This post contains an explanation of our Twitter Stock Market Sentiment indicator and some examples of how we use it.
At the end of October we posted about the divergence between the S&P 500 Index (SPX) and the percent of stocks above their 200 day moving average in the index. We warned that once more than 40% of stocks fall below their long term average the market often accelerates to the downside. We got that sell off. Once the percent stocks below their 200 dma broke the 60% level the market had a broad based sell off as evidenced by the indicator quickly falling below the 45% level. Now the market is rallying. With the rally we’re seeing some encouraging signs from some of the internals. We’ve updated our chart of the percent of stocks above their 200 dma as an example. Notice, that the chart pattern for the decline and subsequent rally in SPX is mirrored by stocks above their 200 dma. This tells us that the rally is as broad based as the decline was, which is an encouraging sign. Over the next several days this indicator will
This post contains a video about the support and resistance levels that we generate for the stock market from the Twitter stream. Enjoy!
We’re currently seeing some encouraging signs for gold (GLD) in our smoothed Twitter sentiment indicator. It’s showing a positive divergence with price. This divergence is similar to the positive signals we saw in July where price painted a triangle pattern while Twitter sentiment created higher a low. As the higher low was being made the ETF broke out of the short term triangle pattern with a strong move in price. That marked the start of a very steep rally in gold. As the rally progressed our indicator painted a negative divergence with price signalling that GLD needed to consolidate its gains. If history repeats itself, the break out in price from the latest short term triangle pattern with a positive divergence in sentiment is suggesting that the consolidation is most likely over. If sentiment can hold its strong pattern we’ll be looking first for a test of the 175 level, then a break out to new 52 week highs.
Please note, due to the holiday this will be a very short overview. Even though price rallied significantly last week our indicators were mixed with an overall negative bias. Enough of our core market health indicators deteriorated that our Core Long / Cash strategy raised more cash. This leaves it with 60% long stock and 40% cash. Our other strategies have been 100% Cash or aggressively hedged since 10/19/2012. Our Twitter Sentiment indicator for the S&P 500 Index (SPX) showed a strong reading of +.22 last Monday. This was near a turning point in price. As we’ve noted in previous updates, extreme readings in the daily indicator near market turning points often act as an initiation thrust (in this case pointing to higher prices). The rest of the week brought those higher prices, however, sentiment started to diverge. Tuesday and Wednesday printed negative readings in daily sentiment as traders tweeted about consolidating Monday’s strong up move. Then Friday’s extremely strong price action generated a lot of tweets about the market
Last week several of our core market health indicators strengthened a bit, but not enough to overcome the indicators that showed weakness. The net result was an overall weakening in market health. As a result, we’re raising more cash in our Core Long / Cash Hedge strategy. It is now 60% long and 40% in cash. Here’s more information on our Long / Cash hedging strategies. In the chart below the yellow lines represent raising cash and the green lines are adding exposure to the stock market.
Happy Thanksgiving! These guys were walking up my street today. Pretty brave considering the season.
We’ve annotated a chart today of the S&P 500 Index (SPX) with our Twitter Support and Resistance levels. We just wanted to point out a few things you should be watching for when you view our charts. Often we don’t make mention of the obvious. The first thing to notice is that support and resistance levels start building several days before price gets close to the tweeted levels. It often builds several weeks ahead of major support or resistance levels. Take a look at the 1400 level on SPX in the chart below. It started getting mentioned in tweets just a few days out of the June low. The tweets started with a trickle, but came more often and in higher volume as the rally progressed. Another important fact (probably the most important) is that price respects the support and resistance levels. Once price reached resistance at the 1400 level on SPX it consolidated for several days (meanwhile the 1425 level was being tweeted as the next target for
The price action for gold stocks (GDX) last week has been very disappointing. Especially since gold (GLD) has held up and traded as we expected it should. The chart for GLD looks like it is simply consolidating the strong move up that started in early August. It has held the horizontal line near 164 that has acted as both support and resistance over the past fifteen months. It rallied over the past week to break out of a steep short term down trend line which bodes well for precious metals. The chart for GDX is more troubling, but still has plenty of room for a bullish resolution (although with a serious amount of pain for the bulls). Our largest concern is that it couldn’t hold the 50 level. Once that level broke, price accelerated to the down side on heavy volume. We suspect that traders who bought the breakout above the down sloping trend line and the June peaks dumped the stock rather than take a large loss. If this
I think this will be the last Daylily in my yard for the year. It’s officially fall…where I live anyway. I’ll be raking leaves from now till Christmas Eve (when winter starts).