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Market Health Indicators Sideways

Just a quick post today since it’s Valentines Day…and I have better things to do. We mentioned in our weekend update that our core market health indicators were diverging from price.  This week the divergence is continuing with the market going nowhere and our indicators weakening slightly.  However, it doesn’t appear any of them will fall far enough to change any of our portfolio allocations…unless we wake up tomorrow and the market is down several hundred points.  We’ll do another update if anything changes, but consider no news good news.

 
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Make or Break Time for Gold

Published on February 13, 2013 by in Gold, Gold Stocks
Gold Twitter Sentiment

It’s make or break time for gold (GLD) and gold stocks (GDX).  We mentioned last week that we weren’t very optimistic for precious metals based on the extended down trend, the break of medium term up trend lines, and the consolidation of GDX below a longer term down trend line.  GLD has held up better, but it now appears that it is resuming its downtrend.  We mentioned that if $160 was broken then $150 would most likely be back in play.  Well, $160 broke yesterday and today we got a close below it again.  Meanwhile GDX in in the $41 area visiting the lows from last July.  This just isn’t a good situation for precious metals shares.  If GLD revisits $150 then GDX will almost certainly break below $39 in a very sharp and very ugly way.   There are a few positives. GLD is still above the up trend line from last May’s lows.  Smoothed Twitter sentiment for GLD has a small positive divergence with price (even though the

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Sector Rotation from Twitter Sentiment

Sector Rotation from Twitter Sentiment

I’ve been meaning to create a sector rotation chart based on Twitter Sentiment for a while and finally got around to it today.  The chart below represents the nine major sectors as represented by the SPDR ETFs.  The legend next to the chart gives the ETF used for each sector.  If a sector has positive Twitter Sentiment (7 day average) then it is represented on the chart in green.  If the sector has negative Twitter Sentiment then it is represented in red. The theory behind a sector rotation chart is that during bull markets or extended rallies, Financials, Consumer Discretionary, Technology, Basic Materials, Industrials, and Energy stocks perform well.  Bull markets often start with financials, consumer discretionary, or technology leading.  Then as the rally gets established the more cyclical sectors of basic materials and industrials start to participate.  Late stage bull markets see energy leading.  It doesn’t always work out that way, but in general as markets move from the early bull stage to a final top and then turn

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Time Frame Matters in Technical Analysis

S&P 500 Double Tops 2007

We’re starting to see a lot more talk from long term investors calling for a major top in the market.  Many commentators are using the 2000 and 2007 highs as their rationale.  Their point, “the market is ripe for a double/triple top”.  We’ve shown before the folly expecting the market to make a long term top just because it reached prior price point.  As we stated in that post, the market often pauses at double tops, but only in the short term and usually for very shallow dips. Double tops should not be used as an indicator for longer term investors.  Your investing time horizon is the first thing you should understand before applying any technical analysis to a chart.  If you’re a short term and nimble trader, double tops in an uptrend are an appropriate place to attempt a short trade.  As a long term investor they should be meaningless.  Instead, a long term investor should be looking at the correction or pause (in a defined uptrend) created by

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Market Overview 2/9/13 – Negative Divergences

Twitter Sentiment for SP500

We’re starting to see some negative divergences in our core market health indicators as the S&P 500 Index (SPX) continues to print new highs.  They haven’t deteriorated enough to change our portfolio allocations, but they need to move back to the upside over the next few weeks or we’ll most likely be raising cash. Our portfolio construction attempts to capture intermediate term gains and avoid large losses.  When our indicators start to diverge we pay attention as they often signal corrections.  If nothing else we almost always see sideways movement or a slow choppy uptrend accompany negative indications.  If we make any changes we’ll post about it on Friday before the close of the market and mention any warnings on Twitter @DownsideHedge throughout the week. Market Positives As mentioned above, our core market health indicators that measure risk, quality, strength, and trend deteriorated last week.  Measures of risk however, held up substantially better than the other factors.  This is a condition we often see (quality, strength, and trend falling with

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Precious Metals Update

Twitter Sentiment for GDX

A few weeks ago we did an update on Gold (GLD) and Gold Stocks (GDX) where where stated that it was critical for them to hold their trend lines from the May 2012 lows.  Well GLD has held the trend line, but GDX has not.  We’re getting concerned that gold stocks are going to renew their down trend. We’ll give the negatives first, then move on to the positives (or what might better be called a sliver of hope).  We already mentioned GDX breaking its most recent up trend line.  Now there’s more bad news in that GDX has also broken back below the downward sloping trend line that goes back to the August 2011 highs.  It is now consolidating below that line.  When GDX broke and consolidated above it we thought the worst was over for precious metals.  Now that it’s consolidating below the odds favor  a resumption of the down trend.  The break of both trend lines brought with it very negative Twitter sentiment that shows the backs

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Volume and Intensity of Tweets

Twitter Sentiment Scoring for the S&P 500 Index

Two weeks ago we made mention that Twitter Sentiment was showing a battle between the bulls and the bears. During that week, the scores of tweets spiked 33% over the previous week and 50% above the level of two weeks previous to that.  But even with more and stronger opinions the daily sentiment indicator barely made it far above or below zero.  This showed even scoring between the bulls and the bears while the intensity of their tweets was very high.  Below I’ve added the totals scores (for both bullish and bearish tweets added together) to the sentiment chart in what looks like volume bars. The scores reflect both the volume of tweets and the importance of the tweets.  Our computer system does not see all tweets as equal (although it does treat all tweeters as equal…excepting the spammers which it throws out completely).  For example, a tweet that reads, “The market is going up. $SPX” would get a much lower score than a tweet that reads, “$SPX just broke

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Dow Theory Trends – Dow Theory Primer – Part 3

Published on February 5, 2013 by in Dow Theory
Identifying the Trend in Dow Theory

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.  In part 2 we explained how to identify Dow Theory movements. This post will focus on the trend  of the market and possible changes in the trend. In order to identify a long term trend, confirm a trend, or warn of a possible change in trend Dow Theory requires the use of closing prices for both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA).   Both averages must move together in the same direction to provide confirmation of a trend.  When the movement of the two averages conflict they warn of a possible change in trend. When the market is in a primary bullish trend both DJIA and DJTA move together to consistently make higher closing highs and higher closing lows.  Dow Theory calls the higher

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S&P 500 Negative Initiation Thrust from Twitter Sentiment

Twitter Sentiment Warns of Stock Market Correction

Over the past few months we’ve observed that the market has moved higher in the face of decreasing sentiment.   However, none of the down days could garnered enough negative tweets to give us a negative initiation thrust (signaling selling in the days ahead was likely).  Today we finally got a negative initiation thrust from Twitter Sentiment on the S&P 500 Index (SPX). We define a negative initiation thrust as an extreme low reading in daily sentiment within a few days of a short term high in price.  We use -20 as a trigger point, but most often negative initiation thrusts have been in the -25 range for SPX. Today daily sentiment printed almost -36.  This is the most negative daily reading since we started tracking it.  This tells us that the odds favor the bears over the short term. In the past, this condition alone has more often than not caused selling over the next several days which resulted in a dip between 3% and 5% before pausing. The extreme

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One More Napa Picture

Published on February 3, 2013 by in Photos, Random
 
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