Wall Street pays QE3 no mind

Source: Merrill Lynch

 

Merrill Lynch’s Equity & Quant Strategist, Savita Subramanian, notes that Wall Street is still excessively bearish, and that this remains a reliable contrarian indicator:

The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month. We have found that Wall Street’s consensus equity allocation has historically been a reliable contrary indicator. In other words, it has historically been a bullish signal when Wall Street was extremely bearish, and vice versa. See our November report for more details on the Sell Side Indicator.

 
 

Source:
Wall Street pays QE3 no mind
Savita Subramanian
Equity & Quant Strategy
01 October 2012

Category: Analysts, Data Analysis, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “Sell Side Indicator Still Shows Extreme Bearishness”

  1. It looks like we could have a fourth quarter rally based entirely on money managers chasing. I’ve noticed a lot of similarities in the charts to the official QE2 announcement and the QEternity announcement. Was the last two weeks just tree shaking so money managers could get a better entry point?

  2. AHodge says:

    not buying this
    this is the same junk merrill how do analysts feel index
    and reflects their own job prospects
    generally sentiment reflects pessimism near a low
    except when its justified
    the june 2008 level was the lowest than decade
    and the market was ablut to go over a cliff
    sentiment in europe is bad
    the result will likely be a near apocolypse, worst in the postwar
    they arent fixing anything the German coalition wont bail the banks
    and a soveriign fox is peanuts campared to total problem
    ablut half my chips
    this is a classic axample of sentiment bad but nmassively justified

    i finally took the pop here to put on some substantial european shorts
    i have been telling myself for months
    Dont be early, dont be early
    its geeting close to time for the Euro market to crash
    for the US i dont know–at least enough to trade

  3. Frilton Miedman says:

    Not that I don’t trust Merrill-Lynch with my life, but the value of any indicator becomes diminished as it loses obscurity…I see periodic releases of this type every so often, remembering the ex-Goldman’s market timer a few years ago who got a lot of attention, stating the Dow was headed to 3,000 in short time.

    Seeing this indicator make the rounds, I’d wager that there are alg’s watching the number of Google searches or website hits for this topic, readying the HFT engines for some market scalping, price manipulating fun.

    I’m not betting the farm either way, in fact, I’d even wager the indicator has merit, but in the age of the internet and HFT manipulation I play it safe.

  4. nofoulsontheplayground says:

    That chart looks more like a chart of Fed policy action, shifted forward 6-months, particularly in the 1998-present time period.

    Meanwhile, AAPL has been tracing out a daily H&S top that targets about $600. The last one broke against the norm (up), so this pattern probably needs to be taken with a grain of salt, particularly in light of QE3 + Operation Twist levered liquidity.

  5. Futuredome says:

    QE3 is irrevelant right now. It is to slow in starting and won’t be to 2013 before he has any impacts on local prices.

  6. Concerned Neighbour says:

    DownsideHedge, you may very well be right, but I find it tragically comic that a 2.5% decline from 4-year highs now counts as a market correction.

  7. Good post. If we put together this post with this one also published in this blog

    http://www.ritholtz.com/blog/2012/10/fidelitys-bond-funds-now-larger-than-equity-offerings/

    and with Dow Theory supporting the bullish scenario (in a time frame of 1-2 years)

    http://www.dowtheoryinvestment.com/2012/09/5-reasons-why-i-consider-stock-market.html

    then we get a quite bullish picture for stocks, all the pervasive bearishness that surround us notwithstanding.

    We shouldn’t forget that bull markets always climb a wall of worry and skepticism. This is the nature of the beast, to have most participants on the sidelines. Otherwise, succeeding in the stock market would be a piece of cake. Times are always uncertain.

    Regards,

  8. Steve Duncan says:

    Why is this Merrill Lynch “Bearishness” assessment so completely opposite of the Investors Intelligence Survey from 29 August 2012 which is implying Bullishness? I don’t know if the Sept 2012 survey is out or not.

    The weekly figures from the Investors Intelligence (II) sentiment survey are out. Here are the highlights:

    Bullish sentiment among advisors rose to 48.9% (1.6% increase).
    Bearish sentiment among advisors fell to 24.5% (0.2% decrease).
    26.6% of advisors foresee a correction in the market.

    The bulls increased again this week, and there was a slight decrease in the bears. The S&P 500 Index (SPX) is up near multi-year highs, but the bulls-minus-bears line — currently at 24.4% — still has a ways to go to get to 40%, which we consider extreme optimism. This indicates there is more left to this rally.

    http://www.schaeffersresearch.com/commentary/content/marketob/data+drop+investors+intelligence+survey+signals+a+rise+in+bullish+sentiment/observations.aspx?id=112629

  9. constantnormal says:

    Merrill is only illustrating what the majority of strategists are preaching … but stocks are not complying. The markets are holding up suspiciously well, with the small investor still largely on the sidelines (or completely in bond funds), so who is doing the buying to produce this lack of a correction?

    With the death of transparency in the markets, there is really no way to tell what is happening. Perhaps it is futures and ETFs influencing stocks, perhaps HFT is producing an illusion of a “stock market”. People have noted the decline of volume over the years, but with these mechanisms in play, we really have no clue anymore as to the true volume of buying/selling out there.

    We are cruising along a river, enshrouded in fog, and have no idea where we are going.

  10. stonedwino says:

    The market is TOTALLY disconnected from the real economy. I don’t know exactly when that started, but it’s reality now. Wall Street though is going to start feeling the pinch soon, the same pinch that has been affecting the vast majority of American’s who have not seen any income increases, unlike the top tax brackets that have been raking it in. That disconnect can only exist for so long and with main Street sapped and boomers looking at retirement after several back to back stock market beatings in the last decade are not jumping back in. the demographics for long term gain on Wall Street do not look good either. Who is going to be buying all these stocks people? who? My generation (I’m 46) is looking at kids about to go to college or in college, aging parents, lower income and underwater home. The younger generations? Fuggedaboutit!

    The chart is showing extreme bearishness going back to 1985. Where’s the chart going back to the 1930′s? No one I know is willing to jump in with the market at these levels and have to compete with HFTs. Wall Street has become it’s own worst enemy.

  11. stonedwino says:

    I’ve been investing in my own 8 year old wine business, where I can get great returns and I know what I’m doing…

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  13. carleric says:

    And why did Merrill sell out? Oh, that’s right…they made a series of incredibly stupid blunders…..probably from eating their own cooking. Who could possibly care what they have to say?

    ~~~

    BR: What does that have to do with this analysis?

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