Over the past week several of the indicators I watch deteriorated. Our market health indicators that govern our core portfolio allocations compressed toward the zero line. They continue to paint a picture of cautious optimism, but with some jitters. The most concerning thing I saw was that a small move down in price brought with it a quick increase in the perception of risk. Investors are dancing close to the door. It appears that they don’t want to risk the gains from a very good year. Adding weight to the argument our Investor Contentment index has been negative and declining over the past three weeks while our Market Stability index, although positive, has been declining as well. Our Twitter sentiment index for volatility (VIX) has issued a buy signal indicating that traders on Twitter believe that volatility is likely to rise in the near future. This signal comes after four touches on the smoothed sentiment down trend line that was confirming lower volatility. Previous signals this year have been early,
Over the past week our core market health indicators compressed a bit. Some shuffling occurred with our measures of market quality moving from barely negative to barely positive while our measures of the economy fell from positive to negative. Our measures of trend and strength fell slightly. Perceptions of risk rose. The flip flop in the economy and market quality keeps our core portfolio allocations the same with the long/cash portfolios 80% long and 20% cash. Our hedged portfolio is 90% long stocks we believe will outperform the market and 10% short the S&P 500 index (using SH). The overall picture suggests that portfolio managers are holding, but could change their mind very quickly. Small moves in price are causing many of our core indicators to jump quickly both up and down. This is a sign of investors dancing close to the door and that they aren’t willing to sit through a consolidation at the moment. Much of the movement could simply be people protecting gains going into the end
The Twitter Top 10 Portfolio is up 2.72% this month and 30% from the first Friday of the year. Below are the picks for December. Johnson & Johnson (JNJ) and Zynga (ZNGA) were in the November portfolio and will be held again this month. The rest of the stocks are new this month. YHOO, BAC, PFE, GMCR, GOLD, SINA, SSYS, BIDU, JNJ, ZNGA Here are the next five stocks in the most bullish list as of yesterday’s close. M, HIMX, ARNA, QCOM, LVS Below is a performance chart for the year. I’ll update this post with the details of gains and losses for the November’s picks after the close today…or sometime over the weekend. Note: at the close on 12/6/13 the portfolio was up 2.37% for the month. Start Date Symbol Shares Start Price Start Total End Price End Total % Gain / Loss 11/1/2013 $F 721 16.89 12177.69 16.7 12040.70 -1.12% $DDD 193 63.01 12160.93 75.38 14548.34 19.63% $ZNGA 3405 3.58 12189.90 3.99 13585.95 11.45% $JNJ 130 93.37 12138.10
Now that I’m quantifying StockTwits messages in addition to tweets on Twitter we can do some comparisons between the two communities. Something that I noticed last week was that the StockTwits indicator diverged from price as the S&P 500 Index (SPX) broke above 1800. At the same time the Twitter indicator moved higher with price. When one of our sentiment indicators moves higher with price it generally confirms the move. A negative divergence gives warning that hedging, shorting, or a lack of buying is occurring by traders and investors. We currently have a situation where StockTwits is providing some early warning while Twitter is painting a pattern that confirmed the initial move, but then moved quickly lower when price fell back below 1800 on SPX. Traders on Twitter appear to be chasing while traders on StockTwits didn’t chase price above the 1800 level. If the market can regain 1800 I’ll be watching for smoothed sentiment on StockTwits and Twitter to move above their previous peaks. Without that confirmation I suspect
I’ve started collecting data from StockTwits and quantifying their messages with the same algorithm as we use for Twitter. There is one major difference between the stocks I track on Twitter and StockTwits. I track 1000 stocks on Twitter, but only 100 stocks on StockTwits (at the moment). As a result, the two lists won’t mirror each other. The Twitter list is more likely to contain stocks that are less known (or have a lower volume of Tweets). While the StockTwits list is mostly comprised of the most active stocks on the stream. Here’s a chart of the bullish intensity scores of the most bullish stocks on StockTwits over the past week. At the first of the year I’ll start showing a monthly list for StockTwits as well. One interesting (amusing) thing to note is that Twitter (TWTR) made the most bullish on Twitter list, but not the most bullish on StockTwits. Below are charts with the bullish intensity scores for the most bullish stocks on Twitter for the week
Precious metals stocks are showing the most negative bearish intensity reading on Twitter this week. Another thing to note are securities related to Brazil (EWZ, PBR). Below are chart with the bearish intensity scores for the most bearish stocks on Twitter for the week and month ending 12/3/13.
Below are charts with the intensity scores for the most active stocks on Twitter for the week and month ending 12/3/13.
I shared this chart on StockTwits and Twitter last week. It is one of the charts I like to watch and it is providing some early warning that we’re getting closer to a top. In the past when the ratio between the S&P 500 index equal weighted (SPXEW) and the S&P 500 index (SPX) has fallen below its 20 week moving average it has signaled a top. This measure is often early and sometimes wrong, but still something to keep in mind. At the minimum it is providing early warning that money is moving into the the stocks with the largest market capitalization which often happens when money managers are moving to what they consider safer stocks. If more signs of a flight to safety show up in the coming weeks we’ll most likely see a correction of a larger magnitude than we’ve seen in the past year.
The counter trend bounce signal issued for Randgold Resources on 10/20/13 has ended as of last Friday. As I mentioned in the initial post, price traded higher after the signal, but was a failure (loss of -1.37%) from the bounce signal to closing it last Friday. Sentiment is still running high for the precious metals even though price continues to make new lows.
Below are charts with the bullish intensity scores of the most bullish stocks on Twitter for the week and month ended 11/26/13.