I like salt and fat more than I like sweets so the wife got me Cheetos for Easter. I use chopsticks to eat them…which I believed was original thought until I Googled it…original thought isn’t the subject of this post so back to the Easter treat. Since she’s a woman and it’s a holiday the gift had to have a theme. Cute, huh? One more note, I’m married so I don’t get a whole bag…just that tiny box.
This past week saw the S&P 500 Index breaking out to new all time closing highs. All time intra-day highs are just a few points away just above 1576. However, our core market health indicators continue to deteriorate. These aren’t the type of internals we like to see near market tops. Our indicators are telling us that market participants are getting cautious…which makes us cautious too. Our Twitter sentiment indicator for the S&P 500 Index (SPX) is starting to show some strength but without much enthusiasm. Although daily sentiment is painting higher lows and has a good uptrend line it isn’t acting like it should when price breaks out to new highs. Thursday’s move came with a higher intensity of tweets (volume and scores), but the aggregated score for the day was only +10. The move above 1530 on SPX at the first of March is more characteristic of confirmation of a break to new highs. It came with a print of +21 on the day of the break out signaling
Over the past week most of our core market health indicators weakened. Our measures of risk showed that investors are getting more cautious. It is still the one category that we track keeping us with a small exposure to the market. Our measures of the economy improved slightly, but from extremely low levels. Our other measures continue to move lower below zero even as the market moves higher. This is usually a sign that the market needs to take a rest. I suspect that we’ll see some sort of pause between current prices and 1600 on SPX.
For the past few months Twitter sentiment for the ETFs that track the Nasdaq 100 Index (QQQ) and the Russell 2000 Index (IWM) have been painting a pattern that shows indecision by traders. Each move up in price is met with high sentiment and each move down garners a lot of negative tweets. This is causing our smoothed Twitter sentiment indicator to mirror price. When sentiment mirrors price it shows us that traders are chasing. Their tweets are reacting to price rather than predicting it. Smoothed sentiment for QQQ and IWM are currently showing very wide swings from bullish to bearish. This uncertainty is not a normal condition for actively traded and tweeted stocks. Instead, as momentum builds for a stock, Twitter sentiment starts to trend with the stock in a well defined range. Traders show confidence in their positions with a majority of tweets confirming the trend. In up trends, down days don’t show large negative prints in daily sentiment which helps smoothed sentiment continue to rise (and confirm
Weekly and monthly charts of the stocks with the highest overall intensity scores on Twitter.
Weekly and Monthly charts of stocks with the most bearish intensity on Twitter.
Charts of the stocks with the highest bullish intensity on Twitter.
A lifetime of studying the careers of successful men has convinced me that what my friends in the social sciences call “the critical variable” in success is not intelligence, at least not above a certain minimal point, but rather disciplined energy. Walter F. Murphy The Vicar of Christ
Over the past week all of our core market health indicators deteriorated with only our measures of risk staying above zero. This caused us to raise cash or add shorts to our portfolios as a hedge. You can see details of our market health indicators and portfolio allocation here. Market Positives Once again the market’s most constructive feature is its resiliency in the face of bad news. It appears that market participants firmly believe that nothing can seriously damage price. This is also reflected in our measures of market risk which are firmly positive and our investor contentment index that moved back above zero this past week. Measures of breadth like the percent of stocks above their 200 day moving average and the bullish percent index are confirming the move out of the February lows. The percent of stocks above their 50 day moving average have been diverging from price since mid January. New highs confirmed the break above 1530 on the S&P 500 Index (SPX), but have not gained
Our core market health indicators deteriorated enough this week that we’re raising cash in our Long/Cash portfolios. They are both now 80% cash and 20% long. Our hedged portfolio is now 60% long (stocks we believe will outperform the market in an uptrend) and 40% short the S&P 500 Index (either short SPY or buy SH). Our measures of the economy slipped from -7 to -8. The economy measures continue to disappoint us as they just can’t seem to get a footing. They went negative near the first of December, got all the way down to -10 (our worst reading), moved back up to -3 at the beginning of February then turned over again. This indicator usually has a pretty good lead time at both bottoms and tops so the fact that it has kept a portion of our portfolios under invested for almost three months gives us concern. Our measures of risk dropped a bit this week to +5. There still isn’t much concern from market participants about a
Market Risk Rising
Volatility Hedged Portfolio