The market continues to press higher without fear. There is virtually no perception of near term risk by investors. However, as I mentioned yesterday I’m seeing weakness in some of our internal measures that suggest all is not well in the market. The strong rally out of the October lows hasn’t been met with strengthening of our core health indicators. Instead, they’re starting to compress near the zero line. It appears that those who have participated in the rally this year and have large gains are taking profit and rotating to defensive stocks. While investors who missed the big gains are chasing higher prices. As a result, our indicators aren’t moving much above or below zero and indicate an unhealthy rally is in progress. It won’t take much weakness in our indicators to raise more cash and add a larger hedge to core portfolios even if the market continues to rise. On the flip side it won’t take much underlying strength to move us to a 100% long position. As
Over the past week our market health indicators bounced around a bit, but didn’t move substantially. As a result, there are no changes to our core portfolios this week. One thing to note is the compression of the major categories. All of them except for perceptions of risk are fairly close to zero. This is an interesting situation where a continuation of the current rally with confirming internals will most likely have us adding longs and removing hedges. In contrast, it won’t take much weakness in price and internals to have us raising cash and adding hedges. There’s very little perception of risk by market participants, but enough is happening under the covers to keep our health indicators fairly cautious as the market makes new highs. Bottom line, I’m comfortable being mostly long because we’ll move to safety fairly quickly if the market turns down.
The Twitter Top 10 portfolio jumped 5.48% from the first Friday of this month. It is currently up 33.95% from the first Friday of the year. It continues to outperform the S&P 500 Index (SPX) by a substantial margin. The out performance this month comes from 3D Systems (DDD) up 27.33%, Zynga (ZNGA) up 13.97%, and First Solar (FSLR) up 8.96%. The rest of the portfolio is basically flat with a few minor losers and a few minor winners. Below is a performance chart and details for the stocks in the portfolio this month. Note: prices are from about 9:40 AM Pacific. Start Date Symbol Shares Start Price Start Total End Price End Total % Gain / Loss 11/1/2013 $F 721 16.89 12177.69 17.09 12321.89 1.18% $DDD 193 63.01 12160.93 80.23 15484.39 27.33% $ZNGA 3405 3.58 12189.90 4.08 13892.40 13.97% $JNJ 130 93.37 12138.10 93.93 12210.90 0.60% $GE 459 26.54 12181.86 27.22 12493.98 2.56% $FSLR 293 59.14 17328.02 64.44 18880.92 8.96% $GILD 171 70.97 12135.87 69.56 11894.76 -1.99% $WLT 707
The consolidation warning issued on 11/7/13 for the S&P 500 Index (SPX) from quantified tweets has been closed. This raises the odds that the prevailing trend will continue in the near to mid term. Just like the signal from the StockTwits stream it appears that the Twitter stream has created a whip saw. There aren’t a lot of upside targets above 1800 for SPX on Twitter so the next few days will give us a better picture of potential risk/reward. A dearth of tweets at higher levels will suggest an unfavorable risk/reward scenario.
Today the S&P 500 Index (SPX) finally cleared the 1775 resistance area created from gleaning price targets from the Twitter stream. We first identified the 1775 level as strong resistance on 10/19/13. Then reiterated that level as a point that would be shorted by traders on 10/26/13. 1775 was hit at the last of October, then price traded sideways for the next two weeks as the bears tried to push the market lower. This is a pattern that I’ve seen repeated several times over the last year and a half. When a large number of traders target the same level, price almost always reacts when it gets there. This is one of the benefits of following the whole market instead of just a few traders. Nimble traders can use Twitter support and resistance levels for quick scalps. I usually wait for the market to make a few daily closes above an important resistance level before removing it. In addition, smoothed sentiment from Twitter for SPX, RUT, and QQQ haven’t cleared
The consolidation warning for the S&P 500 index (SPX) generated from quantified StockTwits messages on 11/8/13 has been cleared as of the close on 11/12/13. The move in smoothed sentiment back above its down trend line clears the warning. Since the warning came so close to the apex of a triangle this move higher could simply be a whipsaw similar to what we saw with the Nasdaq 100 (QQQ) earlier in the month. The next few days will most likely give us the answer. There are still a very large volume of tweets targeting 1775 on SPX as resistance. If that level is overcome the market will most likely push to 1800 before pausing again (with sentiment confirming the move). If price stays below 1775 then I suspect we’ll get another warning from quantified StockTwits messages. I’ll post another update when the picture becomes clear. Here’s the chart for QQQ that shows the whipsaw. It is currently still warning.
A buy signal was issued for Baidu (BIDU) at the close on 11/12/13. This signals comes as the stock is bouncing off its 50 day moving average with confirming sentiment. Sentiment fell back near an uptrend line that has been in place since June and has subsequently moved above its descending trend line and previous peak. Smoothed sentiment however, is at a fairly high level already so caution is advised.
Below are charts with the bullish intensity scores for the most bullish stocks on Twitter for the week and month ending 11/12/13.
Below are charts with the bearish intensity scores for the most bearish stocks on Twitter for the week and month ended 11/12/13.