Breadth calculated from the Twitter stream took a nose dive last week falling 20 points. The decline was a result of a large decline in the number of stocks in the bullish/strong list and a moderate uptick in the number of bearish/weak stocks. The number of stocks in the bullish list is the smallest since the first of the year at 132. The number in the bearish list is 31. On 2/18/14 the bearish count was 36. Back in February when the bearish count rose it did so on the heels of a broad based decline. This dip in breadth comes within 2% of all time highs and suggests that rotation is the cause of the dip rather than broad based selling. Breadth from the StockTwits stream is holding up better. The number of strong stocks is falling, but the number of weak stocks fell last week too.
Over the past week the rotation out of the most loved and momentum stocks into value stocks continued. The rotation is causing internal damage to our core indicators, but our measures of risk aren’t showing any fear. This paints a picture of market participants simply taking profit on the stocks in their portfolios that had the largest gains over the past year. Any fear appears to be limited to the high flying stocks, not the market as a whole…yet. I’m seeing a lot of warning signs which suggest caution, but not aggressive action. The percent of stocks in the S&P 500 Index above their 200 day moving average has recovered from its early February dip and is holding steady near the 80% level. However, a look at individual charts shows many stocks painting bearish flag patterns just above their 200 day moving average. General Electric (GE) is a good example. The number of new highs on NYSE diverging from the market shows that a significant number of individual stocks (like
Over the past week all of our measures of market health except for the economy category got hit even though the market only declined slightly. Our measures of trend were below zero during the week. They have since recovered, but are hanging by a thread. As a result, there are no changes to the portfolio allocations. Our measures of risk aren’t showing signs of panic or fear. Instead, the overall picture is one where a top is being rounded out or extended choppiness is ahead. Over the past 15 years when the indicators have looked similar the market fell or chopped around (going slightly lower for more than a month) 65% of the time. It resumed its uptrend within a few weeks 35% of time. As a result, we’re still moderately hedged and will need further deterioration in the indicators to raise more cash or increase our hedges. Below is a chart with readings for our market health categories.
Over the last week the Twitter Top 10 Portfolio fell sharply. It is now down over 9% from the first Friday of the month. Every stock in the portfolio is down over the period and four of them are down more than 10%. The decline puts the portfolio below the performance of the S&P 500 Index (SPX) from the start of 2013. As I mentioned in the StockTwits portfolio post, the poor performance of the portfolio is one warning sign of many for the market. Below is a performance chart and details of the current holdings. Start Date Symbol Shares Start Price Start Total End Price End Total % Gain / Loss 3/7/2014 $BIDU 73 182.04 13288.92 153.75 11223.75 -15.54% $BBRY 1345 9.91 13328.95 8.98 12078.10 -9.38% $BAC 734 17.33 12720.22 16.92 12419.28 -2.37% $GTAT 761 17.50 13317.50 17.49 13309.89 -0.06% $PCLN 10 1358.04 13580.40 1202.00 12020.00 -11.49% $KNDI 687 19.40 13327.80 16.56 11376.72 -14.64% $EBAY 225 59.06 13288.50 55.21 12422.25 -6.52% $CMG 22 593.41 13055.02 569.45 12527.90 -4.04% $IRBT
Over the past week the StockTwits Top 10 portfolio continued to fall. It is now down 6.74% from the first Friday of the month. Seven of the stocks in the portfolio are down more than 5% and three are down more than 10%. The largest gainer is only up 3%. If you don’t know by now, the portfolio performance should alert you that the most loved (and momentum) stocks are being sold in favor of value stocks. Although a rotation to value can suggest that investors are moving to safety, it isn’t predictive of a future market decline. There are often times in the market when momentum and growth stocks get over valued which results in money managers taking profit and moving the money to under valued stocks. They do this not from a belief that the market is going to fall, rather a belief that value will out perform growth and momentum going forward. As a result, profit taking in the most loved stocks is just one piece of
The consolidation warning issued for the S&P 500 Index from quantifying the StockTwits stream on 3/14/14 almost closed yesterday (3/25/14) at the close. The smoothed indicator barely moved above its downtrend line. This would normally close a signal, but I take a bit of artistic license in my technical analysis. I like to see a clean break of a trend line to create a signal. The move yesterday was almost flat and looked toppy so I decided to give the indicator another day before making a call. Today the indicator rolled over and moved back below the trend line and looks to be resuming its down trend. The signal continues to warn that lower prices are ahead in the near term. Here’s a post with a video and some details on how a signal is created. The signal that volatility is likely to move higher is still open as well. The smoothed indicator came right back to trend and bounced up. This indicates that volatility is still likely to rise.
Over the past month I’ve been seeing signs of a market that might be in the process of putting in a longer term top. Today something happened that often marks short term tops. The S&P 500 Index closed down (SPX), Corporate Grade Bonds closed up (LQD), but High Yield or Junk Bonds closed down (JNK). During a healthy stock market when investors are confident Junk Bonds generally move with Corporate Grade Bonds. When investors get scared and start moving out of stocks and into bonds LQD (high quality bond) gets the money and moves up. Scared investors also sell JNK with their stocks. That’s what happened today. Enough fear entered the market today to cause a spike in LQD and a drop in JNK. One day doesn’t make a trend…but it can start one. Keep an eye on LQD and JNK for another warning that the market may be putting in a top.
The buy signal generated from the StockTwits stream for Bank of America (BAC) on 3/4/14 has been closed. The signal came from a very steep trend in quantified messages so this dip back below might be a whip saw. However, I officially close them on the site even if I personally give the trade a bit more time to shake out. This is an example that illustrates that trade signals aren’t the same as trading.
For the first time since Apple (AAPL) peaked in September of 2012 we’ve got a buy signal generated from quantified tweets. Over the last few years there has been a lot of chasing in the stock which showed up with our indicator simply mirroring price. As a result, it didn’t generate any trade signals. Now that the stock has calmed down smoothed sentiment has painted a positive divergence with price that is more than three weeks old. It confirmed the last dip to the 50 day moving average and has also broken above the trend line that was confirming that dip. The bulls have overwhelmed the bears near support which generates the buy signal. Here’s a post with the details of how we use our Twitter and StockTwits indicators to trade stocks. Just for fun, here’s the full chart of AAPL.
Below are charts with the bullish intensity scores for the most bullish stocks on Twitter for the week and month ended 3/25/14.