On Monday we gave our thoughts on where the market would bounce. Today we got a price low near 1600 and also got the bounce we expected. The question now is, “Will the bounce hold?” Tomorrow brings the all important payroll report so it would be foolish for me to make predictions ahead of it. Especially since all I have to do is wait and I’ll know everything I need to know tomorrow. Regardless of my instincts to wait until after the payroll report I’m going to do what I always do and take the data I have available now to make my decisions…because I know that when tomorrow comes I’ll still be wanting for more information. In Monday’s post we mentioned that if/when the S&P 500 Index (SPX) fell to 1600 we would be watching to see how leading stocks react. We believe that leading stocks give good indications of the direction of the market so we look at them along with other technical indicators for guidance. For the
One of the charts that we like to keep an eye on to determine the amount of perceived risk in the market is the ratio between one month volatility (VIX) and three month volatility (VXV). When the ratio is low, market participants believe that near term risk is lower than risk further in the future. When the ratio rises it shows a sentiment shift from money managers indicating that they are getting fearful about the near term. If the ratio moves above 1 it warns that more people are fearful about the next month than those worried about the next three months. As a side note there is a new volatility ETF (XVZ) that attempts to take advantage of this theory. Right now we’re seeing the ratio approach 1 telling us that we’re almost to the point where investors believe there is more risk of the market being volatile over the next month than over the next three. Over the past several years this has been a point that marks
Below are charts of the bullish intensity scores for the most bullish stocks on Twitter for the week and month ending 6/4/13.
Below are charts with the bearish intensity scores for the most bearish stocks on Twitter over the past week and month.
Below are charts with the status of the 50 Most active stocks on Twitter and the intensity scores for the 25 most active stocks on a weekly and monthly basis.
Over the weekend we mentioned that although the S&P 500 Index (SPX) has painted three very ugly daily candles in the past few weeks we still believe we’re merely seeing some healthy consolidation. Our only concern at the moment is event risk, not general market weakness. As a result, we’re fairly long in our portfolio allocations, but watching our market risk indicator very closely. In order to guess how far the market will retrace we like to use very simple tools like trend lines, moving averages, support levels generated from the Twitter stream, and Fibonacci retracement levels. What we look for is a cluster of support. Take a look at the chart below and the 1600 area on SPX jumps out as a likely level for the first major bounce (or even bottom) of the consolidation. Here are several ways we arrived at that number. One fairly reliable chart pattern that we like occurs when price falls sharply for a few days and then consolidates higher (and then breaks the
Over the past week we saw encouraging signs from our core market health indicators even though the stock market was falling. As a result, we took the opportunity on Friday to reduce our hedges and add more long exposure to our portfolios. Here are the details. Market Positives Our measures of market quality, trend, and strength all improved substantially last week. Mixed Signals Our Twitter Sentiment Indicator for the S&P 500 Index (SPX) is starting to show weakness along with the general market. Over the past two weeks the daily readings have been mostly positive, but declining. Friday printed a fairly negative reading of -16, which is the lowest reading we’ve seen since mid April. It is our first indication that traders on Twitter are becoming decidedly bearish. In the individual tweets we’re seeing a lot of top calling rather than calls for consolidation. Smoothed sentiment diverged from price for a little over a week and is now following price lower. This puts us in a position where we can’t