The list of stocks above had the most Bullish Intensity on Twitter during the last week. Below are the Monthly scores.
With Apple (AAPL) closing comfortably near the center of its short term range it’s time again to take a look at the stock from a sentiment perspective. Twitter sentiment for AAPL on a daily basis is starting to strengthen by posting slightly better highs and mostly higher lows. However, the highs are not reaching the levels attained on previous rallies in the current down trend. This suggests that traders have been stung by buying previous rallies and as a result aren’t showing as much optimism for the current bounce. Smoothed sentiment for AAPL is making a slightly higher high and is above zero, but is still well below the confirming down trend line. The volume and intensity of tweets for AAPL continue to increase as the stock moves lower and decrease on rallies. This is another sign that even though market participants are slightly bullish they are also a bit wary. Twitter support and resistance levels for AAPL offer some encouragement. Other than the obvious support level at 420, the
Over the past few weeks Twitter sentiment for bank stocks has continued to weaken. Morgan Stanley (MS) has now joined Goldman Sachs (GS) in the warning category. It has broken the confirming uptrend line and also broken below zero. As we noted in our weekend update for the S&P 500 Index (SPX) this condition isn’t serious when it signals against the trend. As with most other technical indicators, signals against the prevailing trend generally only cause a pause in price movement. In an uptrend they provide an opportunity to buy the dip rather than signaling that the stock is going to start a new down trend. Smoothed Twitter sentiment for Citigroup (C) and JPMorgan Chase (JPM) are both starting to paint negative divergences with price. This comes after painting sentiment readings that mirrored price. Traders sold into weakness (sentiment mirroring price), but aren’t buying the new found strength (sentiment diverging negatively). These two stocks may join GS and MS in some profit taking. Watch the bank stocks over the
Everyday, as the market continues to grind higher, I see sentiment on Twitter and various blogs get more and more incredulous. Almost everyone is talking about the correction that never came or the reasons why the market has to correct…and correct now. The reasons vary, but are almost always a multiple choice grab bag of the following: China’s economy is slowing Europe is already in a recession US GDP is falling Greece’s bond rates…I mean Spain’s bond rates…I mean Italy’s bond rates…well somebody’s bond rates are rising The US is going to be downgraded by Moody’s (today’s new rumor…and it has to be true…I read it on Twitter) Oh yeah, Japan. I know I’ve been talking about Japan for 25 years now, but… The VIX is too low US budget negotiations are coming up soon…and you know that won’t end well We’ve been at the top of the Bollinger bands for several days now AAII investor sentiment is way to bullish Margin debt is at record highs Equity, ETF, and
This past week finally gave our core market health indicators a little strength. Overall they traded mostly sideways with a bias towards the movement of price. On Thursday we noted that we were fairly certain that we’d be making changes to the portfolios, but didn’t know if we’d be adding exposure or raising cash. This was a reflection of our indicators reacting to price. The ability of the S&P 500 Index (SPX) to hold above the 1530 level was enough to move our measures of market quality to positive territory. As a result, we added more longs to our portfolios and reduced cash and shorts. Both of our Long/Cash portfolios are now 60% long and 40% cash. Our Hedged (or Long/Short) portfolio is now 80% long and 20% short. You can see more details about this allocation change here. Market Positives The major indexes continue to push higher and have cleared their one month range of uncertainty. This market continues to shrug off bad news and rally on any good news.
We’re adding exposure to our portfolios today. Our measures of market quality improved enough to cause this change. On February 22nd, our indicators reacted to the weakness in price and fear of market participants that a correction had started. This caused us to raise cash and add more shorts in our portfolios. This added some protection just in case the sell off accelerated, but also left us with some exposure to the market if it rallied. As you know, our portfolios are designed to participate in up trends, but also protect us from any unrecoverable declines. This was an example of getting cautious that in hindsight was unnecessary, however in our opinion prudent. We don’t mind paying for insurance when the market is uncertain. Our portfolios still participated in almost half the gain of the recent rally, which is enough for us during any period of market uncertainty. We’re now adding more long stock exposure on the expectation of higher prices. Both of our Long/Cash portfolios now have allocations of
Before we get to the sentiment charts I wanted to make a note that it’s likely we’ll be making some changes in our portfolios tomorrow. However, at this point we don’t know if it will be raising more cash and adding hedges or if we’ll be adding more long exposure. Several of our core market health indicators are so close to a trigger point that any substantial move on Friday will drag them in the direction of the move. Our indicators aren’t often in a position where they’re this uncertain. I had to go back to January of 2007 and April of 2006 to find similar examples. Both of those times had us adding exposure on the long side for just a few more weeks then the market corrected abruptly. One other example was during the choppy market of 2004. This isn’t a prediction of the same pattern ahead, just an observation that uncertainty in our indicators usually translates to sloppy market performance. We’ll make a note on Twitter @DownsideHedge
We wanted to highlight a few Twitter sentiment charts today that are looking interesting. Please note, we don’t recommend that you base your trading decisions solely on this one indicator. It should be used as just one more piece of the puzzle when making decisions. The first one is Google (GOOG). We showed this chart last Friday when GOOG gave its first warning that traders were taking profit and losing optimism as price pushed higher. After diverging from price, smoothed sentiment broke the confirming uptrend line. Since Friday’s warning the stock has spiked higher and taken smoothed sentiment back to the down trend line that has been in place since early February. Over the next few days GOOG will either clear the warning or turn back down. The island on price is a very concerning pattern. We don’t want to see a gap down tomorrow or it could cause trouble for the stock. Remember that many people who own GOOG also own…or have owned…Apple (AAPL) during its downtrend. These traders
We’ve shown this chart a couple of times over the past several weeks, but it continues to give warning as the market rallies higher. A short ETF for the S&P 500 Index (SH) is making new lows today as the S&P 500 Index (SPX) is breaking above its recent range. However, a managed short fund (HDGE) is not confirming the move lower in SH. As we’ve stated before, this condition warns of a larger and more sustained correction than many traders currently expect. Now we’re seeing volatility diverging from SH as well. In the bottom panel of the chart below we show mid-term volatility (VXZ) as an example. Since we’re intermediate term investors we prefer to watch mid-term volatility rather than daily volatility (VIX). VIX moves around too rapidly for us to get much good information about future market potential. By looking at volatility further out on the term structure we get a better feel for a longer term trend. What we look for is a spike in VXZ after
When the Dow Jones Industrial Average (DJIA) is making new highs and the Dow Jones Transportation Average (DJTA) follows to new highs as well you often seen news reports exclaiming a “Dow Theory Buy Signal”. If you use those reports to make investment decisions you’re being misled by a writer who doesn’t understand Dow Theory. There are no buy signals or sell signals in Dow Theory that indicate a specific date where you should go long or short. Robert Rhea in his book “The Dow Theory” went so far as to warn about buying or selling just after a confirmation of a trend change due to the risk of an abrupt correction near those points. Whenever prices have pushed through into new low ground in bear markets or to new highs in bull markets, it is usually safe to assume the primary direction will be maintained for a considerable time; but every trader should remember that from such new peaks or valleys secondary reactions can occur with amazing rapidity. (emphasis