Record-Breaking 1st Record-Breaking 1st Quarter – What’s Next for Quarter – What’s Next for

2012?2012?

Joe BellJoe BellSenior Equity Analyst/TraderSenior Equity Analyst/TraderSchaeffer’s Investment Schaeffer’s Investment Research, Inc.Research, Inc.

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http://www.schaeffersresearch.com

What to ExpectWhat to ExpectIntro to Expectational Analysis

Technical Look at Today’s Market

Fundamental/Economic Analysis

Where are we in the Sentiment Cycle?

Sectors

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Expectational AnalysisExpectational Analysis®®

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Technical Analysis – Long Technical Analysis – Long TermTerm

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Technical Analysis - Technical Analysis - IntermediateIntermediate

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Technical Analysis – Short Technical Analysis – Short TermTerm

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Small CapsSmall Caps

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Small Cap Small Cap UnderperformanceUnderperformance

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Research Studies on Strong 1Research Studies on Strong 1stst QuarterQuarter

◦SPX = +13.5% return

Goal – Find out whether a strong first quarter indicates what the price action will be for the rest of the year.

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Normal ReturnsNormal Returns

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Strong vs. Weak QuarterStrong vs. Weak Quarter

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Other technical factorsOther technical factors

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Presidential CycleSell in May, Go Away?

Technical PictureTechnical Picture

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EmploymentEmployment

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Unemployment RateUnemployment Rate

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2012 Earnings Growth2012 Earnings Growth

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Personal SpendingPersonal Spending

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Retail SalesRetail Sales

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Housing DataHousing Data

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Record Cash Held by Record Cash Held by CompaniesCompanies

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•Mergers & Acquisition•Share Buybacks

•Increased Dividends

Sentiment AnalysisSentiment AnalysisInvestor emotions and

expectations

Going against the crowd

30 years ofexperience

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Sentiment CycleSentiment Cycle

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Type of Sentiment Type of Sentiment IndicatorsIndicatorsAnecdotal

◦ Media, blogs, Twitter, friends & family, magazine covers

Surveys/Forecasts

Quantitative◦ Option activity, option open interest,

put/call ratios, implied volatility, short interest, analyst ratings, inflows/outflows

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The Wisdom of the Great The Wisdom of the Great SanhedrinSanhedrin

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Probably the Most Famous Probably the Most Famous Contrarian Magazine Contrarian Magazine CoverCover

October 2009 CoverOctober 2009 Cover

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Recent Magazine CoversRecent Magazine Covers

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AAII SurveyAAII Survey

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As of 4/12/12

Investors IntelligenceInvestors Intelligence

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Recent Strategist SurveysRecent Strategist SurveysCNN Money Survey

Reuters Recent Survey

Bloomberg Strategist Allocation Poll

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NAAIMNAAIM

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As of 4/12/12

U.S. Equity Mutual Fund U.S. Equity Mutual Fund FlowsFlows

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As of 4/12/12

OUTFLOWS SINCE MARCH 2009 =

$273 Billion

Total Bond Mutual Fund Total Bond Mutual Fund FlowsFlows

As of 4/12/12

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Hedge FundsHedge FundsHedge Fund Index fell 4.27% in 20111st Quarter Underperformance

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VIX Hedging ActivityVIX Hedging Activity

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Analyst Expectations for 1Analyst Expectations for 1stst QuarterQuarter

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Earnings Season So FarEarnings Season So Far

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Sectors with Low Sectors with Low ExpectationsExpectations

Sector Tickers

Pct of Stocks Above

200dMA

Analyst Percent

Buys

Spread(pct above - analyst pct

buys)Banks 98 83% 37% 46%

Buildings 67 82% 42% 40%Savings and

Loans 12 75% 36% 39%

Real Estate 106 78% 41% 37%

Insurance 76 76% 46% 30%

Utility Gas 62 65% 35% 30%

Restaurants 33 76% 47% 29%

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Sectors with High Sectors with High ExpectationsExpectations

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Sector Tickers% of Stocks

Above 200dMA

Analyst Percent

Buys

Spread(% above - analyst pct

buys)

Coal 15 0% 57% -57%

Precious Metals 31 13% 61% -48%

Steel Iron 18 11% 57% -46%

Metals Non Ferrous 41 24% 52% -28%

Oil Service 61 36% 64% -28%

Oil 107 35% 58% -23%

Biomedics Genetics 98 45% 62% -17%

ConcernsConcernsShort-term

◦Small- & mid-cap recent underperformance◦MACD divergence on small caps,

breakdown from rising wedge pattern on SPX & RUT

◦Low hedging activity doesn’t indicate accumulation by hedge funds just yet

Long-term◦Europe & China◦Unemployment still high / Recent Jobs Data

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Putting It All TogetherPutting It All TogetherStrong Uptrend

◦Short-term technical concerns

Improving Fundamentals◦Uncertainty from Europe & China

Negative Sentiment

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Where are we at?Where are we at?

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Think Like a Think Like a SentimenticianSentimentician“Cheap” can always become cheaper

Look for stocks that have low expectations, therefore avoiding the crowd

Low expectations translate into potential buying power

Success comes from buying low expectations, not “low” prices

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Follow us on TwitterFollow us on Twitter

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@joebell_trader

@schaeffers

@ryandetrick

@brysapp

@tvenosa