First Coverage's  Instablog

Regardless of what else is going on in the marketplace, summer is still summer. And for those lucky enough to still be employed within the Financial Industry, August means time away from the markets and a chance to reunite with those strange people who keep telling you they’re related to you. So, it shouldn’t be a surprise that even on First Coverage, the last few weeks of August represent a lower level of sell-side activity in the marketplace.

Last week, the sell-side broke a run of three weeks with declining sentiment. It was done by posting a marginal 0.7% overall gain in the market and amid declining volume of new ideas and old ideas being closed. As it’s been since almost the beginning of the month…the mantra to the buy-side remains “play ‘em as you find ‘em.” Sell-side professionals continue to advise their clients that, if you were long this market prior to August, stay long, and if you were out of this market, stay out. Indifference and indecision look very similar in the dog days of summer.

While no industries moved in their sentiment classifications this week, it is interesting to note that the sell-side now views Financials as the third most bullish amongst the ten that are tracked. Part of this love could have to do with the uncanny ability of the banks to make money off of everything from the government bail-out packages to consumers so broke they are now paying billions of dollars in fees on things like overdrafts providing bank profits at an unprecedented rate. Talk about getting you coming and going.

That being said, even if the sell-side isn’t worried, there are many others out there calling for another 150+ bank failures this year as well as pointing out that the run-up in Financials has been led by institutions with not exactly sterling balance sheets. That being the case, it is likely that if we were really going to witness a turn in the overall market sentiment, it would be either accompanied, or preceded, by a decline in the bullishness towards Financials. Over the last couple months, the volatility in the sentiment surrounding Financial Services and Consumer industries has been higher than in other industries, so we’ll make sure to keep an eye on this going forward.

Normally we just publish the five tickers that have undergone the largest sentiment shifts each week, both bullish and bearish. For a change this week, we have listed the ten stocks that are currently associated with the most bullish and bearish sentiment amongst the sell-side. (This list is not the stocks with the greatest changes from last week, but those with the highest and lowest absolute levels of sentiment.)

Sir Isaac Newton is famous for his laws of motion, which most people summarize with the statement that “a body in motion stays in motion.” That is exactly what is going on with the current market. Up over 50% since March lows, the path of least resistance is the direction it’s already travelling in. While, the sentiment numbers do indicate that the sell-side might not be as enthused as they once were for this rally, they are still on board. And, as mentioned last week, until they see enough data to make them believe “beyond a reasonable doubt” that this rally has hit some unquestionable bad data, they believe, and are advising their clients, that this rally will continue.