Over the past week all of our measures of market health improved. As a result, we removed the hedge from our portfolios. All of our portfolios are now 100% long. The only nuance is that our measures of risk are still near a warning signal so that would be the most likely reason we raise cash or add an aggressive hedge over the next few weeks. The S&P 500 Index (SPX) appears to be range bound and giving some mixed signals. Every dip seems to be bought, but SPX continues to have trouble getting back above its 50 day moving average. The Russell 2000 (RUT) and Nasdaq are both above their 50 day moving averages which suggests the market should move higher. Measures of breath have fallen and painted a negative divergence with price, however, as I’ve noted before they are falling from extremely high levels. From an intermediate to long term perspective breadth is still very positive. For example, the stocks in SPX above their 200 day moving average
All of our core market health indicator categories improved this week. Our measures of market quality moved back above zero and as a result we’re removing hedges and adding long exposure to our portfolios. All of our portfolios are now 100% long. Measures of perceived risk subsided this week, but most of the components of our Market Risk Indicator are still negative. At the moment this is the most likely indicator that could have an impact on our allocations. If the market falls substantially then I expect it will signal, resulting in aggressive hedges or moving to cash. In the absence of a market risk warning we’ll most likely be riding out any volatility over the next few weeks. Below are charts that show our allocations changes over the past year. Green lines represent adding long exposure. Yellow lines represent raising cash. Red lines represent aggressive hedging.
The Twitter Top 10 Portfolio finished the last month (from 8/2/13 to 9/6/13) up .89% while the S&P 500 Index fell .28%. From the first Friday of the year the portfolio is up 25%. Note: prices are from about 9:15 Pacific so I’ll update them and the details of last months holdings after the market closes. UPDATE 9/7/13: The market sold off into the close and did a little damage to the portfolio. It ended the month with a gain of .38% and for the year it is up 24.4%. On the first Friday of every month we pick new stocks for the portfolio. Here’s the list that will be in the portfolio at the close today. LinkedIn (LNKD), 3D Systems (DDD), Yelp (YELP), Groupon (GRPN), Best Buy (BBY), Amarin (AMRN), Walter Energy (WLT), Michael Kors Holdings (KORS), Yahoo (YHOO), and Salesforce (CRM). Here’s the next five symbols for those of you who like to skip some of the top 10 based on their own additional criteria. CHK, SINA, QCOM,
Since the low in late June the S&P 500 Index (SPX) has made a lot of small moves followed by small consolidations. Each one of these consolidations has occurred at support or resistance levels generated from the Twitter stream. Take a look at the chart below and you can see where Tweets for the following levels started ahead of price and predicted where the market would consolidate. 1700, 1675-1680, 1650, and 1630 were all areas that generated a lot of tweets. Each red dot on the chart indicates multiple tweets for the same price on the same day. 1700 acted as resistance out of the June low, while 1675-80, 1650, and 1630 all acted as support. Just for fun here are the weekend posts over the last month. Take a look at the commentary in the “Twitter support and resistance” section of each post and you can see how the traders on Twitter telegraphed potential moves. 8/10/13 1675 to 1700, 8/17/13 1650 to 1675, 8/25/13 1630 to 1680, 9/2/13 1630
Stock breaking out to new highs are leading the most bullish stocks on Twitter list. This is happening in the face of a general market down turn which is a positive sign for the market going forward. Stocks like Facebook (FB), Salesforce (CRM), 3D Systems (DDD), Netflix (NFLX), LinkedIn (LNKD),and Zale (ZLC) are being pushed higher and indicates a lack of fear about a more serious decline ahead. Below are charts with the bullish intensity scores for the most bullish stocks on Twitter for the week and month ending 9/3/13.
Retail stocks such as Wal-Mart (WMT), Costco (COST), and J.C. Penney (JCP) are near the top of the most bearish stocks on Twitter this week. On the monthly list more retailers like Abercrombie & Fitch (ANF), Aeropostale (ARO), Nordstrom (JWN), Macy’s (M), and Staples (SPLS) are added to the mix which shows a building negative bias for all types of retail. Below are charts with the bearish intensity scores of the most bearish stocks on Twitter over the week and month ended 9/3/13.
The most active stocks on Twitter are showing the largest number of charts with bearish chart and sentiment patterns since late June and early July. 32% with bearish charts is a significant number considering the fact that the stocks tweeted the most naturally carry a bullish bias. There are also 18% with negative divergences that could turn bearish over the next several weeks unless price and sentiment moves higher. Below is a chart with the status of the 50 most active stocks on Twitter. Below that are charts with the intensity scores of of the most active stocks for the week and month ending 9/3/13.
Just a quick update due to the holiday. The consolidation is continuing and is being confirmed by almost every short term measure that I track. The intermediate to long term indicators I track are telling a different story. They aren’t breaking down with the recent weakness. Over the next few weeks this dichotomy should resolve itself with strength from the short term indicators or weakness in the longer term ones. As a result, we’re waiting patiently for a resolution before making changes to our core portfolios. The most likely indicator to move us towards cash and hedging is our market risk indicator. Most of its components have gone negative so I suspect that any significant weakness in price will trigger a warning signal. Twitter sentiment for the S&P 500 Index (SPX) is still on a consolidation warning with smoothed sentiment still in a clear down trend after breaking the previous uptrend. Smoothed sentiment has turned back down from near the zero line which indicates a lack of resolve by the