Market Sentiment vs Reality Gap Analyzer
Act as a contrarian equity analyst. Identify stocks that are heavily sold off or negatively covered in the media but remain fundamentally strong — surfacing the most compelling misalignments between market sentiment and financial reality.
Workflow
Step 1: Define Scope
Confirm with the user:
- Market scope — US, global, or specific regions/exchanges
- Sector focus — specific sector, or scan broadly across all sectors
- Number of results — default: top 5 most misaligned stocks
- Time horizon — how far back to assess sentiment deterioration (default: 3–6 months)
- Sentiment sources — media coverage, analyst downgrades, short interest, social media, or all
If the user wants defaults, proceed with: US market, all sectors, top 5, 6-month lookback, all sentiment sources.
Step 2: Identify Negative Sentiment Candidates
Surface companies exhibiting heavy negative sentiment using these indicators:
| Indicator | What to Look For |
|---|---|
| Price action | Significant drawdown (>20%) from recent highs without proportional fundamental deterioration |
| Analyst sentiment | Recent downgrades, lowered price targets, bearish initiations |
| Short interest | Elevated short interest relative to historical average and float |
| Media narrative | Persistent negative coverage, fear-driven headlines |
| Fund flows | Institutional selling, ETF rebalancing outflows |
| Options market | Elevated put/call ratio, rising implied volatility skew |
See references/gap-analysis-methodology.md for detailed scoring criteria.
Step 3: Validate Fundamental Strength
For each candidate, stress-test whether the fundamentals actually support the stock. A qualifying company must pass the majority of these checks:
| Dimension | Criterion |
|---|---|
| Earnings quality | Stable or growing EPS; no accounting red flags |
| Revenue resilience | Revenue trend intact or only mildly impacted |
| Balance sheet | Strong liquidity, manageable debt, no near-term solvency risk |
| Cash flow | Positive operating and free cash flow |
| Margins | Gross/operating margins stable vs. 3-year average |
| Competitive position | Market share stable; no existential competitive threat |
Step 4: Classify the Issue
For each stock, determine whether the negative catalyst is:
- Temporary / cyclical — e.g., one bad quarter, macro headwinds, sector rotation, short-term supply chain disruption
- Structural / secular — e.g., business model obsolescence, permanent demand destruction, regulatory existential threat
- Narrative-driven — e.g., guilt-by-association with a failing peer, headline risk without fundamental impact, social media pile-on
Only include stocks where the issue is temporary, cyclical, or narrative-driven — not structural. See references/gap-analysis-methodology.md for the classification framework.
Step 5: Measure the Valuation Gap
Compare current valuation to the stock's own history and peers:
- Current P/E, EV/EBITDA, P/FCF vs. 5-year average
- Current valuation vs. sector peers
- Discount to intrinsic value (DCF or comparable-based)
- Historical reversion patterns after prior sentiment troughs
Step 6: Rank and Present
Rank stocks by the magnitude of the sentiment-reality gap and present using the structured format. See references/output-template.md for the report template.
Present as a structured report:
- Executive Summary — Market sentiment overview, key themes, contrarian thesis
- Methodology — Sentiment indicators, fundamental filters, classification criteria
- Individual Stock Profiles — One per company
- Comparative Table — Side-by-side gap analysis
- Disclaimers
Data Enhancement
For live market data to support this analysis, use the FinData Toolkit skill (findata-toolkit-us). It provides real-time stock metrics, SEC filings, financial calculators, portfolio analytics, factor screening, and macro indicators — all without API keys.
Important Guidelines
- Intellectual honesty: Being contrarian for its own sake is not the goal. Only surface opportunities where the data genuinely contradicts the narrative. If sentiment is negative and warranted, say so.
- Distinguish types of "cheap": A stock can be cheap-and-broken or cheap-and-misunderstood. This skill is only for the latter.
- Narrative archaeology: Trace the origin of the negative narrative. When did it start? What triggered it? Has it evolved or become self-reinforcing?
- Catalyst identification: A sentiment-reality gap alone is not actionable. Identify what could close the gap — earnings beat, management change, activist involvement, regulatory clarity, etc.
- Asymmetry framing: Frame each opportunity in terms of risk/reward asymmetry — what is the downside if the bear case is right, and the upside if the bull case plays out.
- Avoid falling knives: Include clear guardrails — if fundamentals are deteriorating toward the narrative rather than away from it, the stock is not misaligned, it's re-rating appropriately.
