LEHMAN BROTHERS TECHNICAL STRATEGY

DEGRAAFS DAILY
Intermediate Term Barometer: ! Conditional Elements: ! Trend
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Jeffrey S. deGraaf, CMT, CFA

August 21, 2006

Liquidity
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Last week can best be described charitably as a return to the neglected and impoverished of the market. The weak and battered names showed some life, as many of the oversold conditions were resolved, not the least being technology. The energy trade remains vulnerable to longs in our opinion as the group exhibits minor top formations.
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Sentiment
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Price Proximity
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Trend work is improving with the S&P breakout through 1290, but overall the trends remain neutral in our world. Sentiment was most bearish in tech, and though the latest rally has resolved some of that bearish sentiment, there is plenty of room for a mean-reversion call to play out. Markets are notorious for lulling participants in August; we suspect the latest breakout takes the market back to challenge the previous highs on the SPX, but that strength will likely diverge with broader indices such as the Russell 2000 and create a more vulnerable condition in the next 3-6 months.

Momentum:

Industry Group Technical Rankings Strongest

Agricultural Products Motorcycle Manufacturers Oil & Gas Refining & Marketing Diversified Metals & Mining Drug Retail

Weakest
Heavy Electrical Equipment Homebuilding Photographic Products Tires & Rubber Forest Products

Near Term Summary:

Team Technical
Jeffrey S. deGraaf, CMT, CFA John Kolovos, CMT Chief Technical Analyst - 212 526 2337 Technical Analyst 212 526 2238 Craig Peskin Gerald F. Hendricks, CMT Technical Analyst 212 526 9423 Technical Analyst 212 526 3350 Research Coordinator 212-526-4691

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