JPM: BTFD

US Equity strategy – Constructive on selloff – 4 reasons for shifting call to buy the “summer of cyclicals” - The seeds of the downturn in economic momentum, and thus, the sell-off in Cyclicals, were first evident in early March, when economic momentum oscillators turned down (one easily accessed is the Citi Eco Surprise Index, CESIUSD Index GP <>). This was a reason for our downgrade of Consumer Discretionary on April 1 (and broader caution on Cyclicals, see “Circle of Life” dated 4/1/11). Since then, incoming economic data have disappointed so consistently that the EASI (or CESI) recently registered -91, the lowest non-recession reading since 2004, and last week, we saw a proximity to the low for the summer but needed to “look for additional confirmation” (see “Scared in May...June-Sept is front loaded” dated 5/26/11). We believe Wednesday’s 2.3% sell-off feels of capitulation and confirms summer weakness would be “front-end loaded.” Thus, we now see the big call is “Summer of Cyclicals” (Buy them), with 4 reasons: #1: Cyclicals have underperformed Defensives by 1,160bp since 2/16/11, matching the 1,109bp underperformance seen in April-August 2010 (see Figure 1). #2: Cyclicals now trade at a 4% discount to Defensive (rel P/E), lower than the rel P/E as of August 2010 and well below long-term average of 114% (see Figure 3). #3: EASI/CESI is at oscillator low and economists cutting forecasts now. 4: Capitulation evident in bearish AAII reading—a quality contrarian Buy signal. We identified 20 Cyclical stocks (Figure 11) using the following criteria: 1) Rated OW by JPM; 2) Mkt cap > $4b; 3) Cyclicals (Technology, Industrials, Discretionary, Materials); and 4) Top 20 Highest Potential Upside to JPM Target Price. T. Lee

US Equity technical strategist – Sector revie w- Industrials moves out of the more constructive group - The Consumer Staples and Health Care charts look more constructive relative to the others. The Energy and Financial Services charts look less constructive relative to the others. Consumer Discretionary (IXY) is likely to see more backing and filling after May’s 411 bearish reversal month. Consumer Staples (IXR) keeps a positive tone, but watch for divergences on new price highs. Energy (IXE) may be topping above 730; rel. str. gets more constructive above the violated April lows/May highs. Financials (IXM) downtrend and underperf. continues; a Fri close below 156 confirms a 158 bearish outside week. Health Care (IXV) pauses just shy of the 370 May ‘07 all time high; look for new highs after some consolidation. Industrials (IXI) leaves the “more constructive” group after May’s 390 bearish reversal month. Materials (IXB) trades in a large 384-434 Nov-June range; a Fri close below 413 confirms a 419 bearish reversal week. Technology (IXT) consolidates below the 269-271 resistance cluster; rel. str. continues to hold key support. Utilities (IXU) pauses after nearly achieving the 346 Mar 16-Apr 12 1.618 swing obj.; rel. str. meets resistance. Cohen