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Sell-Side Sentiment Weakened Last Week

Although it was a great week for the market, sell-side sentiment took a hit last week. Five industry groups were down 1% or more, three were about flat, and only two managed a substantive gain. Nevertheless, sell-side sentiment remains strongly on the positive side.

The impact of the bad weather last month on the Friday employment data was hard to discern, but the results were good enough to allow the market to continue its rise. Also helping last week was better than expected store sales from most of the retailers. It is still not clear whether the trends in employment, consumer spending, or housing are strong enough to justify further increases in the market indexes, but worries about a double-dip recession appear to be behind us.

The market is now pushing the upper end of its trading range of 1,050 to 1,150 for the S&P 500, ending the week at 1,139. The NASDAQ is now at an 18-month high. The near-term market outlook depends mainly on a discernable upturn of substance in employment.

The Stars in Sell-Side Sentiment Bear Watching

Over the last month or so, short-term and longer-term trends in sell-side sentiment have been strongest in the Technology and Consumer Services industries. Last week, sentiment for Consumer Services fell by 4%, while Tech sentiment dropped 2%. Consumer Services is right at the bottom of its upward channel, and another week or two of declines could reverse both the short and long-term trends. The situation in Tech is still positive. The decline last week only dropped sentiment to the middle of the upward channel for Tech. Prices in both industries were up last week, but only in line with the overall market.

Potential Upside Breakouts for Industrials and Telecomm Remain Intact

Last week, we indicated that Industrials and Telecommunications were poised for upside breakouts. Sell-side sentiment for Industrials was flat and Telecomm was only up 1%. The possibility of an upside breakout remains for both, although Telecomm sentiment may be starting to roll over indicating that the upward trend may have only been a dead cat bounce that followed a very steep and sharp downdraft.

Sell-side sentiment for Health Care has been rising for the last few weeks, with a 2% gain last week. This industry now is moving into territory where an upside breakout is also possible. Price moves the last few weeks have also been up for the industry but not as strongly as sentiment.

It looks like the up-and-comers could be shifting from Industrials and Telecomm to Industrials and Health Care.

Boost in Sentiment Provides Some Hope for the Financial Industry

Sell-side sentiment for the Financials bounced up 4% last week, putting sentiment at the upward side of its strongly downward channel of the last four months. The next two weeks could be critical in determining if sentiment can generate a meaningful rebound or whether it continues downward. Prices for Financials nudged up last week, but still are about in the middle of the flat six-month channel.

Stocks to Watch

Over the last week, the following stocks had the largest bullish and bearish sentiment shifts amongst the sell-side.

Bullish:

Symbol

Company

Industry

Exchange

C

Citigroup Ord Shs

Financials

NYSE

HUM

Humana Ord Shs

Health Care

NYSE

SYKE

Sykes Enterprises Ord Shs

Industrials

NASDAQ

RIMM

Research In Motion Ord Shs

Technology

TSX

CEE

Centamin Egypt Ord Shs

Basic Materials

TSX

Bearish:

Symbol

Company

Industry

Exchange

SIGM

Sigma Designs Ord Shs

Technology

NASDAQ

CAL

Continental Airlines Ord Shs Class B

Consumer Services

NYSE

SWY

Safeway Ord Shs

Consumer Services

NYSE

FCX

Freeport McMoRan Copper & Gold Ord Shs

Basic Materials

NYSE

IMG

Iamgold Ord Shs

Basic Materials

TSX

Until next week …

Disclosure: No positions

Source: Sell-Side Sentiment Takes a Hit