Seeking Alpha
Profile| Send Message|
( followers)  

click to enlarge



A Week of Market Surprises

What a week. Legitimate pressure on the market from Greece and the sovereign debt contagion problem obscured other things that would normally have impacted the market. Everyone went into the week thinking the Friday employment numbers would determine the performance of the market for the week, but improvements in employment could only muster a brief upturn in the market at the opening. Most of the Q1 earnings reporting season is now over. The results were very good, but all that was forgotten last week. Even more good economic news, including those fairly good employment reports, had only brief impacts. Suddenly, the glass was half empty after months of it being viewed as half full.

Of course, the huge dip in the market on Thursday wasn’t for real. But something surely went wrong in the system. To date it is unclear what triggered the action, but whether it was an accidental error or someone gaming the system doesn’t matter. It is clear the complex computer models that put the circuit breakers into action didn’t work. Hmm. Complex computer models that didn’t take into account all the possibilities that might occur. Why do we keep finding that at the root of the problems of recent years?

Last Week Produces Major Rises in Overall Market and Industry Sell-Side Sentiment

For the past seven weeks, overall sentiment has been bearish, although it had risen modestly over the two weeks prior to last week. Sell-side contributors were on the right track. They may have been weeks early from calling it exactly, but the DJIA closed Friday about 400 points below when First Coverage’s Market Sentiment turned bearish. If the market correction lasts a little longer than it will have been a great sell call rather than just a good one.

Last week as prices fell, sell-side sentiment began shifting somewhat more positive, rising a little each day for a total increase of 1.4%. But on Friday, the sell-side really became more bullish and the index increased another 1.4 percentage points.

One week of data does not make a trend, but at least the sentiment reversal last week may be saying that this correction may not have much further to run.

Not only did overall sell side sentiment turn positive last week, but sell-side sentiment jumped by at least 6% in five of the ten industries, Leading the parade, at 11% was Industrials, followed by Oil & Gas and Telecomm at 8%, Financials at 7%, and Basic Materials at 6%. Health Care and Technology were up 4% and Consumer Services rose 3%. Quite a week. Sentiment fell in only two industries. The Consumer Goods industry was down a meager 1%, while Utilities fell 9%.

Again, one week of data does not make a trend, but at least the sentiment changes last week may provide an idea where sentiment will gravitate when the market correction reverses.

Four Highest Rated Industries Get Further Boosts in Sell-Side Sentiment

The four highest rated industries at the beginning of last week were among those receiving substantive increases in sentiment. The aforementioned 11% rise in Industrials pushed the industry rated fourth highest at the beginning of the week to the top of the list. Oil & Gas, up 8% for the week, and Healthcare, up 4%, stand just behind the Industrials on the list. Sentiment for Oil & Gas has now risen 15% over the last two weeks and for Health Care has risen 15% over the last three weeks, possibly signaling an upward breakout for both. Tech managed to stay in the top four with a 4% gain. All four top rated industries have been in upward patterns for the last two months.

Sentiment for Financials Shows Some Real Life

Sell-side sentiment did rise 7% last week for the Financials industry. Even so it remains the lowest rated industry of the ten. During last week, sentiment for the Financials seesawed but ultimately closed up 7%. That was enough to create the best breakout so far from the downward channel of the last six months. However, even with the 7% gain, the Financials industry remains the lowest rated industry, but at least the rating is not in bearish territory. A meaningful rise in sell-side sentiment next week would provide a strong confirmation of a beginning uptrend. Next week could be a pivotal week for sentiment for Financials.

Don’t Overlook Telecomm

Although it was only the ninth highest rated industry at the beginning of last week, its sell-side sentiment has been climbing dramatically for the past four months. With the help of an 8% increase last week it is now the seventh highest rated.

Tough Week Ahead

Obviously, the situation in Europe will be front and center this week for the market. The European Central Bank is on the hot seat. They, and others, need to do more to calm the fears of contagion, no matter how valid those fears may actually be. The risk is, as usual these days, that nobody really knows how interconnected all the components of the financial system are.

If the market takes time to pay attention to fundamentals in the United States, Friday is the critical day. Reports on retail sales, consumer sentiment, industrial production, and capacity utilization are on tap that morning. The headline numbers for retail sales, as was seen in last week’s releases of retailer same store sales, will likely only show a modest increase, but part of the reason is the early Easter that helped March sales. The best way to look at the retail sales data will be to combine April with March.

Stocks to Watch

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

Bullish:

Bearish:

Disclosure: No positions

Source: Weekly Street Sentiment: Market Has a Wild Week But Sell Side Sentiment Turns Bullish