sentiment-reality-gap
BusinessIdentify stocks where market sentiment is significantly more negative than fundamentals warrant — the gap between narrative and reality. Use when the user asks to find contrarian opportunities, stocks with sentiment-fundamental misalignment, oversold but fundamentally strong companies, stocks punished by negative narratives, or wants to analyze whether market fear is justified for specific stocks or sectors.
How to use this skill
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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.