You can look a put/call ratios to gauge short term sentiment all you want, but here’s one that’s interesting. From Jonathon Burton at Marketwatch @MKTWBurton ).
The firm’s (Merrill Lynch) proprietary “Sell Side Indicator” — the average recommended equity allocation of Wall Street strategists — remained unchanged and squarely in “buy” territory in December, with Wall Street sages suggesting that investors commit 53.3% of their portfolio to U.S. stocks.
With Wall Street’s bearishness as extreme as it was at the market lows of March 2009, the Sell Side measure currently indicates an 18% gain for the S&P 500 over the next 12 months, including dividends . Historically, when the indicator has been at such a pessimistic level, total U.S. stock returns over the following 12 months have been positive more than 95% of the time.
This contrarian sentiment gauge has been bullish since April 2012, and though Wall Street’s sentiment has improved in 12 of the last 17 months, it’s nowhere near the 60% to 65% portfolio weighting that strategists typically give to stocks. The Sell Side Indicator currently would give a “sell” signal when strategists up their recommended stock weighting to 66%.
The bears will not buy into this, they will doubt and question every positive data point along the way. This will in fact fuel the surge.
Regarding the sell side, they are an army of in the box thinkers with a herd mentality. You dont need them in a good market, and they will kill you in a bad market. However, in this case, they will be part of necessary evil that will fuel us higher in 2014.
So go kiss an analyst this weekend.
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