JPMorgan Leads October Sentiment for Financials; Citi and BoA Gain Ground

October ended last Saturday October 31, 2009. As many people analyze the performance of securities for the month, I’d like to look at sentiment and change in sentiment for the financial services sector.

Sentiment is a measure of how people feel a stock will perform and is captured by a voting mechanism that indicates a strong buy, buy, neutral, sell, and strong sell. The value of sentiment is based on the ‘Wisdom of Crowds’ where the many will in most cases make better decisions than the individual. Higher sentiment stocks are considered higher quality stocks, while lower sentiment stocks are considered lower quality stocks.

Voting Mechanism for Capturing Sentiment

While overall sentiment is effective in defining the quality of a stock, change in sentiment provides a timing mechanism to understand underlying changes in a security potentially ahead of a price move. For example, a large increase in sentiment should be seen as positive even though the underlying stock has a low absolute sentiment.

For this analysis, we will use sentiment generated by the web application, Piqqem. Piqqem captures, processes, and displays sentiment results by allowing its users to vote on the price direction of a stock and then applies its own propriety factors to calculate sentiment for a security. In their model, 0 is the lowest and 4 is the highest sentiment.

Q3 Sentiment for Financial Services

click to enlarge

The above chart shows JP Morgan’s (JPM) current sentiment leading the group as of October 31, 2009 at 2.72 with Morgan Stanley’s (MS) sentiment at 2.21 and bringing up the rear. Wells Fargo (WFC), Mastercard (MA), Bank of America (BAC) and Citi (C) all came in with respectable sentiment results above 2.5. Surprisingly, Goldman Sachs’ (GS) sentiment fell to 2.44. But how did sentiment change for this group?

Q3 Change in Sentiment – Citi & Bank of America are the Winners

Source: piqqem

The change in Q3 sentiment for these seven securities shows a strong upward bias for Citi, Bank of America, and JP Morgan, a neutral bias for Wells Fargo and Morgan Stanley, and a downward bias for Mastercard and Goldman Sachs. Changes in sentiment can be an early warning system for the underlying security.

Sentiment for the S&P 500 was up over 3% for the month of October, while this group’s sentiment remained flat.

Disclosure: No positions

Comments

[Juzar:]

Under Value Bank Stock.
Regarding the article of underperforming bank, what you will expect from the banks like Citi and Bank of America to perform well within a year period that these two banks come out of the losses and performing extra ordinary improving their balance sheets after curtailing there expenses and selling sister concerns which are not becoming profitable according to there expectation. These two stock price is under value right now Citi should be traded in the range price ofUSD 6.50- 7.50 by December 2009 and Bank of America should be traded in the range of USD 20-22. by December 09.
One should not criticized that Top executive is doing nothing but we should appreciate their efforts to save these big banks which is the symbol and icon of America.

Juzar.
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Nov 06 04:52 AM