterly Consumer Price Index
11/02/2006 = 512.1528344149587084
100120144172207247297355426510612733
28344149587084
100120144172207247297355426510612733
19
05
19
10
19
15
19
20
19
25
19
30
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
Dow Jones Industrial Average vs. Secular Trends
Inflation-Adjusted Dow Jones Industrial Average vs. Secular Trends(S620)
Quarterly Data 3/31/1926 - 9/30/2006
9/30/2006 = 5.9%
Percent GPA During Secular Bull Markets
Dates S&P 500 Earnings Yield3/31/1942 - 12/31/1965 10. 8 -3. 56/30/1982 - 12/31/1999 16. 0 -7. 5
Percent GPA During Secular Bear Markets
Dates S&P 500 Earnings Yield9/30/1929 - 3/31/1942 -10. 1 7. 712/31/1965 - 6/30/1982 1. 0 5. 212/31/1999 - 9/30/2006? -1. 4 9. 12.0
2.32.62.93.33.74.24.85.46.27.07.99.0
10.211.513.014.716.7
2.02.32.62.93.33.74.24.85.46.27.07.99.0
10.211.513.014.716.7
9/30/2006 = 1.8%
Percent GPA During Secular Bull Markets
Dates S&P 500 Dividend Yield3/31/1942 - 12/31/1965 10. 8 -4. 46/30/1982 - 12/31/1999 16. 0 -9. 2
Percent GPA During Secular Bear Markets
Dates S&P 500 Dividend Yield9/30/1929 - 3/31/1942 -10. 1 8. 712/31/1965 - 6/30/1982 1. 0 4. 612/31/1999 - 9/30/2006? -1. 4 7. 1
Shaded Areas Indicate NDR-Defined Secular Bear Markets
1.01.21.41.61.92.22.63.13.64.24.95.76.77.89.2
10.712.514.6
1.01.21.41.61.92.22.63.13.64.24.95.76.77.89.2
10.712.514.6
1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
S&P 500 Earnings Yield vs. Secular Trends
S&P 500 Dividend Yield vs. Secular Trends
Ned Davis Research Group A14
Daily Data 12/01/1995 - 10/31/2006(updated weekly on Wednesday mornings)
(S574)
SP500 Gain/Annum When:
NDR Crowd Gain/ %Sentiment Poll is: Annum of Time* Above 62 -2. 9 33. 6
Between 53 and 62 8. 0 35. 353 and Below 20. 5 31. 1
Extremes Generated when Sentiment Reading:Rises above 61.5% = Extreme OptimismDeclines below 55.5% = Extreme Pessimism
Sentiment must reverse by 10percentage points to signal anextreme in addition to the aboveextreme levels being reached.
Arrows represent extremes in optimism andpessimism. They do not represent buy andsell signals and can only be known forcertain (and added to the chart) in hindsight.
Average Value Of Indicator At:Optimistic Extremes (down arrows)= 67.7Pessimistic Extremes (up arrows)= 46.9
Average Spread Between Extremes = 20.8600660720780840900960
102010801140120012601320138014401500
600660720780840900960
102010801140120012601320138014401500
51.7
66.7
45.2
63.0
42.3
65.1
51.6
68.8
39.0
71.1
51.7
67.2
44.6
64.8
51.8
71.8
47.9
70.4
33.5
51.8
55.3
48.7
65.3
42.4
69.2
51.5
66.8
46.0
48.7
62.0
45.7
40.4
67.1
37.6
66.1
46.5
63.1
33.9
75.7
47.3
66.6
43.8
73.5
55.4
46.6
69.6
49.7
71.9
42.5
54.7
67.3 66.8
69.670.5
66.4
54.5
67.2
61.9
51.9
68.167.1
42.5
53.5
33.9
59.4
33.9
73.5
54.8
49.7
71.9
10/31/2006 = 69.0Extreme Pessimism (Bullish)
Extreme Optimism (Bearish)
333639424548515457606366697275
333639424548515457606366697275
D1996
M J S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
S&P 500 Composite Index
NDR Crowd Sentiment Poll(DAVIS65)
Daily Data 6/30/1987 - 11/03/2006 (Log Scale)
S&P 500 IndexGain/Annum When:
Gain/ %Composite Sentiment is Annum of Time
Above 61 -10. 7 21. 247 - 61 from Above 0. 1 25. 5
* 47 - 61 from Below 14. 4 30. 9Below 47 30. 4 22. 4
11/03/2006 = 1364.30238263291322356393435481532588650719795878971
1074118713131451
238263291322356393435481532588650719795878971
1074118713131451
Excessive Optimism
Extreme Pessimism11/03/2006 = 54.024
2832364044485256606468727680
242832364044485256606468727680
S D1988M J S D
1989M J S D
1990M J S D
1991M J S D
1992M J S D
1993M J S D
1994M J S D
1995M J S D
1996M J S D
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
Standard & Poor's 500 Stock Index
NDR Daily Crowd Sentiment Composite -- Transitional Mode Basis
Ned Davis Research Group A15
HousinG
Monthly Data 3/31/1969 - 9/30/2006
(E876E)
Unit Sales9/30/2006 = -12.5%
Scale Left( )
-35-30-25-20-15-10
-505
1015202530354045 Median Sale Price
9/30/2006 = -1.2%Scale Right
( )
Source: National Association of Realtors/Haver Analytics -1
0123456789
1011121314151617
Unit Sales9/30/2006 = -20.6%
Scale Left( )
-40-35-30-25-20-15-10
-505
1015202530354045505560657075
Median Sale Price9/30/2006 = -2.3%
Scale Right( )
-10-8-6-4-202468
101214161820
1970 1975 1980 1985 1990 1995 2000 2005
Existing Single-Family Home Sales and Prices (Smoothed Year-to-Year Changes)
New Home Sales and Prices (Smoothed Year-to-Year Changes)(E240)
Monthly Data 1/31/1948 - 9/30/2006 (Log Scale)
Correct Signals: 85%Expansion Mode GPA: 3.5%Contraction Mode GPA: -0.9%Buy-Hold Gain/Annum: 2.7%Signal Dates: 12/31/1948 - 8/31/2006
Signals Generated When Middle Clip:Rises Above 3.44 = ExpansionFalls Below -7.85 = ContractionSource: The Conference Board27
31353944505664728191
103116
2731353944505664728191
103116
Housing Starts(Three-Month Rate of Change)
Shaded areas representNational Bureau of
Economic Research recessions dates. 9/30/2006 = -9.4%-20-16-12
-8-4048
121620
-20-16-12
-8-4048
121620
New Housing Units Started(SAAR, in thousands)
9/30/2006 = 1772
1000
1200
1400
1600
1800
2000
2200
2400
1000
1200
1400
1600
1800
2000
2200
2400
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
The Economy (The Index of Coincident Economic Indicators) vs. Housing Starts
Ned Davis Research Group A16
Quarterly Data 3/31/1995 - 6/30/2006
(E0187)
Federal Housing Administration(The typical FHA borrower is a first-time
home buyer with limited funds.)
8
9
10
11
12
8
9
10
11
12
FHA Adjustable Rate
6789
1011121314
6789
1011121314
Subprime (Borrowers with impaired credit)
Series Break Before 200211
12
13
14
11
12
13
14
Subprime Adjustable Rate
Source: Mortgage Bankers AssociationWashington, D.C.
11
12
13
14
15
11
12
13
14
15
11995
2 3 4 11996
2 3 4 11997
2 3 4 11998
2 3 4 11999
2 3 4 12000
2 3 4 12001
2 3 4 12002
2 3 4 12003
2 3 4 12004
2 3 4 12005
2 3 4 12006
2
Higher-Risk Mortgage Delinquency RatesMonthly Data 1/31/1971 - 9/30/2006
(B659B)
Housing Affordability Composite Index
9/30/2006 = 107.170
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
Housing Affordability Index for Fixed Rate Mortgages
9/30/2006 = 106.7707580859095
100105110115120125130135
707580859095
100105110115120125130135
Housing Affordability Index for Adjustable Rate Mortgages
9/30/2006 = 109.8Source: National Association of Realtors,
Haver Analytics708090
100110120130140150160
708090
100110120130140150160
19
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Housing Affordability by Mortgage Type
Ned Davis Research Group A17
Monthly Data 1/31/1999 - 9/30/2006 (Log Scale)
(E0758A)
$ ThousandsTotal Existing Homes9/30/2006 = 220.0
( )
Single-Family Homes9/30/2006 = 219.8
( )
Condos and Co-ops9/30/2006 = 219.8
( )
Source: National Association of Realtors,Haver Analytics
109114119124129135141147154161168175183191199208217227
109114119124129135141147154161168175183191199208217227
Total Existing Homes9/30/2006 = -2.2%
( )
Single-Family Homes9/30/2006 = -2.5%
( )
Condos and Co-ops9/30/2006 = -2.8%
( )
-3-2-10123456789
1011121314151617181920
-3-2-10123456789
1011121314151617181920
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Median Existing Home Prices
Median Existing Home Prices (Year-to-Year Changes)
Monthly Data 4/30/1972 - 10/31/2006 (Log Scale)
(E876A)
Total Home Sales(SAAR, Smoothed)
9/30/2006 = 6.5 millionScale Right
( )
2.32.52.72.93.13.33.53.74.04.34.64.95.25.66.06.46.87.3
Conventional 30-YearFixed Mortgage Rate10/31/2006 = 6.4%Scale Left Inverted
( )
Correlation Coefficient = -0.67Source: National Association of Realtors, Haver Analytics
5.55.96.36.77.27.78.38.99.5
10.210.911.712.613.514.515.516.617.8
Total Home Sales9/30/2006 = -13.9%
Scale Right( )
-35-30-25-20-15-10
-505
101520253035404550
Conventional 30-YearFixed Mortgage Rate
10/31/2006 = 29 basis pointsScale Left Inverted
( )
-420-360-300-240-180-120
-600
60120180240300360420480540
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Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate
Total Home Sales vs Conventional 30-Year Fixed Mortgage Rate (Year-to-Year Changes)
Ned Davis Research Group A18
Monthly Data 1/31/1964 - 9/30/2006 (Log Scale)
(E246)
9/30/2006 = 1075
SAAR, in Thousands
360401446496552614683760846941
104711651297
360401446496552614683760846941
104711651297
One-Month % Change
9/30/2006 = 5.3%
Shaded areas representNational Bureau of
Economic Research recessions.-20-16-12
-8-4048
12162024
-20-16-12
-8-4048
12162024
Year-to-Year Change
9/30/2006 = -14.2%
Strong Sales
Weak Sales-40-30-20-10
01020304050607080
-40-30-20-10
01020304050607080
1965 1970 1975 1980 1985 1990 1995 2000 2005
New Home Sales
Copyright 2006 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/
Weekly Data 1/05/1990 - 10/27/2006
(B566)
Conventional Mortgage Rate10/27/2006 = 6.40%
( )
Adjustable Mortgage Rate10/27/2006 = 5.60%
( )
3.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6
10.010.4
3.64.04.44.85.25.66.06.46.87.27.68.08.48.89.29.6
10.010.4
Mortgage Bankers AssociationRefinance Index (SA)
High Number of Refinancing ApplicationsHigh Prepayment Risk
4-Week Smoothing10/27/2006 = 1778.7
( )75111164242358530783
115717112529373855268168
75111164242358530783
115717112529373855268168
Mortgage Bankers AssociationPurchase Index (SA)
Low Number of Purchase Applications - Housing Market Soft
4-Week Smoothing10/27/2006 = 381.5
( )
80120160200240280320360400440480520
80120160200240280320360400440480520
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Mortgage Bankers Association's Refinance and Purchase Indexes
Ned Davis Research Group A19
Monthly Data 6/30/1982 - 9/30/2006
(E246I)
Total 9/30/2006 = 7.0
Balanced Market
Too Few Homes Available
Too Many Homes Available
Measured as Months' Available Supply4
5
6
7
8
9
10
11
12
4
5
6
7
8
9
10
11
12
Existing Single-Family Homes 9/30/2006 = 7.1
Source: Haver Analytics, National Association of Realtors456789
10111213
456789
10111213
New Homes 9/30/2006 = 6.4
4
5
6
7
8
9
4
5
6
7
8
9
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Housing Inventory-to-Sales RatiosMonthly Data 1/31/1963 - 9/30/2006 (Log Scale)
(E0759)
$ thousands
Median Sales Price9/30/2006 = 217.1
( )
Mean Sales Price9/30/2006 = 293.2
( )
1922263035404755647486
100117136158184215250291
1922263035404755647486
100117136158184215250291
Median Sales PriceYear-to-Year Change9/30/2006 = -2.3%
( )
Mean Sales PriceYear-to-Year Change
9/30/2006 = 3.8%( )
-10-8-6-4-202468
101214161820
-10-8-6-4-202468
101214161820
1965 1970 1975 1980 1985 1990 1995 2000 2005
New Home Prices
New Home Prices (Smoothed Year-to-Year Changes)
Ned Davis Research Group A20
stylEs
Favors: related Chart 10/31/2006 9/30/2006 8/31/2006six-way style Allocation model AA600 Mid-Cap Large-Cap Large-Cap Growth Value Growth
large/mid/small-Cap model Favors:indicator related Chart 10/31/2006 9/30/2006 8/31/2006
Equity Risk Premium Proxy AA144A Large Large Large Advisory Service Sentiment AA145 Small Small Small Yield Curve Momentum AA121A Large Large Large NYSE Breadth AA143A Small Small Small Relative Forward P/E AA0115A Large Large Large Consumer Confidence AA0122A Large Large Large Bond Momentum AA115A Small Small Large U.S. Dollar AA116A Large Large Large Coincident Indicators AA118 Large Large Large Trend Indicators AA0127A Small Large Neutral
Composite model AA605 Model Reading 40.4 32.7 22.1 Favored Asset Class Mid-Cap Large-Cap Large-Cap
Growth/Value model Favors:indicator related Chart 10/31/2006 9/30/2006 8/31/2006
Equity Risk Premium Proxy AA90A Growth Growth Growth Yield Curve AA71 Value Value Value Relative Forward P/E AA084A Growth Growth Growth Consumer/Cyclical Ratio AA74A Growth Growth Growth Advisory Service Sentiment AA85 Growth Value Value Insider Activity NA Value Value Value U.S. Dollar AA68 Growth Growth Growth Coincident Indicators AA73A Value Value Growth Trend Indicators AA065A Growth Value Value
Composite model AA610
Model Reading 50.0 41.7 45.8 Favored Asset Class Growth Value Growth
-Large/Mid/Small-CapModelreadingisacombinationofindividualindicatorreadings,scaledfrom0%to100%:Above55%=FavorsSmall-Caps(Russell2000Index)Between35%and55%=FavorsMid-Caps(RussellMidCapIndex)Below35%=FavorsLarge-Caps(RussellTop200Index)
-Growth/ValueModelreadingisacombinationofindividualindicatorreadings,scaledfrom0%to100%:Above45%=FavorsGrowth(Russell3000GrowthIndex)Below45%=FavorsValue(Russell3000ValueIndex)
NedDavisResearch,Inc. SMS_6.HTML
Ned Davis Research Group A21
(AA605)
Monthly Data 2/28/1979 - 10/31/2006 (Log Scale)
Large-Caps = Russell Top 200 Index (Heavy Solid Line)Mid-Caps = Russell MidCap Index (Narrow Solid Line)
Small-Caps = Russell 2000 Index (Dashed Line)
Model Reading:Above 55%: Favors Small Caps
Between 35% and 55%: Favors Mid-CapsBelow 35%: Favors Large Caps
When Model Large-Cap Mid-Cap Small-Cap %Reading Is: TR GPA TR GPA TR GPA of Time
Above 55% 8. 9 19. 2 27. 9 25. 8* Between 35% and 55% 9. 8 14. 5 9. 3 33. 4
35% and Below 18. 0 13. 3 7. 7 40. 7Buy/Hold 12. 8 15. 2 13. 1 100. 0
115143178221275342425528657818
10171265157319572434302737654683
115143178221275342425528657818
10171265157319572434302737654683
10/31/2006 = 40.4%51015202530354045505560657075808590
51015202530354045505560657075808590
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Russell Indices
NDR Large/Mid/Small-Cap Model
Monthly Data 2/29/1980 - 10/31/2006 (Log Scale)
(AA610)
Russell 3000 Growth Total Return Index /
Russell 3000 Value Total Return Index
When Model Ratio Growth Value %Reading Is: GPA TR GPA TR GPA of Time* Above 45% 4. 9 24. 7 18. 9 40. 0
45% and Below -7. 7 2. 6 11. 2 60. 0Buy/Hold -2. 9 11. 0 14. 2 100. 0
62
68
74
80
87
95
103
112
121
132
143
156
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87
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103
112
121
132
143
156
Growth/Value Model
Favors Growth
Favors Value
10/31/2006 = 50.0%
51015202530354045505560657075808590
51015202530354045505560657075808590
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NDR Growth/Value Model
Ned Davis Research Group A22
(AA600)
Monthly Data 12/31/1985 - 11/30/2006 (Log Scale)
As of 10/31/2006:Model Equity Line ( ) = $7041Gain Per Annum = 22.6%Benchmark Equity Line ( ) = $1039Gain Per Annum = 11.9%(12/31/1985 = $100)Model real-time since May 2003
Six-Way Model Combines Readings ofLarge/Mid/Small-Cap Model and Growth/Value Model
Bars Below Indicate Model'sFavored Style Each Month
Model Equity Line Assumes 100% InvestedIn Favored Style Index Each Month
Benchmark Equity Line Assumes Equal WeightingIn All Six Style Indices
Returns Based on Growth & Value Indices For:Russell Top 200 Index = Large-Cap
Russell MidCap Index = Mid-CapRussell 2000 Index = Small-Cap
For November 2006 Model Favors: Mid-Cap Growth
86113149195257337444583767
10081325174122893009395652016837
86113149195257337444583767
10081325174122893009395652016837
SmallCap
Growth
SmallCap
Value
MidCap
Growth
MidCap
Value
LargeCap
Growth
LargeCap
Value
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NDR Six-Way Equity Style Allocation Model Monthly Data 9/30/1991 - 10/31/2006 (Log Scale)
(AA54)
Model Out-of-Sample Performance*
% Mean % S.D. ofGPA Monthly Gain Monthly Return
Model( ) 13. 66 1. 16 4. 13Benchmark( ) 10. 83 0. 94 4. 02S&P500( ) 8. 76 0. 78 3. 97
* Real-time since 10/31/1998
For 11/30/2006
Russell Recommended BenchmarkIndex Weights (%) Weights (%)1000 Value 100 451000 Growth 0 452000 Value 0 52000 Growth 0 5
100106112118125132140148156165175185196207219232245259274290307324343363384406429454480508537568601635672
100106112118125132140148156165175185196207219232245259274290307324343363384406429454480508537568601635672
Russell Index Regression Model Performance
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Ned Davis Research Group A23
Weekly Data 6/26/1981 - 10/27/2006
(AA144)
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
Russell 2000/ Russell 1000 RatioGain/Annum When:
Gain/ %Risk Premium Proxy is Annum of Time
Above 2.2 8. 8 35. 5Between 1.7 and 2.2 -1. 5 39. 7
* Below 1.7 -10. 4 24. 9
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
Risk Premium Proxy is Gain/ %Rising and Annum of Time
Above 2.2 5. 2 19. 8Between 1.7 and 2.2 -8. 2 19. 8Below 1.7 -16. 9 7. 6
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
Risk Premium Proxy is Gain/ %Falling and Annum of Time
Above 2.2 13. 6 15. 6Between 1.7 and 2.2 5. 6 19. 9
* Below 1.7 -7. 5 17. 3
All Periods = -0.3% GPA
All Periods When Proxy is RISING = -4.3% GPAAll Periods When Proxy is FALLING = 3.3% GPA
Direction of Proxy Determined by Current Value versus 8 Weeks Ago
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Moody Baa Bond Yield minus 10-Year Treasury Bond Yield
10/27/2006 = 1.56%1.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.7
1.21.51.82.12.42.73.03.33.63.94.24.54.85.15.45.7
Ratio of Russell 2000 / Russell 1000 Index
Equity Risk Premium Proxy
Weekly Data 12/29/1978 - 10/27/2006
(AA121)
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
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0.9
1.0
1.1
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1.3
1.4
1.5
1.6
Up Arrow = Favors Small-CapsDown Arrow = Favors Large-Caps
Russell 2000/ Russell 1000 Ratio Gain/Annum When:
Gain/ %Yield Curve Annum of Time
Favors Small-Caps 4. 6 52. 2* Favors Large-Caps -2. 7 47. 8
10-Year Minus Three-Month Treasury YieldCrosses Above 2.0% = Favors Small-CapsCrosses Below 1.2% = Favors Large-Caps
10/27/2006 = -0.22%-3
-2
-1
0
1
2
3
4
-3
-2
-1
0
1
2
3
4
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Russell 2000 Index / Russell 1000 Index
Yield Curve
Ned Davis Research Group A24
(AA095)
Monthly Data 12/31/1978 - 9/30/2006 (Log Scale)
27.8-Year Mean = 95.6
Russell 1000 Growth Index / Russell 1000 Value Index9/30/2006 = 58.6
60657075818794
102110118127137148
60657075818794
102110118127137148
Russell 1000 Growth Index Dividend Yield (solid line)9/30/2006 = 1.1%
Russell 1000 Value Index Dividend Yield (dashed line)9/30/2006 = 2.5%
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
27.8-Year Mean = 0.46
+1 Standard Deviation
-1 Standard Deviation
-2 Standard Deviations
Russell 1000 Growth Index Yield / Russell 1000 Value Index Yield9/30/2006 = 0.47
0.2
0.3
0.4
0.5
0.6
0.2
0.3
0.4
0.5
0.6
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Russell 1000 Growth & Value Index Relative Dividend Yields
(AA0114)
Monthly Data 12/31/1978 - 9/30/2006 (Log Scale)
27.8-Year Mean = 101.1
Russell 2000 Total Return Index / Russell 1000 Total Return Index9/30/2006 = 95.3
616672788592
100109118128139151
616672788592
100109118128139151
Russell 2000 Index Dividend Yield (solid line)9/30/2006 = 1.2%
Russell 1000 Index Dividend Yield (dashed line)9/30/2006 = 1.8%
2
3
4
5
2
3
4
5
27.8-Year Mean = 0.67
+1 Standard Deviation
+2 Standard Deviations
-1 Standard Deviation
Russell 2000 Index Yield / Russell 1000 Index Yield9/30/2006 = 0.68
0.50.60.70.80.91.01.11.21.3
0.50.60.70.80.91.01.11.21.3
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Russell 2000 & Russell 1000 Index Relative Dividend Yields
Ned Davis Research Group A25
(STH0618D_C)
Daily Data 10/23/2001 - 10/26/2006 (Log Scale)
Ratio of NASDAQ Composite Index to NYSE Composite Index
Model Above 55% = Buy NASDAQModel 40% or Below = Buy NYSE
NASDAQ/NYSE:
NASDAQ Relative Gain/ %Strength Model: Annum of Time* Above 55% 14. 3 51. 2
Between 40% and 55% -4. 6 14. 940% and Below -15. 1 33. 924.51
25.42
26.36
27.34
28.35
29.41
30.50
31.63
32.80
24.51
25.42
26.36
27.34
28.35
29.41
30.50
31.63
32.80
NASDAQ Relative Strength Model 10/26/2006 = 61.9Favors NASDAQ
Favors NYSE0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
N J2002
M M J S N J2003
M M J S N J2004
M M J S N J2005
M M J S N J2006
M M J S
NASDAQ Relative Strength ModelMonthly Data 12/31/1985 - 9/30/2006 (Log Scale)
(STH0618C_C)
9/30/2006 = 169.1
NASDAQ / S&P 500 Gain/Annum When:
Gain/ %NASDAQ / S&P P/E: Annum of Time* Above 108 -9. 2 26. 6
Between 78 and 108 1. 9 47. 778 and Below 8. 7 25. 7
113120128136145155165176188200213227242258275293313333
113120128136145155165176188200213227242258275293313333
9/30/2006 = 140.8NASDAQ P/E excludes negative earnings.
NDR calculated values used from 9/30/2001 onwarddue to the discontinuation of data released by NASDAQ.
S&P P/E will reflectestimate for latest
completed quarter untilactual earnings are released
5060708090
100110120130140150160170180190200210
5060708090
100110120130140150160170180190200210
NASDAQ Composite / S&P 500 Index
NASDAQ P/E and S&P 500 P/E (GAAP)
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Ned Davis Research Group A26
sECtor rECommEndAtions
s&P 500 sector
Telecommunication Services Modest overweight. Wireless (New) now favored vs. Integrated.
Materials Modest overweight. CRB/U.S. $ ratio rising. Diversified Metals overweighted. Gold Mining on emerging list (long-term favorable).
Industrials Modest overweight. Breadth weakening. Transports approaching marketweight. Construction & Farm Machinery, Environmental Services and Railroads overweighted.
Energy Marketweight. Rank, breadth and crowd sentiment improved, but waiting on improvement from oil prices.
Financials Maketweight (New). Fed cycle favorable, but rank weakening. Investment Banking & Brokerage overweighted. Diversified Banks > Regional Banks.
Information Technology Marketweight. Software favored vs. Hardware. IT Consulting & Services and Computer Storage & Peripherals favored.
Utilities Marketweight. Rank improved. Relative valuation negative/neutral. Fed cycle favorable.
Consumer Discretionary Marketweight. Short-term breadth mixed. We advise marketweighting Casinos & Gaming (New) ahead of our ranks.
Consumer Staples Modest underweight. Tobacco ranked highest.
Health Care Modest underweight. Small-cap / large-cap performance turning mixed. Marketweight Pharma - Major for now.
sECtors
Ned Davis Research Group A27
s&P 500 sECtor PErCEnt GAin bEtwEEn lAst FEdErAl rEsErVE intErEst rAtE HikE And First Cut1
last Hikedate
First Cutdate
numberof
months2 FinancialsConsumer
staplesHealthCare utilities
telecommunicationsservices Energy industrials
Consumerdiscretionary materials
informationtechnology
4/25/74 12/9/74 7.5 -26.1 -25.5 -19.1 -21.6 -19.4 -16.8 -34.4 -39.4 -29.9 -26.3
2/15/80 5/30/80 3.5 2.9 4.4 5.5 7.1 3.1 -4.1 -8.1 -3.8 -10.2 -15.8
5/5/81 11/2/81 6.0 5.7 1.9 -3.7 8.5 13.0 -2.4 -14.9 -6.8 -15.4 -8.2
2/24/89 6/6/89 3.4 18.3 21.8 16.0 12.0 22.5 9.1 13.0 12.9 5.1 -0.8
2/1/95 7/6/95 5.1 19.7 15.9 13.6 6.7 8.4 12.4 20.1 14.1 23.8 42.7
5/16/00 1/3/01 7.6 21.9 19.1 13.3 17.3 -25.3 1.6 1.1 -9.6 -8.1 -34.4
mean 5.5 7.1 6.3 4.3 5.0 0.4 -0.1 -3.9 -5.4 -5.8 -7.1
median 5.5 12.0 10.2 9.4 7.8 5.7 -0.4 -3.5 -5.3 -9.2 -12.0
1.Tighteningcyclerequiresatleasttwoconsecutiverateincreaseswithoutaninterveningdecrease.Sectordataismarket-capitalizationweightedandpriceonly.Sectorsaresortedlefttorightbymedianpercentgain.2.Numberofcalendardaysmultiplied12/365.
NedDavisResearch,Inc. T_SMF0629.2
Ned Davis Research Group A28
mEAn GlobAl sECtor rAnks
short-term breadth breadth intermediate-term rank sector mode Chart 10/20 10/13 10/06 9/29 9/22 9/15 9/08 9/01 8/25 8/18
Automobiles & Parts Favorable IGB2001 67.5 71.8 55.6 46.6 51.1 56.8 45.9 36.7 45.3 41.0Basic Resources Favorable IGB2010 66.3 75.4 67.6 51.1 35.9 37.4 27.2 38.2 58.6 67.2Chemicals Favorable IGB2015 60.0 60.0 47.5 44.5 52.7 57.8 49.2 39.0 43.2 43.3Telecom Favorable IGB2080 59.2 57.8 51.6 60.5 60.5 61.5 54.0 51.6 49.5 53.8Personal & Household Goods Unfavorable IGB2065 56.8 52.6 45.8 58.7 58.0 56.8 59.8 55.2 45.5 43.7Financial Services Favorable IGB2035 56.0 61.4 65.4 64.4 68.3 68.8 66.8 68.7 68.2 57.9Banks Mixed IGB2005 55.5 47.7 48.4 63.2 61.5 58.1 65.5 65.6 57.1 60.5Insurance Mixed IGB2055 55.3 47.8 58.4 63.6 64.8 58.5 64.8 64.8 59.7 61.4Travel & Leisure Favorable IGB2025 55.2 55.7 51.9 55.2 54.0 53.9 56.2 59.7 55.2 42.4Utilities Favorable IGB2085 52.8 56.6 58.4 49.6 57.9 59.1 62.4 70.2 70.7 70.1Industrial Goods & Services Favorable IGB2050 50.4 57.7 53.0 44.2 42.6 45.1 44.9 44.4 50.9 44.7Health Care Unfavorable IGB2045 50.3 48.5 53.2 43.4 48.4 51.9 45.0 36.5 38.8 49.1Construction & Materials Favorable IGB2020 49.7 36.2 49.5 43.5 49.5 48.8 40.5 35.8 41.4 40.8Food & Beverage Mixed IGB2040 44.4 33.4 40.8 50.5 45.1 47.5 55.6 63.9 65.4 63.0Retail Mixed IGB2070 44.1 48.0 44.5 57.4 57.2 50.7 56.6 59.4 57.1 58.0Media Favorable IGB2060 38.7 45.7 36.0 36.6 38.6 36.1 37.2 37.6 35.4 38.3Technology Mixed IGB2075 27.6 29.4 40.0 44.3 35.6 33.3 44.1 43.4 36.8 32.4Oil & Gas Mixed IGB2030 20.7 31.6 39.6 13.5 12.9 19.0 5.8 6.8 8.9 35.0
BasedonNDR’sglobaluniverse.FormoredetailsseeGlobalFocus.NedDavisResearch,Inc. ICS_44A.RPT
ndr domEstiC sECtor rAnks
short-term breadth breadth intermediate-term rank sector mode Chart 11/03 10/27 10/20 10/13 10/06 9/29 9/22 9/15 9/08 9/01
Telecommunications Services Favorable ESB50 100 90 90 90 100 100 100 100 100 100Materials Favorable ESB15 90 100 100 100 60 60 80 70 90 90Energy Favorable ESB10 80 70 70 50 20 20 30 80 70 80Industrials Mixed ESB20 70 80 80 80 80 80 70 40 40 50Utilities Favorable ESB55 60 40 40 20 10 10 10 10 10 20Information Technology Unfavorable ESB45 50 60 50 60 70 70 60 60 80 70Financials Unfavorable ESB40 40 50 60 70 90 90 90 90 60 30Consumer Discretionary Mixed ESB25 30 30 20 40 50 40 40 30 30 10Consumer Staples Mixed ESB30 20 20 30 30 30 50 50 50 50 60Health Care Unfavorable ESB35 10 10 10 10 40 30 20 20 20 40
BasedonNDR’sdomesticuniverse.FormoredetailsseeIndustryFocus.
Ned Davis Research Group A29
CurrEnCiEs And CommoditiEs
CurrEnCy mArkEt rElAtiVE strEnGtH rAnkinG
Rank
OneWeek Ago
FourWeeks Ago
CurrencyMarket
TotalComposite
Short-TermModel
Intermediate-Term Model
Long-TermModel
1 2 4 Canadian Dollar
68.75 90.00 60.00 56.25
2 4 6 British Pound 63.33 90.00 50.00 50.00
3 3 7 Australian Dollar
62.50 83.33 66.67 37.50
4 1 2 Swedish Krona
60.97 66.67 60.00 56.25
5 5 5 Euro 52.78 33.33 50.00 75.00
6 6 3 Japanese Yen 51.39 75.00 16.67 62.50
7 8 8 Swiss Franc 41.67 50.00 25.00 50.00
8 7 1 U.S. Dollar 39.26 0.00 77.78 40.00
*Modelreadingsrepresentthepercentageofindicatorsinthemodelthatarepositivescaledfrom0%to100%*(100%=allindicatorspositive);TotalCompositeisanarithmeticmeanoftheShort-Term,Intermediate-TermandLong-Termmodelreadings;*Modelreadingsarelinkedtocorrespondingcharts.Forexample,toaccesstheDailyEuroShort-TermModelchart,clickonthe“Short-TermModel”readingforEuro.
Ned Davis Research,Inc. ICS_2.RPT
Ned Davis Research Group A30
(AA411)
Daily Data 3/20/1968 - 11/02/2006 (Log Scale)
Gold Gain/Annum When:
150-Day Gain/ %Index Is: Annum of Time* >15% Above 1-Yr Avg. 20. 4 29. 0
Between Bands 11. 6 43. 4>15% Below 1-Yr Avg. -10. 2 27. 6
364352637590
108130156188226271325391469563676812
364352637590
108130156188226271325391469563676812
150-Day Average of Gold's Absolute Change
High Volatility
Low Volatility
Bands vs. One-Year Moving Average of 150-Day Gold Volatility Index:
Upper = 15% Above Avg. (1.12%)
Lower = 15% Below Avg. (0.82%)
11/02/2006 = 1.29%
0.20.40.60.81.01.21.41.61.82.02.22.42.62.8
0.20.40.60.81.01.21.41.61.82.02.22.42.62.8
19
73
19
78
19
83
19
88
19
93
19
98
20
03
Gold Bullion
150-Day Gold Volatility Index(I 224)
Daily Data 1/02/1979 - 11/02/2006 (Log Scale)
Dollar Gain/Annum When:
75-Day Gain/ %Index Is: Annum of Time
>15% Above 1-Yr Avg. 7. 3 23. 0Between Bands -1. 2 56. 4
* >15% Below 1-Yr Avg. -4. 7 20. 6
798387919599
104109114119125131137143150157164
798387919599
104109114119125131137143150157164
75-Day Average of Dollar's Absolute Change
High Volatility
Low Volatility
Bands vs. One-Year Moving Average of 75-Day Dollar Volatility Index:
Upper = 15% Above Avg. (0.43%)
Lower = 15% Below Avg. (0.32%)
11/02/2006 = 0.26%
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.2
0.3
0.4
0.5
0.6
0.7
0.8
19
83
19
88
19
93
19
98
20
03
U.S. Dollar Index
75-Day U.S. Dollar Volatility Index
Ned Davis Research Group A31
Monthly Data 6/30/1984 - 8/31/2006 (Log Scale)
(I 336)
U.S. Dollar / Japanese Yen8/31/2006 = 85.19
Yen Gain/Annum When:
Net PurchasesThree-Month Total Gain/ %(bottom clip): Annum of Time* Above 9 -2. 0 22. 2
Between 3 And 9 2. 3 31. 63 And Below 6. 5 46. 2
41454954596571788694
103113
41454954596571788694
103113
8/31/2006 = $10.64 billion
Japanese Net Purchases of U.S. Treasurys
-10-505
10152025
-10-505
10152025
8/31/2006 = $11.16 billion
Japanese Net Purchases of U.S. Treasurys (Three-Month Total)
-100
1020304050607080
-100
1020304050607080
Japanese Yen vs. Japanese Net Purchases of U.S. Treasurys
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Weekly Data 12/01/1989 - 10/27/2006 (Log Scale)
(I 258)
U.S. Dollar Index Gain/Annum When:12/01/1989 - 10/27/2006
Indicator in Gain/ %Bottom Clip is: Annum of Time
Above 10 3. 1 19. 6* Between 0 and 10 -0. 9 59. 0
0 and Below -3. 7 21. 4
U.S. Dollar Index
10/27/2006 = 85.6
81
85
89
93
97
102
107
112
117
81
85
89
93
97
102
107
112
117
Foreign Holdings of U.S. Government Securities At The Fed($Billions, Log Scale)
10/27/2006 = 1142.93
241280325377438508590685795923
1071
241280325377438508590685795923
1071
Foreign Central Bank Holdings26-Week Rate of Change
Holdings Increasing
Holdings Decreasing10/27/2006 = 2.3%-9
-6-30369
121518
-9-6-30369
121518
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
U.S. Dollar Index vs. Foreign Central Bank Holdings
Ned Davis Research Group A32
mAJor ForEiGn HoldErs oF u.s. trEAsury sECuritiEs* As oF 6/30/2006
Country
CurrentHoldings$ billions
$ Change fromPrior month
As a Percent ofForeign
Holdings
As a Percent ofmarketable
treasury securities
Japan 635.3 -2.6 30.4 14.9
Mainland China 327.7 3.1 15.7 7.7
United Kingdom 201.4 26.4 9.6 4.7
Caribbean Banking Ctr 60.3 1.8 2.9 1.4
Hong Kong 48.8 0.4 2.3 1.1
Taiwan 67.1 -0.4 3.2 1.6
Germany 48.3 1.1 2.3 1.1
OPEC 101.5 -1.1 4.9 2.4
Korea 68.9 0.1 3.3 1.6
Switzerland 30.6 0.1 1.5 0.7
Mexico 46.0 2.6 2.2 1.1
Luxembourg 37.4 -1.1 1.8 0.9
Canada 41.3 0.4 2.0 1.0
Singapore 34.6 -1.1 1.7 0.8
Australia 9.3 0.0 0.4 0.2
Brazil 33.4 0.5 1.6 0.8
India 12.5 0.3 0.6 0.3
Belgium 16.9 -0.6 0.8 0.4
Turkey 19.1 -2.4 0.9 0.4
Italy 15.2 1.0 0.7 0.4
Netherlands 16.9 1.5 0.8 0.4
Israel 11.4 -2.0 0.5 0.3
Sweden 18.2 0.1 0.9 0.4
France 28.9 -1.8 1.4 0.7
Ireland 20.0 1.0 1.0 0.5
Thailand 15.8 0.3 0.8 0.4
Spain 11.9 0.0 0.6 0.3
All Others 120.8 -5.5 5.8 2.8
Grand Total 2089.7 20.2 100.0 49.1
Foreign Official Instit. 1273.0 -11.5 60.9 29.9
Bills 188.0 -7.1 9.0 4.4
Bonds and Notes 1085.0 -4.4 51.9 25.5
NedDavisResearch,Inc. BMS_30.RPT
Ned Davis Research Group A33
(DAVIS62)
Daily Data 9/04/1984 - 11/02/2006 (Log Scale)
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
S
B
Profitable Trades: 82%Gain/Annum: 8.9%Buy-Hold Gain/Annum: -2.3%Latest Signal 6/19/2006 = 86.31
11/02/2006 = 85.34U.S. Dollar Index Gain/Annum When:
(9/04/1984 - 11/02/2006)
NDR Crowd Sentiment Gain/ %Poll for US Dollar: Annum of Time* Above 1.3 1. 3 25. 2
-2.1 - 1.3 from Above -11. 5 37. 5-2.1 - 1.3 from Below 8. 6 27. 9Below -2.1 -5. 3 9. 0
Signals are Generated When Sentiment IndicatorFalls Below Upper Bracket = Sell
Rises Above Lower Bracket = Buy71747882869095
100105110115121127134141148155163
71747882869095
100105110115121127134141148155163
Excessive Optimism
Extreme Pessimism
11/02/2006 = 1.7
-3
-2
-1
0
1
2
3
-3
-2
-1
0
1
2
3
19
89
19
94
19
99
20
04
U.S. Dollar Index
NDR Crowd Sentiment Poll for U.S. Dollar -- Transitional Mode(DAVIS43)
81.983.885.787.789.791.793.896.098.2
100.4102.7105.1107.5109.9112.4115.0117.6120.3123.1125.9128.7131.7134.7137.8140.9144.1147.4150.8154.2157.8161.4
M J S D1980
M J S D1981
M J S D1982
M J S D1983
M J S D1984
M J S D1985
M J S D1986
M J S D1987
M J S D1988
M J S D1989
M J S D1990
M J S D1991
M J S D1992
80.2
81.5
82.9
84.3
85.7
87.1
88.5
90.0
91.5
93.0
94.5
96.1
97.7
99.3
100.9
102.6
104.3
106.0
107.8
109.6
111.4
113.2
115.1
117.0
118.9
D1996
M J S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S D2007
M J S D2008
M J S
1995-Present Dollar Scale Right ( )1979-1992 Dollar Scale Left ( )
1995 - Present U.S. Dollar Index vs. 1979 - 1992 U.S. Dollar Index Weekly Data (Log Scale)
Ned Davis Research Group A34
Daily Data 4/30/1996 - 11/02/2006
(I 205)
U.S. Dollar Index - Trade WeightedLog Scale Right
11/02/2006 = 85.34
97.31
101.39102.60
96.83
104.58
112.10
118.61
120.88 120.22
99.07
91.99
85.11
90.43
92.33
101.98
85.90
93.26
95.17
98.64
92.20
97.06
108.40
111.75
104.17
92.29
84.97
80.53
86.30
83.89
106.02
81.6
83.4
85.3
87.2
89.1
91.1
93.2
95.3
97.4
99.6
101.8
104.1
106.4
108.8
111.2
113.7
116.2
118.8
121.5
Unweighted U.S. DollarScale Left
11/02/2006 = 89.81
99.61
103.06
108.35 107.73
115.53
122.77
125.55 124.94
97.51
89.85
94.81
96.71
107.95
89.20
95.84
98.36 97.84
101.42
112.78
118.16
110.33
98.18
89.66
85.47
90.57
88.28
109.45
87
90
93
96
99
102
105
108
111
114
117
120
123
Comex GoldLog Scale Right
11/02/2006 = 633.3
393.7
337.4317.5
303.6 296.7 294.9
329.2
380.3
429.1
458.6
728.6
366.9
326.3 320.0
383.6
343.0
320.3
280.4 277.3
254.1
279.0
257.1273.2
303.9322.5
376.0
415.4
Source: = Commodity System, Inc. (CSI)www.csidata.com
252274297322350379412447485527571620673730793
J S D1997
M J S D1998
M J S D1999
M J S D2000
M J S D2001
M J S D2002
M J S D2003
M J S D2004
M J S D2005
M J S D2006
M J S
Dollar & Gold
(I 202)
Daily Data 6/02/1987 - 11/02/2006
Euro Per U.S. DollarScale Right
11/02/2006 = 0.78
0.900.92
0.98
0.89
0.82
0.86
0.91
0.830.82
0.950.93
0.99
1.12
1.211.19
1.16
0.93
0.840.86
0.75
0.83
0.89
0.70
0.74
0.69
0.800.78
0.74
0.86
0.82
0.92
1.04
1.08
0.84
0.78
0.73
0.84
0.690.720.750.780.810.840.870.900.930.960.991.021.051.081.111.141.171.20
Japanese Yen Per U.S. DollarScale Left
11/02/2006 = 117.11
152.95
136.50
149.37
159.64
141.64
134.83
126.09
112.85
127.10
147.25
124.33
111.23
126.68
134.79
114.50
120.96121.01 121.11
124.75 123.35119.32
101.13
80.63
111.20108.72
101.60
115.69
102.04
109.76
80859095
100105110115120125130135140145150155
J S D1988M J S D
1989M J S D
1990M J S D
1991M J S D
1992M J S D
1993M J S D
1994M J S D
1995M J S D
1996M J S D
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
U.S. Dollar in Terms of Euro and Yen
Ned Davis Research Group A35
(DAVIS66)
Daily Data 12/13/1989 - 11/02/2006 (Log Scale)
S&P 500 IndexGain/Annum When:
Gain/ %Market Sentiment is Annum of Time
Above 61.5 -7. 6 28. 1Between 31 and 61.5 12. 7 49. 9
* Below 31 14. 6 22. 1
11/02/2006 = 329.75Source: Commodity System, Inc. (CSI)
www.csidata.com6571798795
105116127140155170188207228251276304335369
6571798795
105116127140155170188207228251276304335369
Excessive Optimism
Extreme Pessimism
11/02/2006 = 21.5
05
101520253035404550556065707580859095
05
101520253035404550556065707580859095
1990M J S D
1991M J S D
1992M J S D
1993M J S D
1994M J S D
1995M J S D
1996M J S D
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
Copper (HG)
NDR Crowd Sentiment Poll for Copper -- Mode Basis(DAVIS63)
Daily Data 6/02/1989 - 11/03/2006 (Log Scale)
Gold Bullion Gain/Annum When:
Gain/ %Gold Sentiment Index Is: Annum of Time
Above 66.4 -5. 8 25. 6Neutral moving down -0. 4 21. 4Neutral moving up 3. 6 19. 2
* 37.9 and Below 12. 5 33. 8
Composite's Direction is DeterminedBy Whether it is Higher or Lower
Than it Was 3 Days Ago 11/03/2006 = 626.90262276292308326344363384405428452477504533563594628663700
262276292308326344363384405428452477504533563594628663700
Excessive Optimism
Extreme Pessimism Composite Direction = UP162024283236404448525660646872768084
162024283236404448525660646872768084
J S D1990
M J S D1991
M J S D1992
M J S D1993M J S D
1994M J S D
1995M J S D
1996M J S D
1997M J S D
1998M J S D
1999M J S D
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S
Gold Bullion
NDR Crowd Sentiment Poll for Gold Bullion -- Directional Mode Basis
Ned Davis Research Group A36
Yearly Data 12/31/1979 - 12/31/2005
(ESX1084A)
Chinese Oil Demand(Year-to-Year Change)12/31/2005 = 10.3%
(Scale Left)( )
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Chinese Real GDP Growth12/31/2005 = 10.2%
(Scale Right)( )
Correlation Coefficient = 0.42Sources: Energy Information Administration and
Haver Analytics, China National Bureau of Statistics 3.94.24.54.85.15.45.76.06.36.66.97.27.57.88.18.48.79.09.39.69.9
10.210.510.811.111.411.712.012.312.612.913.213.513.814.114.414.715.0
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Chinese Oil Demand vs Real GDP GrowthYearly Data 12/31/1970 - 12/31/2004
ESX1083A
ConsumptionCountry per Capita Year
United States ( ) 25.8 2004Japan ( ) 15.3 2004Russia ( ) 6.6 2004Brazil ( ) 4.2 2004China ( ) 1.8 2004India ( ) 0.8 2004
Sources: Energy Information Administration and U.S. Census Bureau
In Barrels per Person per Year
123456789
10111213141516171819202122232425262728293031
123456789
10111213141516171819202122232425262728293031
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
Petroleum Consumption per Capita for Selected CountriesNew Chart
timothy w. Hayes, CMT, is NDR’s Chief Investment Strategist. Tim joined the firm in 1986 and currently heads up the firm’s global and U.S. asset allocation services. He serves as Research Council coordinator and oversees NDR’s quarterly InvestmentStrategy, writing sections on strategy, asset allocation, U.S. stock market and style allocation, and global allocation.
Tim writes the StockMarketFocus, which features top-down stock market perspective, quantitatively-based analyses, asset allocation recommendations, and sector rankings. Tim also writes GlobalFocus, which focuses on the most significant global themes in addressing global asset allocation and the outlook for the world’s various stock markets and global sectors. His team also produces a complementary GlobalChartoftheDay.
Tim is featured regularly on CNBC and Bloomberg TV, and his market commentary is often quoted in TheWallStreetJournaland other financial media in the U.S. and globally.
He has written a book, The Research-Driven Investor, published in November 2000. He has contributed to several other books, and his research articles have appeared in the Journal of Technical Analysis, TechnicalAnalysisof StocksandCommodities, and other publications.
In 1996, Tim won the Charles H. Dow Award for groundbreaking research in technical analysis. Sponsored by Dow Jones Telerate, the Market Technicians Association, and Barron’s, the award recognizes an outstanding original work that best expounds on the principles of technical analysis.
timothy w. Hayes, CmtChiefInvestmentStrategist
Biographical Sketch
Ned Davis Research Group
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