Technical Analysis within a Fundamental Framework Jeff Hochman I

FIDELITY INTERNATIONAL
Technical Analysis within a Fundamental Framework
Jeff Hochman I Director of Technical Research
Frankfurt, 29. April 2009
This presentation is for Investment Professionals only, and should not be relied upon by private investors

2
The more things change, the more they stay the same…
…whether in 1934… …or in 2009!
Chicago Tribune The Economist, WSJ, Wiedenroth’s
Vorborse

3
…and therefore our BEHAVIOR is often repeated!
THEN
UP HERE
STOCKS
BUYS BACK
AND
BULLISH
TURNS
ONE
EVERY-
AND
OR TWO
PERCENT
RISE A
THEY
THEN
PRICES FALL A
PER-
CENT OR
DOWN HERE
TWO IN A
DAY OR
TWO AND
EVERY-
ONE
TURNS
BEARISH
ON THE
MARKET
AND
SELLS
STOCKS

4
Stock markets are semi-efficient at discounting the future…
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
Dec-94
Dec-95
MSCI AC EUROPE - 12MTH FWD WTD EPS and 12m Fwd
Earnings Relatives
MSEUROL 6 month(s) % chg.
Europe Fwd EPS 6 month(s) % chg.
lagged by 5 months (RHS)
Rolling 3 Year
Correlation
Source: Datastream, FIL
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Correl.= 0.5
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
-0.10
It’s a FACT…In the long run,
EARNINGS are the main
driver of stock market returns.
BUT REMEMBER, the long
run is comprised of many
shorter runs!
There are often significant
periods of disconnect between
earnings and actual stock
price movements.

5
…whether at the macro OR micro level
Consensus GDP forecasts & Equity Market
1800
1600
1400
1200
1000
800
600
Source: Reuters, MF Global, FIL
Q1 06 Q1 07 Q1 08 Q1 09 Q1 10
Eurozone Real GDP (% y/y, RH Scale) FTSE Eurofirst 300 Price Index (RH Scale)
4
3
2
1
0
-1
-2
-3
-4

6
Perhaps Anthony Bolton says it best…
Source: Anthony Bolton, “Investing Against the Tide”, April 2009
“The way I look at technical analysis today is as a
framework or overlay into which I put my fundamental
bets on individual stocks. I see it as a discipline for
my stock picking.
What I mean by this is that, if the technical analysis
confirms my fundamental views, I may take a bigger bet
than I would do otherwise.
However, if the technical analysis doesn’t confirm my
fundamental positive view, it makes me review my
investment thesis on a company, for example checking
that there aren’t negative factors we have overlooked. If
my conviction is very strong I will often ignore the
technical view; at other times if it conflicts I will take a
smaller bet or reduce my position”.

7
…a picture paints a thousand words, and them some more
Source: Anthony Bolton, “Investing Against the Tide”, April 2009
“Although at heart I’m a fundamentalist I have definitely
found that the combination of two approaches seems to
work better than just one on its own.
A few years ago I spoke at a technical analysis
conference and said that if I was on a desert island and
was only allowed one input for my investment decisions,
it would be an up-to-date chart book. I think today
I would still be of the same opinion.
The trouble with fundamental data is that I can’t
single out only one source that on its own would be
sufficient. I could, if pushed, run a portfolio with
just a chart book…”

8
When to SELL as important as when to BUY!
Source: Bloomberg Data

9
How & Why does Fidelity use Technical Analysis?
Technical Analysis @ Fidelity is employed as a value added Tactical tool to
our Strategic fundamental research
Charts provide a visual “Reality Check” to the fundamental assumptions made
by our PM’s and Analysts
Main focus is on Stock picking, but also integral in the Asset Allocation
process
Primary idea is to increase our level of conviction in the decision making
process – after all, it is a game of probabilities!
Technical Analysis therefore provides an element
of Risk Control for all our fund offerings

10
Equities have likely reached the “Tipping Point”
The Markets
Wow, I feel GREAT
Point of
Maximum
about this
financial RISK
investment!
Euphoria
Anxiety
Temporary setback, I’m a long term
investor…
Optimism
Excitement
Thrill
2006
Maybe the markets just
aren’t for me
Denial
Sentiment is now moving up the emotional
pendulum from the “quicksand phase” to
steadily climbing a new Wall of Worry
Fear
Desperation
Panic
2008/09
2002/03
Capitulation
Despondency
Point of Maximum
financial
OPPORTUNITY
Hope
Depression
Optimism
Relief

11
Love goes, cash stays, and equities will finally bottom…
NDR Total Market Value vs Money Market Fund Assets / NDR Total Market Value
NDR Total Market Value Gain / Annum When:
Money Market Fund Assets/ Gain/ % of
NDR Total Market Value Annum Time
* Above 10.80
99 89.4
10.80 and Below
-125 106
3541
2907
2386
1959
1608
1320
1083
889
730
599
492
404
331
272
223
183
150
123
101
(S423)
1055.64
1981
1982
276.66
Source: NDR, ICI
196.81
1983
1984
1985
1986
1987
1988
NDR Total Market Value
(Billions, Scale Right)
3/31/2009 = 8916.7
613.84
570.10
Monthly Data 10/31/1980 - 3/31/2009 (Log Scale)
17102.05
9715.02 9322.61
2382.00
Money Market Fund Assets / NDR Total Market Value
(Scale Right)
3/31/2009 = 43.0%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1862.00
18082.49
Total Money Market Fund Assets
(Scale Left In Billions)
3/31/2009 = $3834
1999
2000
2001
2002
2003
2004
High Liquidity
Low Liquidity
2005
2006
2007
2008
2009
18646
15978
13692
11733
10054
8615
7383
6326
5421
4645
3981
3411
2923
2505
2146
1839
1576
1351
1157
43.9
38.3
33.4
29.1
25.4
22.2
19.3
16.9
14.7
12.8
11.2
9.8
8.5
7.4
All of the net selling
the past 18 months
has left a dramatic
pile of cash on the
sidelines, especially
as a % of the total
value of equities.
Indeed, the ratio of
cash to equities is
now near 43%, or 2x
the levels at the
market lows in 1982,
1991, and 2003.
So if near everyone
has already sold, is it
not a good time to
BUY???

12
Risk spreads continue to moderate, a precursor to recovery…
Emerging Market spreads
3m Swap spreads
3m LIBOR
CDS spreads
Source: Bloomberg
Stabilizing

13
Earnings will continue to fall, but this is now “old news”…
98
88
79
70
63
56
50
45
40
36
32
29
26
23
21
19
17
15
13
12
11
10
9
8
7
6
40
30
20
10
0
-10
-20
-30
FID84
World Earnings and Growth Rate
Consensus growth rates
% Over Or Under
Trendline Growth
* Trailing 12-Month Reported Earnings Per Share
Weak Earnings
Monthly Data 1/31/1970 - 3/31/2009 (Log Scale)
Strong Earnings
MSCI World Earnings Growth * = 6.1% per annum
( )
Trendline Growth = 6.6% per annum
( )
Trendline based on linear regression = average
growth weighted for extreme observations.
(Line will change very slightly with new updates)
3/31/2009 = -16.7%
1970 1975 1980 1985 1990 1995 2000 2005
Source: NDR, Goldman Sachs
98
88
79
70
63
56
50
45
40
36
32
29
26
23
21
19
17
15
13
12
11
10
9
8
7
6
40
30
20
10
0
-10
-20
-30

14
Global EPS estimates are becoming “less bad”, which is “good”
40%
20%
0%
-20%
-40%
-60%
-80%
Number of upgrades minus downgrades / total number of estimates (2-week rolling avg)
Pan-Europe Index
JP
Asia ex-Japan Index
Emerging Markets Index
US
Falling EPS should not
come as a major surprise
to anyone
anymore, so maybe
the surprise will be on
the upside…
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09
Source: Datastream, FIL, FactSet, MSCI, Soc Gen
Net Downgrades
Net Upgrades
40%
20%
0%
-20%
-40%
-60%
-80%

15
Trends are all a matter of proper perspective!
As my grandfather once told me, the
secret to investing is just living long
enough…
1929
Bear
Source: Bloomberg
Bull
Bear
80 year secular uptrend from 1931/32 lows +7% pa
% decline from S&P 500 Quarterly peaks
Bull
Bear
The average secular bear market
has lasted about 14 years, so we
likely still have a few years to go…
2009

16
Is the “V” flashing Victory sign for the Bulls?
Although we like to see large base
patterns to help raise our level of
conviction, monthly “V” shaped
reversals do occur more often than we
like to admit.
Source: Bloomberg
2000 -2003
- 60%
36 months
2007 – 2009
-61%
18 months
It sure feels that March/April has marked
a significant cyclical turning point.

17
A cyclical bull market within a secular bear has likely begun…
Source: Bloomberg
The past 6 week +25% sharp advance was in line with
previous bear market rallies, yet was set up by a host of
positive internal breadth divergences. If March was the
low, then current set back should be limited in scope,
and indicators stay at high end of recent ranges.
Minimum
H2 target

18
After a pause in the action, Emerging Markets are re - emerging
240
220
200
180
160
140
120
100
80
60
40
Source: Datastream
GLOBAL REGIONAL EQUITY RELATIVES
The starting point one chooses means everything
for performance!
Beginning at the peak of the 2000 bull market, the Emerging
Markets and Asia did extremely well, only to do poorly during the
2008 downturn. But since November 2008 they have emerged
again, outperforming even as the global economy has worsened.
This trend seems set to continue into H2 2009.
Europe
UK
Pac basin x jp
US
Japan
Emerging Markets
Since 01/01/09
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
22/4/09

19
There’s been nowhere to run baby, nowhere to hide…
30
20
10
Agg
cash infl FI
0
-10
-20
-30
-40
-50
Annualized Returns
L/S
HF
FoF
BAL
PORT
EMBI
HY
ALT
CNV
Gold
comm
LG
SPX
Japan
EQTY SG
RUT
LV EAFE
EUR
SV
The Efficient Frontier
The 2007-2009 Bear Market
Compound Annual Return vs.
Standard Deviation of Monthly Return.
PORT: 50/30/20 model portfolio
(stocks/bonds/alternatives).
0 1 2 3 4 5 6 7 8 9 10 11 12
Source: Ibbotson Associates, NAREIT, Lehman Bros., FMR Co.
This bear market has distinguished itself in that
historical correlations have been thrown out
the door, with very little room to manoeuvre
(except Gold). This is causing everyone to
revaluate former beliefs about inter market
relationships and economic principles.
EM
REITs
Volatility
of Returns

20
Intermediate momentum suggests yields may fall again…
The directional correlation between bond markets
is also very high, with currency movements often the big
determinant of performance.
Quantitative Easing policies might keep yields
lower for now, but eventually they are set to rise,
maybe back to mid 2008 levels.
Source: Bloomberg

21
…and High Yield is beginning to show strength
Despite growing fears of increasing default rates, HY
spreads continue to contract somewhat, especially as
equities have rallied, suggesting a more risk taking
appetite amongst investors.
35
30
25
20
15
10
5
15/4/09
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: DATASTREAM
1.50
1.40
1.30
1.20
1.10
1.00
0.90
0.80
0.70
0.60
x10 -3
BARCLAYS HIGH YIELD BANKING - RED. YIELD
BARCLAYS HIGH YIELD TELECOMM. - RED. YIELD
BARCLAYS HIGH YIELD TECHNOLOGY - RED. YIELD
BARCLAYS HIGH YIELD UTILITY - RED. YIELD
US HY SPREADS(R.H.SCALE)
EUROPEAN HY SPREADS (R.H.SCALE)
INVERSE S&P 500
HY Europe
S&P (inverted)
HY US
2007 2008 2009
15/4/09
30
25
20
15
10
5
0

22
Busted bubble, regroup, reform, reflate, and rise again…
400
350
300
250
200
150
100
50
0
Source: DATASTREAM
The Super Cycle is dead, long live the Super Cycle!
Despite the strong correction past 18 months,
commodity prices are stabilizing and should
tend to move higher next several years.
CRB Index
CRB Energy
CRB Grains
CRB Industrials
CRB Livestock
CRB Precious Metals
CRB Softs
EMG Markets Relative
2001 2002 2003 2004 2005 2006 2007 2008 2009
23/4/09
400
350
300
250
200
150
100
50
0

23
Though both have fallen lately, secular trends favour commodities…
10
9
8
7
6
5
4
3
2
1
A long-Term History of Stocks & Commodities
The average commodities secular bull market
has lasted about 18 years, which would mean
we are right now just in the middle of it.
1800 1812 1824 1836 1848 1860 1872 1884 1896 1908 1920 1932 1944 1956 1968 1980 1992 2004
Annual Data. Source: FMRCo | Source: Haver Analytics, FactSet, FMR
DJIA (log)
Recessions
DJIA/CRB
Secular Trend: Stocks
Secular Trend: Commodities
`
100
10
1
0
0

24
In summary…
Whether in a Bull Market or Bear, Technical Analysis is an efficient and
objective method of determining if one’s fundamental beliefs are translated
into actual money making opportunities within our portfolios.
Charts therefore provide a visual “Reality Check” and help keep one honest
in all market environments.
Very good chance that markets are now transitioning into a cyclical Bull
market within a secular bear, with a promising H2 2009 outlook.
Therefore, tilting portfolios to favour more Offense vs. Defense in both stock
and asset allocation selection.

25
Rechtliche Hinweise
Dieses Dokument ist nur für professionelle Investoren und nicht für Privatanleger bestimmt.
Diese Präsentation darf ohne vorherige Erlaubnis weder reproduziert oder veröffentlicht werden. Eine
Anlageentscheidung sollte in jedem Fall auf Grundlage der Prospekte, des letzten Geschäftsberichtes
und – sofern nachfolgend veröffentlicht – des jüngsten Halbjahresberichtes getroffen werden. Diese
Unterlagen sind die allein verbindliche Grundlage des Kaufes. Fidelity veröffentlicht ausschließlich
produktbezogene Informationen und erteilt keine Anlageempfehlung. Die Prospekte, den Geschäftsbericht
und den Halbjahresbericht erhalten Sie kostenlos bei FIL Investment Services GmbH, Postfach
200237, D-60606 Frankfurt/ Main oder über www.fidelity.de. Anleger in Österreich erhalten diese
Dokumente kostenlos bei FIL Investments International – Zweigniederlassung Wien, Schottenring 16,
A-1010 Wien oder bei der österreichischen Zahlstelle Bank Austria Creditanstalt AG, Vordere Zollamtsstraße
13, A-1030 Wien. Der Wert der Anteile sowie die Höhe der Erträge kann schwanken und
wird nicht garantiert. Fidelity, Fidelity International und das Pyramiden-Logo sind eingetragene
Warenzeichen von FIL Limited. Die genannten Unternehmen dienen zu rein illustrativen Zwecken.
Dies stellt keine Aufforderung zum Kauf oder Verkauf der jeweiligen Werte dar, und die genannten
Unternehmen können ggfls. nicht zu den Fondsbeständen zählen. Herausgeber für Deutschland: FIL
Investment Services GmbH, Postfach 200237, D-60606 Frankfurt/ Main. Herausgeber für Österreich:
FIL Investments International – Zweigniederlassung Wien, Schottenring 16, A-1010 Wien. Für
institutionelle Investoren in Deutschland gilt als Herausgeber: FIL Investment Management GmbH,
Kastanienhöhe 1, D-61476 Kronberg im Taunus. Stand, falls nicht anders vermerkt: April 2009.
Alle Angaben ohne Gewähr. MK4372

26
Rechtliche Hinweise
Dieses Dokument ist nur für professionelle Investoren und nicht für Privatanleger bestimmt.
Diese Präsentation darf ohne vorherige Erlaubnis weder reproduziert oder veröffentlicht werden. Eine
Anlageentscheidung sollte in jedem Fall auf Grundlage der Prospekte, des letzten Geschäftsberichtes und –
sofern nachfolgend veröffentlicht – des jüngsten Halbjahresberichtes getroffen werden. Diese Unterlagen
sind die allein verbindliche Grundlage des Kaufes. Fidelity veröffentlicht ausschließlich produktbezogene
Informationen und erteilt keine Anlageempfehlung. Die Prospekte, den Geschäftsbericht und den
Halbjahresbericht erhalten Sie kostenlos bei FIL Investment Services GmbH, Postfach 200237, D-60606
Frankfurt/ Main oder über www.fidelity.de. Anleger in Österreich erhalten diese Dokumente kostenlos bei
FIL Investments International – Zweigniederlassung Wien, Schottenring 16, A-1010 Wien oder bei der
österreichischen Zahlstelle Bank Austria Creditanstalt AG, Vordere Zollamtsstraße 13, A-1030 Wien.
Der Wert der Anteile sowie die Höhe der Erträge kann schwanken und wird nicht garantiert. Fidelity, Fidelity
International und das Pyramiden-Logo sind eingetragene Warenzeichen von FIL Limited. Die genannten
Unternehmen dienen zu rein illustrativen Zwecken. Dies stellt keine Aufforderung zum Kauf oder Verkauf der
jeweiligen Werte dar, und die genannten Unternehmen können ggfls. nicht zu den Fondsbeständen zählen.
Herausgeber für Deutschland: FIL Investment Services GmbH, Postfach 200237, D-60606 Frankfurt/ Main.
Herausgeber für Österreich: FIL Investments International – Zweigniederlassung Wien, Schottenring 16, A-
1010 Wien. Für institutionelle Investoren in Deutschland gilt als Herausgeber: FIL Investment Management
GmbH, Kastanienhöhe 1, D-61476 Kronberg im Taunus. Stand, falls nicht anders vermerkt: April 2009.
Alle Angaben ohne Gewähr. MK4372