Sell Side Indicator Model: Wall Street proclaims the death of equities
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Source: BofA

This chart from Merrill Lynch suggests that there remains a tremendous skepticism about equities. It is on the opposite side of the argument from the Fund flows and the VIX,

Category: Markets

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.

27 Responses to “Sell Side Indicator”

  1. cmellen says:

    Yet most of these same banks strategists have all time highs as their price targets for the S&P500 this year…that doesn’t add up. I know it is about allocation, but they are hedging themselves by going with very high price targets but lower allocation levels.

  2. George Hartzman says:

    I believe financial markets have been distorted by central bank and political intervention.

    There are very few efficiently priced assets.

    VIX showing the opposite appears to be indicative.

    Markets rising as retail investors withdraw.

    Artificially low interest rates.

    Central Bank Monetization on government deficits.

    We look like a banana republic.

  3. ToNYC says:

    last bullet point:
    Historically…positive 100% of the time…+26% suggestion.
    What could go wrong?
    How about stock-picking that makes all the difference. There are a lot of partners at the dance; not all of them have a handle on future cash flows.

  4. TLH says:

    88% of S&P stocks are over their 50 day moving average.

  5. [...] The sell-side still hates stocks.  (Big Picture) [...]

  6. AlaskanPete says:

    I’m confused by bullet #3. Maybe it’s just poor wording choice?

    It says “strategists’ bearishness on equities remains near all time lows”. An “all time low” in bearishness, to me, means they are excessively bullish. Therefore, the contrarian takeaway would be that it’s a sell signal, not a buy.

    But the chart doesn’t jive with the bullet point. Thus, poor wording choice? By “low” bearishness, they actually mean low allocation to equities, which in turn is a bearish position? Can we get some editors for these folks? Because the nut idea is too important to be written in a confusing manner.

    Disclosure (not that I’m advocating for anything..do what you believe), I’m long several large caps…VZ, VALE, PBR, CHK, KO, on a longish swing trade (looking for an intermediate term top around April).

    In any case, with the big “pig in the snake” aspect of boomers’ age wave, I think past correlations will hold less weight than they otherwise would.

  7. Concerned Neighbour says:

    People have ample reason to be skeptical.

    From the endless intraday reversals, afternoon ramps, and miracle closes, it’s pretty clear what’s going on. As long as central banks are pumping everything up with abandon, I consider it unlikely equities will go down. Seeing as they’ll probably keep pumping indefinitely, we could be looking at a multi-decade bull market of epic – and truly farcical – proportions.

  8. dcf55 says:

    BR: can you ban the phrase “banana republic” – and any like version – from your site?

  9. Smokefoot says:

    It is so hard to get a good sentiment indicator. The Investor’s Intelligence survey says Wall Street is bullish, while this one says they are highly bearish. Do I just conclude that there isn’t a clear sentiment picture at this time?

  10. mad97123 says:

    BofA Merrill Lynch Fund Manager Survey Finds Investors Increasingly Bullish as Global Economy Regains Growth Path

    http://www.dailyfinance.com/2013/01/15/bofa-merrill-lynch-fund-manager-survey-finds-inves/

  11. Pantmaker says:

    … Or is this the perfect trap…I remember now this whole “Sell Side Indicator %26 return Guarantee” thingee came out last August…6 months ago…which was about 8% ago…only %22 to go folks….jump on the gravy train!!!!!

  12. Smokefoot says:

    This indicators implies that there is far more bearishness now than in 2009. That doesn’t seem right – late 2008 and early 2009 were far more bearish. Also, the change was extremely abrupt in 2012; was there some change which could account for the sudden change in 2012, like the addition of another asset class to the allocation scheme?

  13. toptick says:

    This has puzzled me for the past year since BR first showed it. Looks like a data problem. Does anyone have access to data to corroborate this chart? It seems odd that the largest, fastest down move in the series takes place without corresponding moves in other sentiment series.

  14. Mike C says:

    Looks like a data problem. Does anyone have access to data to corroborate this chart? It seems odd that the largest, fastest down move in the series takes place without corresponding moves in other sentiment series.

    toptick,

    I’m with you….something seems off here. This number is at total odds with the Investor’s Intelligence investment advisory sentiment which shows very high bullish sentiment. FWIW, it seems to me sentiment has become a lot more “noisy” the last couple of years with extreme changes in very short time frames. I’ve wondered if more people are trying to be “contrarians” and thus immediately influence the variable they are observing. I really don’t know. I know I probably wouldn’t even be tweaking my equity allocation 50 basis points based on this variable of sell-side recommended allocation.

  15. b_thunder says:

    Hmmm…. Wall St. sounds bearish, but every hedge and mutual fund seems to be “all in.” And in addition to that the net short position is lowest in years.

    So, who is left to buy?

  16. MayorQuimby says:

    Everyone is focused on the PRICe of equities but very few people focus on the VALUE in them.

  17. Disinfectant says:

    BR, you’ve posted this before and I’m surprised by your lack of skepticism in the conclusion that Wall Street is more bearish now than in early 2009. Fortunately, Tom Brakke was able to dig into this and he found out that the chart is no longer valid. See http://rp-pix.com/mq

  18. Frilton Miedman says:

    Assuming the bulk of those surveyed work for the big banks, I suspect this indicator’s effectiveness depends on what’s made public vs what’s proprietary.

    In 2006-2007, I don’t think any of the banks analysts were putting sell recommendations on real estate or CDO’s while the same banks were offloading garbage MBS’s like hotcakes and alternately pumping oil prices to an extreme to diminish consumer disposable income – which in turn spawned the onslaught on sub-prime defaults and the banks could collect on their “proprietary” & “market-making” undisclosed short derivatives, allowed in secrecy by the CFMA.

    What with ratings co’s now using the first amendment as “legal” reason to justify fraud, knowing banks have no real incentive to make good public recommendations, this blog makes perfect sense.

    The market is a game of liar’s poker.

    One of the best market timers is Mark Hulbert, his techniique is ridiculously simple, anyone who makes a public recommendation is one of three things – 1, Wrong 2, Lying, 3, Correct.

    Take a consensus of “analysts” and assume two of three are lying or stupid.

  19. wally says:

    And yet ‘everybody’ expects ‘sector rotation’ out of bonds into equities?
    Somebody is wrong.

  20. mad97123 says:

    Pretty bullish action here….

    Hedge-Fund Leverage Rises to Most Since 2004 in New Year

    http://www.bloomberg.com/news/2013-01-14/hedge-fund-leverage-rises-to-most-since-2004-in-new-year.html

    Margin Debt Continues To Climb
    http://www.zerohedge.com/contributed/2012-12-13/margin-debt-continues-climb

  21. GB says:

    Sell-side analyst says sell-side analyst community so bearish that now’s the time to buy.

    So. Confused.

  22. courageandmoney says:

    It’s a model……need not say anymore? Models work sometimes and fail others. Depending on what type of market we are in it might provide the 28% BR mentions. It also might privide a -28%, because the model didnt work this time……..

  23. Technically, The Dow Theory flashed a primary bull market signal on January 2, 2013. While no one can make assurances as to the continuation of the trend, the Dow Theory track record tells us that 70% of such signals end up in profits for the investors and last ca. 1 year.

    http://www.dowtheoryinvestment.com/2013/01/dow-theory-special-issue-assessing.html

    Thus, it seems that the sell-side indicator and the technical make-up of the market are aligned.

  24. leveut says:

    ” argument from the Fund flows and the VIX,”

    I wonder. The VIX is showing complacency I am told, that would seem to suggest to me that “the market” is not concerned about The Bear, because if it were, volatility would be high. Wouldn’t that mean the sell side indicator showing bullish and VIX showing complacency are aligned and not contrary?

  25. [...] Sell Side Indicator Jan 17, 2013 (Big Picture) [...]

  26. Smokefoot says:

    So the Research Puzzle website found that this indicator is currently created with inputs from only 4 strategists! That says that this isn’t a very informative indicators. The sudden drop in 2012 could have been one of the 4 making a change, or even the number of inputs dropping from 5 to 4.

    ~~~

    BR: Tom Brakke’s site? Do you have a link? I could not find his specific pot on this

    (I’ll ping him)