The Macro Report ™

Tactical Perspective
September 24, 2010

S&P 500

1,145 Waverly Advisors, LLC

228 Cedar Street
Corning, NY 14830
1,135 (607) 684-5300
1,128.50
1,125
Andrew Barber
1,115 Strategic Investments
barber@waverlyadvisors.com
1,105
1,100.00 Adam Grimes
Tactical Investments
1,095
grimes@waverlyadvisors.com
Technically this market has fulfilled
first expectations for the pullback. 1,085
What is next?
1,075
www.waverlyadvisors.com
1,065 www.themacroreport.com
1,060.00
1,055
3-Sep 8-Sep 13-Sep 15-Sep 20-Sep 23-Sep
26 minute increments with 20XMA +/- Keltner Channels

Yesterday’s US Equities close finds this market at a minor inflection point. The
gap opening down was immediately followed by strong buying, showing that
sentiment is still strong and buyers are generally viewing lower prices as offering
value rather than risk. The selloff into the close may have laid bare some of the
limitations of the bulls’ convictions, and so, with this conflicting information, we
consider yesterday to be a consolidation day in spite of the rather large range and
close on the lows.

(CONTINUED NEXT PAGE)

Action Points:
 US Equities: We hold long volatility positions in US Equities.
 Sugar: We hold a tactical long position.
 Cocoa: We hold a tactical short.
 Wheat: We hold a Tier 1 Conviction Short in December futures.

The Macro Report ("The Report") is a newsletter published by Waverly Advisors, LLC ("Waverly Advisors"). Receipt of The Report is subject to terms of service:
http://www.waverlyadvisors.com/pages/terms_of_service

Waverly Advisors uses reasonable care in preparing and publishing The Report. Waverly Advisors does not guarantee The Report's accuracy or completeness. Opinions
expressed in The Report are subject to change without notice. The Report, and themacroreport.com ("The Website") and all information provided therein should not be
construed as a request to engage in any transaction involving the purchase or sale of securities, futures contracts, commodities, currencies and/or options thereon. The risk of
loss in trading securities, futures contracts, commodities, currencies and/or options thereon is substantial, and investors should carefully consider the inherent risks of such
an investment in light of their financial condition and discuss with their financial advisor(s).
 The Macro Report – September 24, 2010 2

From a slightly bigger perspective, this pullback does fulfill the technical expectations of a consolidation. There is a
chance that the market could simply turn higher from here, though we think this is somewhat unlikely.

Far more likely is that a larger, deeper and longer consolidation is needed to work off the overbought condition.
Our comments stand essentially unchanged: this is a market that looks healthy in virtually every respect. (The rather
exceptional weakness in Financials is the one significant contradiction to our thesis at this point.) Weakness in this
market is to be bought until further notice. We will keep an eye on sector relationships, market structure, money
flows and market leaders, but most market participants will be best served by actively seeking appropriate spots to
increase long exposure.

CBOT 10Y Treasury Notes(front month, continuous)

127

125

123

121

119

117
Very close to highs. Need to see clear
test and failure, otherwise is just
consolidating to break resistance. 115

113
April May June August September
daily with 20XMA +/- Keltner Channels

Rates: 10 year treasuries tested the recent highs in most contract months yesterday. We are watching for a
possible failure test beyond the highs—sharp momentum through the level followed by immediate (same or
following day) failure back below the level. We will enter on the close of that failure day, with a stop just beyond
the new highs. If prices are able to hold up against resistance, an advance beyond the highs is more likely than a
failure. As always, we will take our final trade cue from the relevant price action.

Metals: Gold and Silver continue to press to highs on very low volatility. This is, ultimately, unsustainable
behavior, but at this point any pullback has to be treated as a buying opportunity. Avoid the short side for the time
being. We are watching Copper for the possible formation of an intermediate term top, but have no confirmation
at these current levels.

Energies: Crude Oil and Natural Gas are both trading in ranges. Natural Gas looks poised to head lower, but in
the absence of a clean setup we will remain firmly on the sidelines.

The Macro Report ("The Report") is a newsletter published by Waverly Advisors, LLC ("Waverly Advisors"). Receipt of The Report is subject to terms of service:
http://www.waverlyadvisors.com/pages/terms_of_service

Waverly Advisors uses reasonable care in preparing and publishing The Report. Waverly Advisors does not guarantee The Report's accuracy or completeness. Opinions
expressed in The Report are subject to change without notice. The Report, and themacroreport.com ("The Website") and all information provided therein should not be
construed as a request to engage in any transaction involving the purchase or sale of securities, futures contracts, commodities, currencies and/or options thereon. The risk of
loss in trading securities, futures contracts, commodities, currencies and/or options thereon is substantial, and investors should carefully consider the inherent risks of such
an investment in light of their financial condition and discuss with their financial advisor(s).
 The Macro Report – September 24, 2010 3

Softs: Cotton is having a small meltdown from its parabolic highs. There is no trade entry here, but we will watch
the next bounce for signs of a failure. We are holding on to our short in Cocoa and our long in Sugar, though we
do expect a deeper more complex correction in Sugar.

Grains: Yesterday’s small break in Wheat could be the beginning of the downward momentum we need to
confirm our Tier 1 Conviction Short.

As always, feel free to contact us with questions at info@waverlyadvisors.com.

AG

The Macro Report ("The Report") is a newsletter published by Waverly Advisors, LLC ("Waverly Advisors"). Receipt of The Report is subject to terms of service:
http://www.waverlyadvisors.com/pages/terms_of_service

Waverly Advisors uses reasonable care in preparing and publishing The Report. Waverly Advisors does not guarantee The Report's accuracy or completeness. Opinions
expressed in The Report are subject to change without notice. The Report, and themacroreport.com ("The Website") and all information provided therein should not be
construed as a request to engage in any transaction involving the purchase or sale of securities, futures contracts, commodities, currencies and/or options thereon. The risk of
loss in trading securities, futures contracts, commodities, currencies and/or options thereon is substantial, and investors should carefully consider the inherent risks of such
an investment in light of their financial condition and discuss with their financial advisor(s).
 The Macro Report – September 24, 2010 4

Name Last %Chg StDevCl OB/OS 52wkRet Vol20 Vol90 VolRatio

US Market Cap - Based Indexes
iShs Russell MicroCap Index 40.17 (1.1%) -0.7 58 0.1% 27.9% 32.8% 0.9
Russell 2000 Index 648.94 (1.2%) -0.7 60 5.8% 27.2% 31.9% 0.9
S&P SmallCap 600 Index 345.38 (1.2%) -0.8 57 7.6% 26.5% 30.3% 0.9
Dow Jones Wilshire 5000 Comp 11,729.17 (0.8%) -0.8 68 7.0% 18.1% 23.3% 0.8
Dow Jones Industrial Average 10,662.42 (0.7%) -0.8 75 9.4% 15.0% 19.8% 0.8
S&P 500 Index 1,124.83 (0.8%) -0.8 69 6.0% 17.1% 22.3% 0.8
S&P 100 Index 509.46 (0.9%) -0.9 71 3.9% 16.2% 21.1% 0.8
Dow Jones US Industry Indexes
Technology 654.42 0.0% 0.0 88 10.1% 17.3% 23.6% 0.7
Consumer Services 368.02 (0.5%) -0.5 79 16.2% 18.5% 23.3% 0.8
Health Care 424.84 (0.4%) -0.5 91 8.7% 13.7% 18.0% 0.8
Oil & Gas 722.48 (0.7%) -0.6 57 (0.8%) 21.1% 28.3% 0.7
Telecommunications 228.98 (0.4%) -0.6 97 16.4% 11.7% 16.7% 0.7
Basic Materials 391.71 (0.9%) -0.7 77 15.5% 20.8% 32.3% 0.6
Consumer Goods 441.33 (0.8%) -1.1 70 15.1% 12.4% 17.3% 0.7
Utilities 345.72 (1.0%) -1.1 51 10.6% 15.1% 19.5% 0.8
Industrials 375.96 (1.4%) -1.1 67 12.8% 21.0% 27.1% 0.8
Financials 407.06 (1.8%) -1.2 37 (1.7%) 26.5% 30.0% 0.9
Interest Rate Futures
30 Yr U.S.T Bonds CC [Dec10] 132.90625 0.0% 0.0 68 14.4% 14.3% 12.1% 1.2
10 Yr U.S.T Notes CC [Dec10] 125'22.5 0.0% 0.0 77 10.7% 7.6% 6.4% 1.2
COMEX Metals (Futures)
Silver CC [Dec10] 21.18 0.8% 0.7 106 24.4% 13.7% 27.4% 0.5
Gold CC [Dec10] 1294.30 0.3% 0.5 100 26.7% 10.2% 14.0% 0.7
Copper CC [Dec10] 3.57 0.7% 0.5 86 23.6% 23.2% 29.8% 0.7
NYMEX Energy (Futures)
Natural Gas CC [Oct10] 4.031 1.3% 0.5 56 (33.9%) 38.6% 41.1% 0.9
Crude Oil CC [Nov10] 74.86 0.6% 0.4 41 (6.3%) 27.2% 28.3% 1.0
NYBOT Softs (Futures)
Sugar No. 11 CC [Mar10] 24.13 1.6% 0.6 102 13.2% 41.0% 41.7% 1.0
Cocoa CC [Dec10] 2780.00 0.7% 0.5 58 (15.5%) 21.2% 26.1% 0.8
Coffee C CC [Dec10] 181.65 0.9% 0.5 40 24.3% 33.4% 35.0% 1.0
Cotton No. 2 CC [Dec10] 97.17 (2.5%) -2.1 91 43.0% 22.0% 19.7% 1.1
CBOT Grain (Futures)
Soybeans CC [Nov10] 1094.00 0.5% 0.4 102 21.0% 18.9% 17.1% 1.1
Corn CC [Dec10] 497.50 (1.1%) -0.8 89 27.9% 23.4% 29.2% 0.8
Wheat CC [Dec10] 701.00 (3.1%) -1.4 32 25.8% 35.3% 39.9% 0.9

Key to fields in this table:

The sector indices are Dow Jones total return indexes. Futures contracts are continuous contracts which roll with open interest and volume.

CC – continuous contract
Last – most recent price
%Chg – percent change from previous day’s close
StDevCl – the close expressed as a standard deviation of the past 20 trading days.
OB / OS – our proprietary overbought / oversold indicator. 50 is a neutral reading.
52wkRet –1 year simple percentage return
Vol20 – Annualized realized volatility calculated from the past 20 trading days
Vol90 – Annualized realized volatility calculated from the past 90 trading day
VolRatio – Ratio of Vol20 / Vol90. Values less than 1 show that the market is in a period of contracting volatility, while values
greater than 1 show volatility expansion.

The Macro Report ("The Report") is a newsletter published by Waverly Advisors, LLC ("Waverly Advisors"). Receipt of The Report is subject to terms of service:
http://www.waverlyadvisors.com/pages/terms_of_service

Waverly Advisors uses reasonable care in preparing and publishing The Report. Waverly Advisors does not guarantee The Report's accuracy or completeness. Opinions
expressed in The Report are subject to change without notice. The Report, and themacroreport.com ("The Website") and all information provided therein should not be
construed as a request to engage in any transaction involving the purchase or sale of securities, futures contracts, commodities, currencies and/or options thereon. The risk of
loss in trading securities, futures contracts, commodities, currencies and/or options thereon is substantial, and investors should carefully consider the inherent risks of such
an investment in light of their financial condition and discuss with their financial advisor(s).