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The Correction is Here

It looks like the correction in the S&P 500 Index (SPX) may have started…at least people on Twitter believe it has.  Daily Twitter Sentiment recorded a print of nearly -19 today.  That is just shy of the -20 that would mark a negative initiation thrust for SPX. In the past, extreme negative readings near a turning point in the market has resulted in at least several days of selling. Smoothed sentiment gave its first warning of a downturn on Tuesday when it broke its confirming uptrend line after a negative divergence from price.  Today it fell below zero.  This reflects several days of market participants selling into higher prices and tweeting about it.  If you look at the chart below you can see that traders lost faith in this rally almost two weeks ago as SPX pushed up into the 1490 area.  At that point we started to see a series of lower highs on daily sentiment and a negatively diverging peak in smoothed sentiment. Now that smoothed sentiment is

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Napa Valley

Published on January 30, 2013 by in Random

The wife and I have been in Napa Valley and Sonoma this week so rather than talk about the stock market I’ll share something with you that you might like better…a travel tip.  If you ever take a trip to Northern California one of the places you should visit is Napa Valley if only for a day.  It’s only an hour away from San Fransisco and barely more than that from Silicon Valley or Sacramento. When we visit we often make Domaine Carneros Winery our first stop.  It offers a more relaxed atmosphere than other wineries.  Instead of elbowing your way up to a crowded bar to try tiny pours of a variety of wines, you can sit on a patio overlooking the vineyards and enjoy a full glass of Champagne or Pinot Noir.  A perfect way to start a vacation day.  I’ll leave the rest of the vacation planning to you…because that one stop will make your entire trip.  

 
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Index Updates

I wanted to do just a quick update today on the fight between the bulls and the bears on Twitter that we mentioned over the weekend.  Twitter Sentiment for the S&P 500 Index (SPX) on a daily basis took a dip below zero again today even as the market moved substantially higher.  It was still close to zero at -5, but not normal on a good rally day. This caused smoothed sentiment to break its confirming trend line.  We take this as our first warning that the current rally may stall.  It does not mean that a correction has begun, but it does tell us that traders and investors don’t like the break above 1500 and many of them are selling into it.  This should at least cause some headwinds. Our next warning of a more serious correction would occur if smoothed sentiment drops below zero as that would signal that the negative sentiment and selling has occurred over several days.  In the past this has often been enough to

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Dow Theory Movements – Dow Theory Primer – Part 2

Published on January 28, 2013 by in Dow Theory
Dow Theory Secondary Reactions

In part 1 of our Dow Theory primer we explained that Dow Theory is a study of stock market price and volume that attempts to identify the prevailing trend of the market and warn of possible changes in that trend. The theory uses the movement of price of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) with their associated volume to identify major trends.  This post will focus on the movements and how to identify them. Dow Theory Movements Dow Theory recognizes three movements in the price of DJIA and DJTA.  Those movements are:  1) Daily Fluctuations, 2) Secondary Reactions, and 3) Primary Trends. Daily Fluctuations are the smallest duration moves in price and are irrelevant unless combined with other elements of the theory such as secondary reactions or lines.  An investor looking at the day to day movement in price does not have enough information to determine the probable future direction of the market.  Daily fluctuations are easy to spot.  They are one day

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Technical Analysis

Published on January 27, 2013 by in Quotes

  Rafferty had been a cop for a long time, long enough to know that two people looking at something with two sets of eyes seldom saw the same thing. The Lace Reader Brunonia Barry

 
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Market Overview 1/26/13 – Decision Point

Twitter support and resistance for the S&P 500 index

Once again we had a week where our core market health indicators moved sideways or strengthened with no moves large enough to change our portfolio allocations.  Our Core Long / Cash and our Standard Long / Cash portfolios remain 80% long and 20% cash.  Our Long / Short portfolio is 90% long and 10% short the S&P 500 Index (SPX). Market Positives Our core market health indicators that measure market risk, quality, trend, and strength are positive.  Measures of breadth continue to confirm the move in SPX to new 52 week and multi-year highs. Our investor contentment index is still showing a very high reading, but is starting to contract signalling that the market may need to pause before moving higher. All the major indexes except for NASDAQ are moving to new highs.  Although NASDAQ is just a few percentage points away even with the drag that Apple (AAPL) is placing on the index.  It is important to note that AAPL makes up a substantial portion of SPX and it

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Apple’s Continuing Saga

Apple (AAPL) twitter sentiment, support, and resistance

We’ve been following the Apple (AAPL) saga with our Twitter Sentiment Indicator since AAPL’s bad earnings report in July. In mid August while AAPL was trading near 640 we posted that based on sentiment AAPL would “break out to the upside”.  Sentiment proved correct as AAPL continued to rally up to 705 in mid September then started to paint a negative divergence with price. That negative divergence brought about a 10% correction that we believed was merely a profit taking event due to the lack of a serious break down in sentiment. However, we warned that we wouldn’t try to catch a falling knife and that we’d “wait for a price reversal that shows extremely positive sentiment”.  We never got that condition.   Instead, AAPL continued to fall and broke below its 200 day moving average in early November.  In that post we mentioned that since AAPL had broken the 580 Twitter Support level that  “the first most likely target range is near 520 with 500 just below that”.  Those

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What is Dow Theory? – Dow Theory Primer – Part 1

Published on January 23, 2013 by in Dow Theory

I’ve seen a lot of blog posts about Dow Theory lately.  Unfortunately, many of them have had a lot of misinformation about what Dow Theory is and how it should be applied to the markets.  Like all types of technical analysis Dow Theory is simple in concept, but difficult in practice.  In an effort to help you understand the basics I’ll do some posts about Dow Theory over the next several days that explain it and the basic rules of how it works. Today we’ll start with an overview. What is Dow Theory? In the simplest terms, Dow Theory is a study of stock market price and volume that attempts to identify the prevailing trend of the market and warn of possible changes in that trend. William Peter Hamilton formalized the theory proposed by Charles H. Dow in a book titled “The Stock Market Barometer”. He considered the theory to be a general guide to the probable outcomes in the stock market based on the combined movements of the Dow

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Gold and Gold Stock Update

Published on January 22, 2013 by in Gold, Gold Stocks
Twitter Sentiment for Gold (GLD)

Gold (GLD) is currently being compressed in a triangle between two intermediate term trend lines.  One is upward sloping from May and the other has a downward slope that began in October.  The apex of the triangle will be reached within a few months so it won’t be long until we finally get a longer term direction for precious metals.   During late August and early September of 2012 both GLD and precious metals shares (GDX) broke above a downward sloping trend line that began in late 2011.  The fact that GLD and GDX  have both held above those trend lines to the point where they have been eclipsed by new intermediate term uptrend lines (which started in May) bode well for a break to the upside. Although GLD has only corrected by 13% while GDX has corrected by 20% from the October highs, both of them have retraced approximately 60% of the rally out of the May lows.  This is about the maximum retracement that most securities make if

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Of Men and Time

Published on January 20, 2013 by in Quotes

Time levels all men. Good and evil alike. A century will pass in the blink of an eye and who will sort the particles of dust?       The Twilight of Courage       Bodie and Brock Thoene

 
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