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Institutional brokers are modest bulls in Q4

15th December 2012

Every quarter we take a look back at the trade ideas institutional brokers have been sending to their clients, in order to figure out what the overall mood of the market is. To do this we analyse the types of idea being sent and in particular the number that are long or short.

This past quarter that mood seemed to be modestly bullish, and continues the trend from the end the third quarter. This hopefully bodes well for the first quarter of 2013 and is in spite of concerns over the US and European fiscal and economic situations and the US election which gyrated the market for most 4Q12. Colin put it fairly eloquently: “It seems to be a clear case of stay calm and carry on. At this point, the general outlook is that brokers are sanguine if not slightly positive about the outcome of the ‘fiscal cliff’ in the US.”

Preliminary 4Q12 & 2012 Results

65% of equity trading ideas that brokers sent to their institutional clients in 4Q12 were long. This was the highest quarterly average for the year. A long percentage of 66% or more is considered bullish as equity sales desks are recommending two longs for every one short trade.

The general trend during 4Q12 was a weekly range 62-67% long, punctuated by a low of 61% the 2nd week of the quarter and highs of 70% the 7th and 8th week.

This compares to the 3Q12, which averaged a more negative 59%, though was highly volatile and showing signs of improvement as it went into 4Q12.

For 2012, brokers’ ideas averaged 62% long versus 64% in 2011.