While the S&P 500 Index (SPX) consolidated below the 1900 level there was a period of weakness in breadth from both Twitter and StockTwits. After the breakout occurred breadth lagged price, but has now recovered. Many of the momentum stocks that had fallen out of the strongest stocks list have returned with strong support from traders on Twitter and StockTwits. This is an encouraging sign for the market.
Just a quick update this weekend. As the market pushes higher sentiment from the Twitter stream continues to diverge. We’ve got a good upward sloping confirming trend line in smoothed sentiment that if broken will warn of possible consolidation ahead. But as long as smoothed sentiment stays inside the triangle currently being painted or breaks above it odds favor higher prices. Support and resistance didn’t change as traders have gone pretty quiet this summer. Support is at 1925 on the S&P 500 Index (SPX). Resistance is at 2000, but almost no one is talking about that level any more. Sector sentiment is finally showing some weakness in Consumer Staples which suggests some of the rotation to safety is over. This is another positive for the market. Overall, it’s the same story I’ve been telling for weeks so we can expect more marginal new highs followed by a period of chop.
Over the past week our core market health indicators diverged from each other. Our measures of the economy and trend rose while our measures of quality and strength fell. None of them moved much, but measures of trend moved back above the zero line. This changes our portfolio allocations as follows. The long/cash portfolios are now 60% long and 40% cash. The hedged portfolio is 80% long stocks we believe will outperform in an uptrend and 20% short the S&P 500 Index (long SH as an alternative to shorting SPY). Our core measures of risk moved further into overbought territory this week. As I noted over the weekend, when this occurs a dip of more than 10% often follows within a month or two. For now it’s not too concerning, but something to watch closely going forward. Below is a chart of our current market health category readings (normalized). Here’s a chart of our portfolio allocation changes over the past year. The green lines represent adding long exposure and removing hedges.
The Twitter Top 10 portfolio looks to be turning the corner and making a bottom. It is slightly outperforming the S&P 500 Index (SPX) this month. Micron Technology, up nearly 7% and several other modestly positive stocks are responsible for the gains. 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 6/6/2014 $AAPL 120 92.22 11066.40 91.47 10976.40 -0.81% $GOOG 20 556.33 11126.60 577.67 11553.40 3.84% $CSCO 446 24.83 11074.18 24.75 11038.50 -0.32% $GMCR 90 122.07 10986.30 123.95 11155.50 1.54% $GOGO 600 18.48 11088.00 18.82 11292.00 1.84% $KORS 117 94.33 11036.61 90.17 10549.89 -4.41% $AGN 64 165.06 10563.84 171.25 10960.00 3.75% $F 650 17.08 11102.00 17.24 11206.00 0.94% $MU 415 29.54 12259.10 31.60 13114.00 6.97% $DIS 131 84.61 11083.91 84.73 11099.63 0.14% Cash 95.69 95.69 Totals 111482.63 113041.01 1.40%
This month the StockTwits Top 10 portfolio is catching back up to the S&P 500 Index. In the chip stocks, Advanced Micro Devices (AMD) has given back its gains while Micron (MU) is holding up reasonably well. The big standout in the portfolio is SunPower (SPWR) up over 22%. Below is a performance chart and details of the current month’s holdings. Start Date Symbol Shares Start Price Start Total End Price End Total % Gain / Loss 6/6/2014 $GOOG 19 556.33 10570.27 578.04 10982.76 3.90% $AMD 2586 4.06 10499.16 4.07 10525.02 0.25% $KORS 111 94.33 10470.63 90.19 10011.09 -4.39% $MSFT 253 41.48 10494.44 41.7 10550.10 0.53% $MU 355 29.54 10486.70 31.56 11203.80 6.84% $NOK 1332 7.88 10496.16 7.6 10123.20 -3.55% $DIS 124 84.61 10491.64 84.71 10504.04 0.12% $SPWR 296 33.78 9998.88 41.39 12251.44 22.53% $PFE 329 29.42 9679.18 29.58 9731.82 0.54% $NKE 137 76.23 10443.51 78.06 10694.22 2.40% Cash 48.99 48.99 Totals 103679.56 106626.48 2.84%
A few momentum stocks are starting to show up in the list of stocks that are maintaining positive support from the StockTwits stream over the past month. Compare the list above to the stocks that have maintained positive momentum on StockTwits over the past three months. Notice the list below is much more defensive.
Social media breadth is finally catching up with the market. Both Twitter and StockTwits had an increase in the number of stocks in the strong list and a decrease in the weak list. Twitter breadth still has a small negative divergence, but appears to be righting itself.
Over the past week the market rallied, but our core market health indicators didn’t participate. In fact, all of them except for our measures of risk turned down. As a result, we’re still 30% short in our hedged portfolio and only 40% long in the Long/Cash portfolios. One thing of note this week is that our market risk indicator is diverging from our core measures of risk. Our core measures of risk have made it into over bought territory while our market risk indicator is well below that level. Historically, over bought readings have usually been followed by a dip of more than 10% within a month or two. Early 1999 and 2013 were exceptions. There were four over bought readings in 2013 and three in 1999 that did not result in a good dip. Between 2000 and 2012 there were three times our core measures of risk were over bought. They were January 2004, April 2010, January through April 2011. I’m not too concerned about this indicator at the
Over the past week all of our core market health indicators with the exception of risk fell as the S&P 500 Index moved higher. Looks like we wait another week before making any changes to core portfolio allocations.
Over the past three weeks the sectors with the most support from the Twitter stream have been Energy, Consumer Durables, and Technology. I’m sure you’re all aware of energy and technology showing strength this year, but consumer durables have been flying under the radar. It appears that almost all of the stocks in the sector are getting support from traders on Twitter. Here’s a chart of the strongest sectors over the past three weeks. Here are the stocks in the consumer durables sector that are getting the most positive comments on Twitter. Here’s a list of stocks that have fairly high momentum/sentiment scores on the Twitter stream over the past week even if they didn’t make it into the strongest stocks list. If you’re planning on rotating with the market into durables the two stock lists should give you plenty of ideas.
Market Risk Rising
Volatility Hedged Portfolio