April 19th 2011

Think the Unthinkable

The biggest story on Monday was the United States itself when the Standard & Poor’s Ratings
Services slashed its outlook on US sovereign long-term rating from STABLE to NEGATIVE. Currently
credit ratings are still maintained at AAA for long-term and A-1+ for short-term.

S&P’s credit analyst Nikola G. Swann explained that the reasoning behind the downgrade rooted on
the US’s fiscal deterioration. According to Swann, during 2003-2008 total deficit fluctuated between
2% and 5% of GDP. Yet, in 2009 this has gone beyond 11%. No fix is seen so far on this matter.

There have been two opposing ideas on how to fix the deficits: Obama’s side wants to fix it through
spending cuts and revenue increases which would reduce deficit by $4 trillion in 12 years or even
sooner. US House of Representatives’ side on the other hand, offers the fix in the form of reduction of
Medicare and Medicaid, reducing tax rates on top individual and corporate taxes, and also to cut
other non-defense spending. S&P said that they take no position on which tools would be applied, but
the agency sees that this matter will remain unsolved until at least after national elections next year. If
there’s no agreement on the matter soon enough or a further fiscal deterioration occurs, S&P could
decide to ultimately lower the rating as US fiscal profile is at the moment is less rosy than of other
“AAA” rated sovereigns. The chance of such event is one-in-three, according to S&P.

All Dow components saw red on Monday, except BA which carved 19c gains. Worst performers of the
day were BAC with 3.12% decline and CAT with 3.09%. BAC has been under pressure by poor
earnings while CAT was mostly hit by the rise in China’s reserve requirement ratio.

The Dow Jones index slumped 140.24 points or 1.14% to settle at 12,201.59, S&P 500 slipped
14.54 points or 1.1% to end at 1,305.14, while the tech-dominated NASDAQ was pushed down by
29.27 points or 1.06% lower at 2,735.38.

Gold also basked in glory as it geared into spitting distance with $1,500. S&P’s downgrade on US
has definitely triggered flight to safety, and safety is seen in gold. Spot gold price ended at
$1,492.20 per ounce, up 0.8% while its futures contract for June delivery ended at $1,492.90 per
ounce, up $6.90.

Brent crude contract for June delivery ended up $1.84 at $121.61 a barrel, while the US crude
finished up $2.54 to $107.12 a barrel.

1 .DJI 12,201.59 (-140.24 ● -1.14%) .SPX 1,305.14 (-14.54 ● -1.10%) .IXIC 2,735.38 (-29.27 ● -1.06%)
 April 19th 2011

Day Ahead
IBM, INTC and JNJ are due to report their earnings today. JNJ is expected to see a reduced EPS,
while INTC is seen marginally improving its net profit. IBM on the other hand is seen handing a good
performance (see table below).

Date ET Company Periode F/C Prv

19-Apr 12:00 ET IBM Q1 $2.30 $1.97
19-Apr 12:00 ET Intel Corp. Q1 $0.46 $0.43
19-Apr 12:00 ET Johnson & Johnson Q1 $1.26 $1.29
20-Apr AMC American Express Q1 $0.92 $0.73
20-Apr BMO AT&T Q1 $0.57 $0.59
20-Apr BMO United Technologies Q1 $1.07 $0.93
21-Apr BMO Dupont Q1 $1.36 $1.24
21-Apr 12:00 General Electric Q1 $0.28 $0.21
AMC = After market closes BMO = Before market closes

INTC may have its sales deteriorating as tablets cannibalize PCs, a key consideration to those who
pondering on holding INTC. IBM’s walk into the clouds may provide a better future for the company.
JNJ however, is seen on the defensive side as it has been repeatedly battered by recalls after
recalls, hence my bearish target (see the stock focus section).

S&P’s outlook on US and European debt crisis which resurfaced after German suggested Greece to
restructure is two key themes in addition to the trio earnings released today. Of course, in turn bad
news is simply going to boost gold higher. $1,500 is not that far away anymore, after all.

Housing data due today may take the backseat as key themes set to dominate the day.

2 .DJI 12,201.59 (-140.24 ● -1.14%) .SPX 1,305.14 (-14.54 ● -1.10%) .IXIC 2,735.38 (-29.27 ● -1.06%)
 April 19th 2011

Stock Focus: Johnson & Johnson

JNJ
Last Apr 18th Resistances 61.21 61.93 62.08 63.17 63.59
$60.46 0.17% Supports 56.23 55.58 53.87 50.96 49.81
WTD MTD Outlook
0.17% 2.04% NEUTRAL
YTD 12-Month Price Tgt
2.25% 5.97% $56.23

JNJ will release its earnings today. With its technical outlook showing the attainment of its technical
resistance at $61.19 plus the bearish candle pattern recorded on Monday, it seems that the favor is
on the downside. JNJ however, retains its NEUTRAL outlook at the moment due to mixed technical
indicators. MACD is still rising; EMAs have been outpaced by the stock, while RSI is neutral. Hence, the
overall outlook suggests JNJ may fall back a bit to $56.23, perhaps triggered by weak earnings.
Only above $61.50 will turn JNJ’s outlook to be rosier.

3 .DJI 12,201.59 (-140.24 ● -1.14%) .SPX 1,305.14 (-14.54 ● -1.10%) .IXIC 2,735.38 (-29.27 ● -1.06%)
 April 19th 2011

Price Performance - as of Apr 18th 2011

Code Last Dy WTD MTD YTD 12-Mos
AA 16.13 -2.36% -2.36% -8.66% 4.81% 20.10%
AXP 46.06 -0.41% -0.41% 1.90% 7.32% -0.13%
BA 72.79 0.26% 0.26% -1.54% 11.54% 0.50%
BAC 12.42 -3.12% -3.12% -6.83% -6.90% -30.34%
CAT 103.90 -3.09% -3.09% -6.69% 10.93% 52.59%
CSCO 16.73 -1.76% -1.76% -2.45% -17.30% -37.88%
CVX 104.50 -1.64% -1.64% -2.78% 14.52% 28.32%
DD 53.80 -1.99% -1.99% -2.13% 7.86% 35.04%
DIS 41.20 -0.77% -0.77% -4.39% 9.84% 11.83%
GE 19.98 -0.30% -0.30% -0.35% 9.24% 5.94%
HD 37.76 -1.07% -1.07% 1.89% 7.70% 7.18%
HPQ 39.75 -1.27% -1.27% -2.98% -5.58% -23.51%
IBM 165.94 -0.16% -0.16% 1.76% 13.07% 28.64%
INTC 19.62 -0.66% -0.66% -2.78% -6.70% -14.10%
JNJ 60.46 -0.17% -0.17% 2.04% -2.25% -5.97%
JPM 43.96 -2.07% -2.07% -4.64% 3.63% 3.24%
KFT 33.22 -0.42% -0.42% 5.93% 5.43% 12.23%
KO 67.31 -1.03% -1.03% 1.46% 2.34% 25.93%
MCD 77.00 -0.49% -0.49% 1.20% 0.31% 9.08%
MMM 91.45 -1.48% -1.48% -2.19% 5.97% 3.14%
MRK 33.93 -1.68% -1.68% 2.79% -5.85% -3.17%
MSFT 25.08 -1.14% -1.14% -1.22% -10.14% -17.88%
PFE 20.40 -0.63% -0.63% 0.44% 16.50% 22.01%
PG 64.00 -0.28% -0.28% 3.90% -0.51% 2.96%
T 30.31 -1.11% -1.11% -0.98% 3.17% 16.31%
TRV 59.01 -1.32% -1.32% -0.79% 5.92% 16.30%
UTX 81.70 -2.10% -2.10% -3.48% 3.79% 9.01%
VZ 37.31 -1.43% -1.43% -3.19% 4.28% 29.10%
WMT 53.31 -0.45% -0.45% 2.42% -1.15% -0.62%
XOM 83.10 -1.41% -1.41% -1.22% 13.65% 22.62%

4 .DJI 12,201.59 (-140.24 ● -1.14%) .SPX 1,305.14 (-14.54 ● -1.10%) .IXIC 2,735.38 (-29.27 ● -1.06%)
 April 19th 2011

Analysts' Upgrades & Downgrades

Code House Ratings PT
AXP Piper Jaffray - $62 $63
BAC Morgan Stanley Overweight $21.00
INTC Citadel Neutral ADD $25.00
KFT Morgan Stanley Overweight Equal-weight $34.00
n Reiterate n Upgrade n Downgrade n Initiation
US Economic Calendar
Date Time Report Period Actual Forecast Previous
18-Apr 10:00 AM Home builders' index Apr 16 17 17
19-Apr 8:30 AM Housing starts Mar 529K 479K
19-Apr 8:30 AM Single-family permits Mar n/a 382K
20-Apr 10:00 AM Existing home sales Mar 5.05M 4.88M
21-Apr 8:30 AM Jobless claims 16-Apr 390K 412K
21-Apr 10:00 AM Leading indicators Mar 0.2% 0.8%
21-Apr 10:00 AM Philly Fed Apr 38.0 43.4

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any securities. This
report has been prepared based on sources believed to be reliable, but there is no assurance or guarantee regarding its
completeness and accuracy. The author accepts no responsibility or liability arising from any use of the report.

5 .DJI 12,201.59 (-140.24 ● -1.14%) .SPX 1,305.14 (-14.54 ● -1.10%) .IXIC 2,735.38 (-29.27 ● -1.06%)