This document recommends three sectors to focus on in the second half of 2012. The first bullish sector is housing, as improving data and strong price performance in housing stocks like Toll Brothers and D.R. Horton signal potential gains. The second bullish sector is restaurants like Chipotle Mexican Grill and Buffalo Wild Wings, which have high short interest and strong price action. The bearish sector highlighted is large-cap banks like JPMorgan Chase and Citigroup, which show weak price performance despite positive analyst ratings and call buying.

1. Beat the Summer Slump with
These 3 Hot Sectors
Bryan Sapp
Senior Trading Analyst
Schaeffer’s Investment Research, Inc.
Tuesday, June 19, 2012

2. http://www.SchaeffersResearch.com
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3. SENTIMENT
Magazine
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4. “My Dad said a fool with a
plan can beat a genius with
no plan.”
Quote by T. Boone Pickens
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5. Expectational
Analysis®
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6. Fundamental
• Earnings growth
• Dividends
• Earnings revisions
• New products/new management
• Supply/demand
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7. Technical
• Past price action to determine future price
movement
– Moving averages
– Gaps
– Volume
– Relative strength
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8. Sentiment
• Put/call ratios
• Short interest
• Analyst ratings
• Anecdotal sentiment (magazine covers,
media, etc.)
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9. Think Like a Sentimentician
• “Cheap” can always become cheaper
• Look for stocks or ETFs 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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10. Life Cycle of the Stock Market
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11. The Wisdom of the Great Sanhedrin
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12. Humphrey B. Neill Quote
“The crowd is most enthusiastic and
optimistic when it should be cautious
and prudent; and is most fearful
when it should be bold.”
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13. Same Day as the Market Bottom in ‘09
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14. Probably the Most
Famous Contrarian
Magazine Cover
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15. “I don’t see subprime mortgage market troubles
imposing a serious problem. I think it’s going to be
largely contained and the global economy is as strong
as it has been in decades.”
Quote by Hank Paulson, US Treasury Secretary
August 2007
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16. 1950 Monaco Grand Prix
Juan Manuel Fangio
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17. Recent Magazine Covers
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18. No One Wants To Own Stocks
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19. Improving Jobs Market Could
Lead to Higher Equity Prices
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20. Improving Jobs Market Could
Lead to Higher Equity Prices
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21. Which Sectors to Play in the
Second Half of 2012?
• Bullish Housing
• Bullish Restaurants
• Bearish Large-Cap Banks
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22. Bullish Sector –
Housing
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23. Improving Data
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24. XHB Very Strong Late Last Year
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25. Bullish Sector - Housing
• Toll Brothers (TOL)
– 9 “Buys,” 6 “Holds,” 1 “Strong Sell”
– 11% float sold short (and on the rise)
– Recent surge in put buying
• D.R. Horton (DHI)
– 14% float sold short
– 6 “Buys,” 7 “Holds,” 1 “Strong Sell”
– Recent surge in put buying
• SPDR S&P Homebuilders (XHB)
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26. Housing Looks Good
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27. Housing Looks Good
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28. Bullish Sector - Restaurants
• Chipotle Mexican Grill (CMG)
– 8 “Buys,” 10 “Holds,” 2 “Sells”
– 7% float sold short
– Recent surge in put buying
– Very strong price action
• Buffalo Wild Wings(BWLD)
– 14% float sold short
– 7 “Buys,” 7 “Holds,” 2 “Strong Sells”
– Recent surge in put buying
– Very strong price action
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29. Restaurants Look Good
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30. Restaurants Look Good
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31. Bearish Sector – Large-Cap Banks
• JPMorgan Chase (JPM)
– 7 “Buys,” 3 “Holds,” 0 “Sells”
– <1% float sold short
– Recent surge in call buying
– Weak price action
• Citigroup (C)
– 14 “Buys,” 4 “Holds,” 3 “Sells”
– ~1% of float sold short
– Recent surge in call buying
– Weak price action
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32. Bearish Sector –
Large-Cap Banks
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33. Daily Chart of Financial Select SPDR (XLF)
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34. Bearish Sector –
Large-Cap Banks
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35. Bearish Sector –
Large-Cap Banks
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36. Net Interest Margin (Profitability) for Banks
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37. More Reasons to be Optimistic –
What a Difference 23 Years Makes
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38. The Big Short and Margin Call were Huge Hits
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39. Be Sure to Follow Us on Twitter
• @Schaeffers
• @Brysapp
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