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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
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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?
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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
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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
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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
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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
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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
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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%
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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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