- Market Commentary Archive

Short Selling vs. Bottom Fishing

Published on June 17, 2013 by DownsideHedge in Market Comments, Twitter Stock Sentiment

Since mid April we’ve seen a bit of bottom fishing among the 50 most active stocks on Twitter. We currently have four stocks with counter trend bounce signals in place. Each of those stocks have rallied to moving averages (50 and 200 day) and also down sloping trend lines. This is a point where people who are bearish on the stocks should be selling them short. This creates a battle between the longer term investors who are picking up the stocks as they fall and bears who sell every bounce off the underside of moving averages. By watching these battles we can learn about the underlying strength of the general market. If the current rally is near a turning point we would expect to see more short selling in the market. In addition, the stocks that are being sold should fall and continue their long term down trends. For a general view we like to compare a short of the S&P 500 Index (SH) against an actively managed bear fund

Tags: amrn, bidu, cat, fb, hdge, jcp, sh, vix

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Risk vs. Internals

Published on June 15, 2013 by DownsideHedge in Featured, Market Comments, Market Risk, Twitter Sector Sentiment, Twitter Stock Sentiment, Twitter Support and Resistance

Stock market indicator from the Twitter stream

Over the past week our core market health indicators fell slightly, but we made no changes to our core portfolios. The details are in this post. We’re seeing a battle between event risk and market internals. Overall our measures of market health and internal structure are constructive, while our measures of risk are signalling skittishness by investors. The S&P 500 Index (SPX) held up fairly well last week in the face of several market scares. It seemed like every day brought some new rumor that drove the market up and down. But when the dust settled SPX only gave up a little over one percentage point. Meanwhile measures of intermediate term breadth like the percent of stocks above their 200 day moving average and the bullish percent index still have very healthy readings. Looking at market internals this appears to be a garden variety consolidation. We’re not seeing any real damage under the covers as price pulls back. SPX has held a critical support level near 1600 and bounced twice

Tags: spx

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Market Health Slips

Published on June 15, 2013 by DownsideHedge in Featured, Market Comments

Over the past week our core market health indicators slipped a bit. The most notable weakness came from market risk. On Wednesday and early Thursday our market risk indicator got fairly close to a signal, then pulled back as the market rallied. As noted earlier in the week, all but one of its components is now negative and any acceleration in the market to the downside (probably through 1600 or 1575 on a weekly basis) will most likely trigger a signal. Our measures of the economy are staying flat, but trying to recover. Our measures of quality dipped slightly, measures of trend are showing weakness, and measures of strength are holding up. Overall, the market looks healthy to us, but the skittishness showing up in market risk puts us in a position where we’re watching closely. We still suspect that if we raise cash or add hedges it will be a result of our market risk indicator rather than market internals. We made no changes to our core portfolios over

Tags: market health

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Finally Some Excitement

Published on June 12, 2013 by DownsideHedge in Market Comments, Market Risk, Twitter Stock Sentiment

As intermediate to long term investors we often ignore the daily gyrations of the market. We don’t pay a lot of attention to what happens during the day because most of the time it just doesn’t matter. In fact, a lot of times we’re flat out bored and have difficulty finding things to talk about. Our days are usually filled with waiting for weeks on end for something that changes the underlying technical structure of the market enough to change our portfolio allocations. Those changes are usually in small increments so they’re boring events too. I’ll even make the confession that I don’t have CNBC or Fox Business on TV during the day. I have Fast Money in my DVR, but only because it runs an hour after the market closes so it covers earnings announcements. Long story even longer, most of the time what we see on a daily basis is irrelevant. However, once in a while we get near an inflection point where things can get exciting very

Tags: spx, vix, vxv

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Sentiment for the Market Strengthens

Published on June 11, 2013 by DownsideHedge in Market Comments

We mentioned over the weekend that our smoothed sentiment indicator for the S&P 500 index (SPX) would create a buy signal if it moved above its current down trend line. That criteria was met today suggesting that the market should continue to move higher. We see this as confirmation of the clearing of the consolidation warning from late April. Basically, the signal in late April (blue vertical line) suggest a resumption of the uptrend after a period of consolidation (red vertical line). Please note that we weren’t encouraged by today’s price action in SPX so we’re a bit leery that this may be a whip saw. However, our intent is to show all signals even if we’re frightened by them. At the time of this writing we have a very low reading on daily sentiment for 6/12 which will turn smoothed sentiment down at the close on 6/12 if it doesn’t improve. So far this week traders aren’t predicting prices below 1597 so it appears people are looking for

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Uptrend Resumes

Published on June 8, 2013 by DownsideHedge in Featured, Market Comments, Twitter Sector Sentiment, Twitter Stock Sentiment, Twitter Support and Resistance

Our core market health indicators didn’t change much this week so we made no changes to our core portfolios. Market Positives Our market risk indicator started showing concern during the selling on Thursday, but recovered substantially after the market bounced. This is the indicator we feel is most important to watch in the current environment. Higher concern about the Fed tapering QE or Japan’s woes will almost certainly show up in market risk before we see it in any of our other indicators. As we mentioned on Monday we felt like the S&P 500 Index (SPX) should catch at 1600 due to multiple forms of support converging. The two strong days that have followed indicate there were buyers waiting for that level which creates a good line in the sand. Our measures of market quality, trend, and strength are all positive. The selling last week didn’t do any substantial damage which indicates strength in the internal structure of the market. In addition, our market stability indicator held up fairly well

Tags: spx, xlb, xle, xlf, xli, xlk, xlp, xlu, xlv, xly

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Market Health Holding Up

Published on June 8, 2013 by DownsideHedge in Featured, Market Comments

Our core market health indicators held up last week even amid the selling in the market. No big changes to any of the categories which means we didn’t make any changes to our core portfolios.

Tags: market health

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Leading Stocks Hold Up Amid Selling

Published on June 6, 2013 by DownsideHedge in Market Comments, Twitter Stock Sentiment

Twitter sentiment for small cap stocks (IWM RUT)

On Monday we gave our thoughts on where the market would bounce. Today we got a price low near 1600 and also got the bounce we expected. The question now is, “Will the bounce hold?” Tomorrow brings the all important payroll report so it would be foolish for me to make predictions ahead of it. Especially since all I have to do is wait and I’ll know everything I need to know tomorrow. Regardless of my instincts to wait until after the payroll report I’m going to do what I always do and take the data I have available now to make my decisions…because I know that when tomorrow comes I’ll still be wanting for more information. In Monday’s post we mentioned that if/when the S&P 500 Index (SPX) fell to 1600 we would be watching to see how leading stocks react. We believe that leading stocks give good indications of the direction of the market so we look at them along with other technical indicators for guidance. For the

Tags: bidu, csco, f, iwm

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Near Term Risk Rising

Published on June 5, 2013 by DownsideHedge in Market Comments, Market Risk

Ratio of VIX vs VXV signals stock market corrections

One of the charts that we like to keep an eye on to determine the amount of perceived risk in the market is the ratio between one month volatility (VIX) and three month volatility (VXV). When the ratio is low, market participants believe that near term risk is lower than risk further in the future. When the ratio rises it shows a sentiment shift from money managers indicating that they are getting fearful about the near term. If the ratio moves above 1 it warns that more people are fearful about the next month than those worried about the next three months. As a side note there is a new volatility ETF (XVZ) that attempts to take advantage of this theory. Right now we’re seeing the ratio approach 1 telling us that we’re almost to the point where investors believe there is more risk of the market being volatile over the next month than over the next three. Over the past several years this has been a point that marks

Tags: vix, vxv, xvz

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Where to Catch?

Published on June 3, 2013 by DownsideHedge in Market Comments

Clusters of Support for the S&P 500 Index (SPX)

Over the weekend we mentioned that although the S&P 500 Index (SPX) has painted three very ugly daily candles in the past few weeks we still believe we’re merely seeing some healthy consolidation. Our only concern at the moment is event risk, not general market weakness. As a result, we’re fairly long in our portfolio allocations, but watching our market risk indicator very closely. In order to guess how far the market will retrace we like to use very simple tools like trend lines, moving averages, support levels generated from the Twitter stream, and Fibonacci retracement levels. What we look for is a cluster of support. Take a look at the chart below and the 1600 area on SPX jumps out as a likely level for the first major bounce (or even bottom) of the consolidation. Here are several ways we arrived at that number. One fairly reliable chart pattern that we like occurs when price falls sharply for a few days and then consolidates higher (and then breaks the

Tags: rut, spx

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Short Selling vs. Bottom Fishing

Risk vs. Internals

Market Health Slips

Finally Some Excitement

Sentiment for the Market Strengthens

Uptrend Resumes

Market Health Holding Up

Leading Stocks Hold Up Amid Selling

Near Term Risk Rising

Where to Catch?

Twitter Support and Resistance
S&P 500 Index

Support: 1600, 1575, and 1535

Resistance: 1650, 1680, and 1700

Current Market Conditions

Twitter Sector Sentiment

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