Weekly Street Sentiment: Sell-Side Continues to Remain Bearish

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 |  Includes: DIA, QQQ, SPY
by: First Coverage

Derived from the aggregated analysis of thousands of actual trade ideas and data being sent in real-time from the sell-side to the buy-side, the First Coverage Weekly Street Sentiment provides a snapshot of market trends and a unique perspective of the mindset of the Street for the week ahead. The following data has been extracted directly from all information transmitted in the past week by sell-side representatives from more than 250 firms submitting information to portfolio and asset managers across North America via the First Coverage platform.

WEEKLY STREET SENTIMENT

  • Overall tone of the sell-side remains bearish on the market.
  • Sell-Side Sentiment declines, even after passage of the bailout, ending the week at lows.
  • Most Bullish industry by sentiment is Oil & Gas.
  • Most Bearish industry by sentiment is Consumer Services.
  • Most active sector for sell-side ideas is Industrials.

LOOKING AHEAD...

The more the sell side thought about it the less the sell side liked it, and they haven’t been shy in telling their buy-side clients what they really think.

From Tuesday afternoon until Friday’s close, overall market sentiment declined rapidly and consistently. The bailout package which just two weeks ago was looked upon by the overall market as a panacea to all that ails us is now looked at by the sell side as a band-aid that doesn’t get to the root cause of the problem. The sell-side continues to feel that while this bailout has resolved some issues and might provide a short-term floor or even a short term rally, it has mostly just created a lot of uncertainty about the ‘details’ and shifted the risk away from Financials and on to the rest of the market, mainly the consumer.

All that being said, a look at the longer term sentiment trend in the graph below indicates three things:

Click to enlarge

  1. Sell-side sentiment remains bearish and has been continuously bearish since the beginning of February 2008.
  2. Since July, the sell-side has demonstrated an increasingly bearish stance towards the overall market and their attitude towards the markets now sits at the lowest levels we’ve seen year to date.
  3. Plateaus have been very good indicators of short-term shifts in the market and the recent leveling off of sentiment after a rapid decline the past three months seem similar to what occurred in March and May. In both cases, as indicated by the yellow ovals in the chart above, plateaus in sentiment preceded sizeable market moves.

Lastly, there was a lot of data beyond the bailout vote and re-vote that churned through the market last week. While the sell side ended the week at their most bearish levels, the graph below helps identify the key data points that shaped their overall impression of the markets.

Click to enlarge

PREVIOUS SENTIMENT INDICATED…

On September 29th: “The sell-side feels the recent rally in gold is overdone and future gains won’t be so easy to come by.”

What’s happened since: Gold falls from $900 at the start of the week to $834.

On September 22nd: “Sell-Side doesn’t believe end-of-week market rally is for real and are indicating that trouble still lies ahead for broader markets.”

What’s happened since: The market falls almost 14% over the last two weeks.