Both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) closed above their last peaks today. This reconfirms the primary bull trend of the market according to Dow Theory. Going forward traders who use Dow Theory will continue to buy dips. If you’ve read my posts on the subject you know that both averages going to new highs does not constitute a “buy signal”. Instead, it is nothing more than renewed confirmation of the trend. As a result, you shouldn’t take this as a signal to get fully invested right here. In fact, you should have been building positions on the dips during this rally. Robert Rhea in his book “The Dow Theory” actually warns that breakouts like those that occurred today can be a dangerous place to invest and “every trader should remember that from such new peaks or valleys secondary reactions can occur with amazing rapidity“. Here’s a post with more information about new highs and how to trade with Dow Theory. For an
Below are charts with the bullish intensity scores of the most bullish stocks on Twitter for the week ending 9/17/13.
Below are charts with the bearish intensity scores for the most bearish stocks on Twitter for the week and month ending 9/17/13.
Below are charts with the intensity scores of the most active stocks on Twitter for the week and month ending 9/17/13.
Currently there are no stocks among the 50 most active stocks on Twitter that are in a confirmed down trend. This is the first time it has happened since I started tracking them actively. A few stocks moved to a positive divergence (Twitter Sentiment), but the majority went to Unclear. Their charts show big rallies out of lows, but sentiment isn’t showing a clear pattern. Instead, there are a lot of charts where sentiment shows chasing of stocks that had been in a down trend. This week there are 62% of the most active stocks showing positive chart patterns. Consolidation warnings dropped significantly and many stocks that were showing negative divergences have now reconfirmed the uptrend. This pushed breadth of the top 50 back above its downtrend line and also back to the same level when the S&P 500 Index (SPX) was at these levels. If the market goes to new highs, I’d like to see breadth go with it.
We’ve been running our algorithm to quantify the text of tweets against the messages on the StockTwits stream for about a month now and we’ve finally collected enough data that I can make a few observations. Before I go into what I’m seeing on the StockTwits stream here’s a little detail about how we score the messages on StockTwits and tweets from Twitter. The underlying theory is that Twitter and StockTwits provide a big enough sample set for market indexes and actively traded stocks that when quantified it should reflect the views of the market as a whole. Our computer system reads the stream and quantifies the text of each message in an attempt to determine how bullish or bearish an individual is for a specific security or market index. To score individual tweets and messages we look for things like buying and selling patterns, technical indicators, future predictions, and language that indicates either a bullish or bearish bias. The system gives more weight to what we consider to be more
I’ve been watching this chart over the past few days and forgot to mention it as a part of the weekend update where I discussed many of our market risk indicator components being at an inflection point. I don’t use Twitter sentiment for the Volatility Index (VIX) as a component, but it is telling a similar story to our other risk components. As price has fallen over the past two weeks, smoothed sentiment has painted higher highs and higher lows. This means that traders aren’t convinced that VIX will continue downwards…yet. It’s getting close though. Going back to mid August, sentiment is painting a rising wedge that is so narrow that a break should occur soon. Rising wedges in price have a high probability of breaking lower. Rising wedges in sentiment function the same. This suggests that VIX has a higher likelihood of falling than rising. So we’re getting mixed signals from traders on Twitter. They aren’t convinced that VIX will fall, but their opinions are painting a pattern that
Twitter sentiment for First Solar (FSLR) is signaling that the stock could get a counter trend bounce in the near future. Smoothed sentiment diverged positively from price for three weeks then gained enough momentum to break above its down trend line. This signal is fairly weak because of the wide and loose pattern in smoothed sentiment which is causing the break of the downtrend line at already elevated levels. I much prefer breaks from tight patterns that occur near the zero (neutral) line. The consolidation warning in late May (red vertical line) is an example. Some of you may see this as a buy signal rather than a counter trend bounce signal by interpreting price as still being in an uptrend and consolidating near a few levels of support. I read price as being in a down trend for a few reasons. First, the gap down on 8/7/13 broke the chart and suggests wide and choppy price movements in the near future (at the best). Price is now below both
As a market technician and an intermediate to long term investor I usually don’t care about the news for the simple fact that I believe our indicators are a better guide for our portfolios than news stories. However, I’m seeing something interesting in the positioning of many of our indicators just ahead of the September FOMC meeting that merits a discussion of the news. This is because I think this example illustrates the value of technical analysis. First is the condition of our core market health indicators. All of them have been strengthening for several weeks after some weakness that occurred at the same time as (or as a result of) the first mention of a taper. The news caused a negative change to our indicators that was resolved over the course of a few months even as the market was falling. This suggests that there is a wide expectation by market participants that prices will move higher into the end of the year and that they’ve become comfortable with
Over the past week all of our measures of market health improved except for measures of trend. Nothing changed enough to change any of our portfolio allocations so we’re still 100% long in all of the core portfolios. Below is a chart of our market health categories. Have a good weekend everyone.