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    · With the S&P 500 Index (S&P 500) up 5.5% since the beginning of the year and over 20% since its October 2011 low, the U.S. equity market looks technically overbought, and susceptible to some near-term profit taking, in our view. In determining whether the equity markets are overbought/oversold we look at a number of technical indicators, which at present, are painting a rather clear picture of a stretched and overbought market. While we see the potential for some near-term pressure over the next few weeks, we believe investors should take advantage of the potential weakness and look to add to their equity exposure, given an improving U.S. economy and the recent liquidity injection from the European Central Bank. · One of our preferred market indicators in isolating extreme overbought/oversold market conditions is the percentage of New York Stock Exchange (NYSE) stocks above their 50-day moving average. Generally, when this indicator is above 80, it indicates an overbought market, and oversold when below 20. Currently, this indicator stands at 87, a level last seen in late October 2011, and just before the S&P 500 corrected 10% over the following month. · After hitting an economic soft patch last summer, the U.S economy has shown some resiliency, especially in light of the headwinds emanating from Europe. ISM manufacturing has ticked higher recently, and with the sub-component New Order Index surging in recent months (57.6 in December, up from 49 in summer 2011), we believe there may be more upside for the ISM index over the next few months, which if correct, could continue to support a higher stock market. · With the recent strength in the U.S. economy and stock market we are tweaking our sector recommendations, by adding some cyclicality to our investment strategy. In particular, we are downgrading utilities from overweight to market weight, and upgrading the materials sector from underweight to market weight. · While we are downgrading utilities, we still believe investors should have some exposure to the sector, given their defensive qualities and high dividend yields. One name that stands out is Exelon Corp. (EXC-N). Exelon is one of the largest utility companies in the U.S. and is the country’s largest nuclear operator.

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    · With the S&P 500 Index (S&P 500) up 5.5% since the beginning of the year and over 20% since its October 2011 low, the U.S. equity market looks technically overbought, and susceptible to some near-term profit taking, in our view. In determining whether the equity markets are overbought/oversold we look at a number of technical indicators, which at present, are painting a rather clear picture of a stretched and overbought market. While we see the potential for some near-term pressure over the next few weeks, we believe investors should take advantage of the potential weakness and look to add to their equity exposure, given an improving U.S. economy and the recent liquidity injection from the European Central Bank. · One of our preferred market indicators in isolating extreme overbought/oversold market conditions is the percentage of New York Stock Exchange (NYSE) stocks above their 50-day moving average. Generally, when this indicator is above 80, it indicates an overbought market, and oversold when below 20. Currently, this indicator stands at 87, a level last seen in late October 2011, and just before the S&P 500 corrected 10% over the following month. · After hitting an economic soft patch last summer, the U.S economy has shown some resiliency, especially in light of the headwinds emanating from Europe. ISM manufacturing has ticked higher recently, and with the sub-component New Order Index surging in recent months (57.6 in December, up from 49 in summer 2011), we believe there may be more upside for the ISM index over the next few months, which if correct, could continue to support a higher stock market. · With the recent strength in the U.S. economy and stock market we are tweaking our sector recommendations, by adding some cyclicality to our investment strategy. In particular, we are downgrading utilities from overweight to market weight, and upgrading the materials sector from underweight to market weight. · While we are downgrading utilities, we still believe investors should have some exposure to the sector, given their defensive qualities and high dividend yields. One name that stands out is Exelon Corp. (EXC-N). Exelon is one of the largest utility companies in the U.S. and is the country’s largest nuclear operator.

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    U.S. Equity Strategy (Look To Increase Equity Exposure Following An Expected Near-Term Pullback) - Janaury 27, 2012

    Uploaded by

    dpbasic
    · With the S&P 500 Index (S&P 500) up 5.5% since the beginning of the year and over 20% since its October 2011 low, the U.S. equity market looks technically overbought, and susceptible to some near-term profit taking, in our view. In determining whether the equity markets are overbought/oversold we look at a number of technical indicators, which at present, are painting a rather clear picture of a stretched and overbought market. While we see the potential for some near-term pressure over the next few weeks, we believe investors should take advantage of the potential weakness and look to add to their equity exposure, given an improving U.S. economy and the recent liquidity injection from the European Central Bank. · One of our preferred market indicators in isolating extreme overbought/oversold market conditions is the percentage of New York Stock Exchange (NYSE) stocks above their 50-day moving average. Generally, when this indicator is above 80, it indicates an overbought market, and oversold when below 20. Currently, this indicator stands at 87, a level last seen in late October 2011, and just before the S&P 500 corrected 10% over the following month. · After hitting an economic soft patch last summer, the U.S economy has shown some resiliency, especially in light of the headwinds emanating from Europe. ISM manufacturing has ticked higher recently, and with the sub-component New Order Index surging in recent months (57.6 in December, up from 49 in summer 2011), we believe there may be more upside for the ISM index over the next few months, which if correct, could continue to support a higher stock market. · With the recent strength in the U.S. economy and stock market we are tweaking our sector recommendations, by adding some cyclicality to our investment strategy. In particular, we are downgrading utilities from overweight to market weight, and upgrading the materials sector from underweight to market weight. · While we are downgrading utilities, we still believe investors should have some exposure to the sector, given their defensive qualities and high dividend yields. One name that stands out is Exelon Corp. (EXC-N). Exelon is one of the largest utility companies in the U.S. and is the country’s largest nuclear operator.

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    of 6

    U.S.

    Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research

    Report Prepared by: Ryan Lewenza, CFA, CMT V.P., U.S. Equity Strategist

    Highlights:

    With the S&P 500 Index (S&P 500) up 5.5% since the beginning of the year and over 20% since its October 2011 low, the U.S. equity market looks technically overbought, and susceptible to some near-term profit taking, in our view. In determining whether the equity markets are overbought/oversold we look at a number of technical indicators, which at present, are painting a rather clear picture of a stretched and overbought market. While we see the potential for some near-term pressure over the next few weeks, we believe investors should take advantage of the potential weakness and look to add to their equity exposure, given an improving U.S. economy and the recent liquidity injection from the European Central Bank. One of our preferred market indicators in isolating extreme overbought/oversold market conditions is the percentage of New York Stock Exchange (NYSE) stocks above their 50-day moving average. Generally, when this indicator is above 80, it indicates an overbought market, and oversold when below 20. Currently, this indicator stands at 87, a level last seen in late October 2011, and just before the S&P 500 corrected 10% over the following month. After hitting an economic soft patch last summer, the U.S economy has shown some resiliency, especially in light of the headwinds emanating from Europe. ISM manufacturing has ticked higher recently, and with the sub-component New Order Index surging in recent months (57.6 in December, up from 49 in summer 2011), we believe there may be more upside for the ISM index over the next few months, which if correct, could continue to support a higher stock market. With the recent strength in the U.S. economy and stock market we are tweaking our sector recommendations, by adding some cyclicality to our investment strategy. In particular, we are downgrading utilities from overweight to market weight, and upgrading the materials sector from underweight to market weight. While we are downgrading utilities, we still believe investors should have some exposure to the sector, given their defensive qualities and high dividend yields. One name that stands out is Exelon Corp. (EXC-N). Exelon is one of the largest utility companies in the U.S. and is the countrys largest nuclear operator.

    This document is for distribution to Canadian clients only. Please refer to Appendix A for important disclosures.

    Page 1

    U.S. Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research

    Look to Increase Equity Exposure Following an Expected Near-Term Pullback


    With the S&P 500 up 5.5% since the beginning of the year and over 20% since its October 2011 low, the U.S. equity market looks technically overbought, and susceptible to some near-term profit taking, in our view. In determining whether the equity markets are overbought/oversold we look at a number of technical indicators, which at present, are painting a rather clear picture of a stretched and overbought market. While we see the potential for some near-term pressure over the next few weeks, we believe investors should take advantage of the potential weakness and look to add to their equity exposure, given an improving U.S. economy and the recent liquidity injection from the European Central Bank. There are numerous indicators one can monitor to help determine whether the market is overbought, but the most common indicator is the Relative Strength Index (RSI). The RSI is a momentum indicator that measures the speed and change of price movements. Generally, when the RSI indicator is above 70, it indicates an overbought market. Conversely, when below 30 it indicates an oversold market. Presently, this indicator stands at 80, based on a 9-day RSI setting (Exhibit 1). Given the slow and consistent daily gains since the November 2011 low, the RSI is now clearly pointing to an overbought market condition. In fact, this is the most extreme reading we have witnessed for this indicator since early 2011, just prior to an 8% correction in Q1/11. One of our preferred market indicators in isolating extreme overbought/oversold market conditions is the percentage of New York Stock Exchange (NYSE) stocks above their 50-day moving average. Generally, when this indicator is above 80, it indicates an overbought market, and oversold when below 20. Currently, this indicator stands at 87, a level last seen in late October 2011, and just before the S&P 500 corrected 10% over the following month (Exhibit1). Other indicators that point to overbought/oversold conditions include the CBOE Put/Call ratio, the volatility or VIX index and investor sentiment polls. All of these currently stand near extreme levels, and paint a picture of complacency among investors. Given our contrarian nature, we believe the excessive bullishness, as captured in many of our market indictors, are pointing to a market susceptible to near-term profit taking. But as we highlight in the following pages, any potential weakness should be used as a buying opportunity, as we see the potential for further upside over the next quarter or two. Exhibit 1: S&P 500 Looks Overbought With an RSI at 80 and Percentage of Stocks Above 50-day MA at 87
    NYSE Percent of Stocks Above 50-Day Moving Average
    100 90 80 70 60 50 40 30 20 10
    Source: Stockcharts.com. As of January 25, 2012

    Overbought

    Oversold

    0 Jan-11

    Mar-11

    May-11

    Jul-11

    Sep-11

    Nov-11

    Jan-12

    Page 2

    U.S. Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research

    After hitting an economic soft patch last summer, the U.S economy has shown some resiliency, especially in light of the headwinds emanating from Europe. The recent strength in economic data has been providing fuel for the stock market. As seen in Exhibit 2, the S&P 500 has been closely correlated with the ISM Manufacturing Index. ISM manufacturing has ticked higher recently, and with the sub-component New Order Index surging in recent months (57.6 in December, up from 49 in summer 2011), we believe there may be more upside for the ISM index over the next few months, which if correct, could continue to support a higher stock market. The U.S. labour market has also shown some progress, with the U.S. economy creating on average 147,000 jobs per month over the last six months. Additionally, last weeks initial jobless claims fell to 352,000, which marks a new low in this recovery, and bodes well for another potentially solid nonfarm payrolls number for January. Whether it be the manufacturing sector, job market, housing data, consumer confidence etc., most of the data of late has been showing strength, and coming in above consensus expectations. While we still want to temper our enthusiasm given the myriad issues overhanging the global economy, we cant be blind to these improvements. Exhibit 2: Improving Leading Indicators Add Support to the Rising Equity Markets
    1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 Jan-08
    Source: Bloomberg Finance L.P. As of January 25, 2012

    S&P 500 Index

    65 60 55 50 45

    U.S. Jobless Claims


    700 650 600 550 500 450 400 350 300 250 200 Jan-07
    Source: Bloomberg Finance L.P. As of Janaury 25, 2012

    The U.S. equity markets are being supported by improving leading indicators.

    40 35 30

    With last week's jobless claims hitting 352,000, claims are at the lowest level since 2008. Jan-10
    4-week MA

    Jul-08

    Jan-09

    Jul-09
    S&P 500 (LHS)

    Jan-10

    Jul-10

    Jan-11

    Jul-11

    Jul-07

    Jan-08

    Jul-08

    Jan-09

    Jul-09

    Jul-10

    Jan-11

    Jul-11

    ISM Manufacturing Index (RHS)

    Jobless Claims

    Sector Change With the recent strength in the U.S. economy and stock market we are tweaking our sector recommendations, by adding some cyclicality to our investment strategy. In particular, we are downgrading utilities from overweight to market weight, and upgrading the materials sector from underweight to market weight. Our downgrade of the utilities sector is based on both technicals and fundamentals for the sector. On the fundamental side, given the strong outperformance of utilities in 2011, the sectors P/E valuation relative to the S&P 500 has become stretched in our view, with its relative P/E now more than 1 standard deviation above its long-term average to the S&P 500 (Exhibit 3). With respect to the technicals, the utilities strong relative performance has recently reversed, as investors have been reallocating funds from utilities to more cyclical sectors, resulting in the utilities sector breaking its upward relative trend. Given the higher valuations and deteriorating technicals, we believe its prudent to take some money off the table in the sector. Materials will remain market weight until we gain further confidence in the recovery. Exhibit 3: Downgrading the Utilities Sector Given Stretched Valuations and Weakening Technicals
    S&P 500 Utilities Trailing P/E Relative to the S&P 500
    1.20 1.00 0.80 0.60 -1 SD 0.40 0.20 0.00 Feb-94
    Source: Bloomberg Finance L.P. As of January 25, 2012

    0.16
    +1 SD Long-term Average

    S&P 500 Utilities Price Relative to the S&P 500


    Utilities outperformance for most of 2011 was reversed in recent weeks, as investors took profits and increased risk in portfolios.

    0.15 0.15 0.14 0.14


    With the strong gains in 2011 for utilities, their valuation looks stretched relative to the S&P 500.

    0.13 0.13
    Source: Bloomberg Finance L.P. As of January 25, 2012

    Feb-96

    Feb-98

    Feb-00

    Feb-02

    Feb-04

    Feb-06

    Feb-08

    Feb-10

    0.12 Apr-11

    May-11 May-11

    Jun-11

    Jul-11

    Aug-11

    Sep-11

    Oct-11

    Nov-11

    Dec-11

    Page 3

    U.S. Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research

    Stock Recommendation While we are downgrading utilities, we still believe investors should have some exposure to the sector, given their defensive qualities and high dividend yields. One name that stands out is Exelon Corp. (EXC-N). Exelon is one of the largest utility companies in the U.S. and is the countrys largest nuclear operator. Our bullish view of Exelon is based on the following:

    EXC is involved in both power generation (45% of revenues) and regulated utilities (55% of revenues). The power generation business includes 11 nuclear power plants located across the U.S., while the regulated utility business includes two main units PECO and ComEd. The company is in the process of acquiring Constellation Energy (CEG-N), and is expected to receive final approval over the next few months. We like this acquisition as: 1) it is likely to be accretive to earnings given the potential synergies and costs savings, and 2) it helps to further diversify EXCs operations, given CEGs large energy services business, in addition to its power generation and regulated utilities units. We view EXCs valuation as attractive with the stock trading at 9x trailing earnings (a 30% discount to the sector) and 5x EV/EBITDA. EXC offers an attractive dividend yield of 5.3%, which looks secure given the companys 50% dividend payout ratio. Exelon has a strong balance sheet (even after the potential CEG acquisition), with a net debt to equity ratio of 50%. If the CEG acquisition is approved, the combined company could see its debt/equity ratio decline, closer to 45%. Finally, EXC s share price has declined materially (10%) since the beginning of the year, such that the stock is technically oversold. Additionally, the stock is currently at an important technical support level around $38/$39 (Exhibit 4). We believe the recent share price weakness presents an attractive entry point for this high quality U.S. utility. Risks to EXC include a downturn in the U.S. economy which given its large power generation business would be a headwind to revenues. EXC faces regulatory risk over the pending CEG acquisition. If the deal is approved, EXC could face integration risks following the acquisition. Also lower power prices would negatively impact margins. Following the recent share price weakness, the shares are trading at an important support level, which we believe helps make the risk/reward profile of EXC attractive based on its high dividend yield and attractive valuation.

    Exhibit 4: Technical Read on Exelon Corp

    Page 4

    U.S. Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research

    Appendix A Important Disclosures


    Full disclosures for all companies covered by TD Newcrest can be viewed at https://www.tdsresearch.com/equities/coverage.disclosure.action Technical Research Disclaimer The opinions expressed herein reflect a technical perspective and may differ from fundamental research on these issuers. Fundamental research can be obtained through your TD Waterhouse Investment Advisor or on the Markets and Research site within WebBroker. The technical research opinions contained in this report are based on historical technical data and expectations of the most likely direction of a market or security. No guarantee of that outcome is ever implied. Research Dissemination Policy TD Waterhouse makes its research products available in electronic format. TD Waterhouse posts its research products to its proprietary websites for all eligible clients to access by password and distributes the information to its sales personnel who may then distribute it to their retail clients under the appropriate circumstances either by email, fax or regular mail. No recipient may pass on to any other person, or reproduce by any means, the information contained in this report without the prior written consent of TD Waterhouse. Analyst Certification The TD Waterhouse Portfolio Advice & Investment Research analyst(s) responsible for this report hereby certify that (i) the recommendations and technical research opinions expressed in the research report accurately reflect the personal views of the analyst(s) about any and all of the securities or issuers discussed herein and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the provision of specific recommendations or views contained in the research report. Conflicts of Interest: The TD Waterhouse Portfolio Advice & Investment Research analyst(s) responsible for this report may own securities of the issuer(s) discussed in this report. As with most other TD Waterhouse employees, the analyst(s) who prepared this report are compensated based upon (among other factors) the overall profitability of TD Waterhouse and its affiliates, which includes the overall profitability of investment banking services, however TD Waterhouse does not compensate analysts based on specific investment banking transactions. Mutual Fund Disclaimers: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus, which contains detailed investment information, before investing. The indicated rates of return are the historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated. TD Waterhouse Disclaimer The statements and statistics contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. This report is for information purposes only and is not an offer or solicitation with respect to the purchase or sale of any investment fund, security or other product. Particular investments or trading strategies should be evaluated relative to each individuals objectives. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance. This document does not provide individual, financial, legal, investment or tax advice. Please consult your own legal, investment, and tax advisor. All opinions and other information included in this document are subject to change without notice. The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered. TD Waterhouse Canada Inc. and/or its affiliated persons or companies may hold a position in the securities mentioned, including options, futures and other derivative instruments thereon, and may, as principal or agent, buy or sell such securities. Affiliated persons or companies may also make a market in and participate in an underwriting of such securities. TD Waterhouse represents the products and services offered by TD Waterhouse Canada Inc. (Member Canadian Investor Protection Fund), TD Waterhouse Private Investment Counsel Inc., TD Waterhouse Private Banking (offered by The Toronto-Dominion Bank) and TD Waterhouse Private Trust (offered by The Canada Trust Company).

    Page 5

    U.S. Equity Strategy Comment


    January 27, 2012 Portfolio Advice & Investment Research TD Newcrest/TD Securities Disclaimer TD Newcrest is a division of TD Securities Inc. TD Newcrest is the trade name which TD Securities Inc. and TD Securities (USA) Inc. jointly use to market their institutional equity services. Newcrest is a trade-mark of Newcrest Capital Inc. TD Securities Inc. is a licensed user. Copyright 2011 The Toronto-Dominion Bank. All rights reserved. TD Securities is a trade-mark of The Toronto-Dominion Bank representing TD Securities Inc., TD Securities (USA) LLC, TD Securities Limited and certain corporate and investment banking activities of The Toronto-Dominion Bank. Trade-mark Disclosure Bloomberg and Bloomberg.com are trademarks and service marks of Bloomberg Finance L.P., a Delaware limited partnership, or its subsidiaries. All rights reserved. All trademarks are the property of their respective owners. / The TD logo and other trade-marks are the property of The Toronto-Dominion Bank or a wholly-owned subsidiary, in Canada and/or in other countries.

    Page 6

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