Now that I’m quantifying StockTwits messages in addition to tweets on Twitter we can do some comparisons between the two communities. Something that I noticed last week was that the StockTwits indicator diverged from price as the S&P 500 Index (SPX) broke above 1800. At the same time the Twitter indicator moved higher with price. When one of our sentiment indicators moves higher with price it generally confirms the move. A negative divergence gives warning that hedging, shorting, or a lack of buying is occurring by traders and investors. We currently have a situation where StockTwits is providing some early warning while Twitter is painting a pattern that confirmed the initial move, but then moved quickly lower when price fell back below 1800 on SPX. Traders on Twitter appear to be chasing while traders on StockTwits didn’t chase price above the 1800 level. If the market can regain 1800 I’ll be watching for smoothed sentiment on StockTwits and Twitter to move above their previous peaks. Without that confirmation I suspect
I’ve started collecting data from StockTwits and quantifying their messages with the same algorithm as we use for Twitter. There is one major difference between the stocks I track on Twitter and StockTwits. I track 1000 stocks on Twitter, but only 100 stocks on StockTwits (at the moment). As a result, the two lists won’t mirror each other. The Twitter list is more likely to contain stocks that are less known (or have a lower volume of Tweets). While the StockTwits list is mostly comprised of the most active stocks on the stream. Here’s a chart of the bullish intensity scores of the most bullish stocks on StockTwits over the past week. At the first of the year I’ll start showing a monthly list for StockTwits as well. One interesting (amusing) thing to note is that Twitter (TWTR) made the most bullish on Twitter list, but not the most bullish on StockTwits. Below are charts with the bullish intensity scores for the most bullish stocks on Twitter for the week
Precious metals stocks are showing the most negative bearish intensity reading on Twitter this week. Another thing to note are securities related to Brazil (EWZ, PBR). Below are chart with the bearish intensity scores for the most bearish stocks on Twitter for the week and month ending 12/3/13.
Below are charts with the intensity scores for the most active stocks on Twitter for the week and month ending 12/3/13.
The counter trend bounce signal issued for Randgold Resources on 10/20/13 has ended as of last Friday. As I mentioned in the initial post, price traded higher after the signal, but was a failure (loss of -1.37%) from the bounce signal to closing it last Friday. Sentiment is still running high for the precious metals even though price continues to make new lows.
Below are charts with the bullish intensity scores of the most bullish stocks on Twitter for the week and month ended 11/26/13.
Our Twitter sentiment indicator for the S&P 500 Index (SPX) is exhibiting whiplash size moves on the daily indicator. Small moves in price in either direction are causing daily prints in both the +20 and -20 range. These are extreme readings for SPX and indicate that many traders on Twitter are simply responding to moves in price rather than making projections and trading accordingly. The volatile readings are also accompanied by intensity spikes which shows large segments of the herd shifting direction at the same time. The underlying intensity scores show a base of committed bulls and another base of skeptical bears, then a third group representing an additional 25% of intensity that is jumping back and forth between bullishness and bearishness. Smoothed sentiment is responding by moving up and down in short vertical pops and drops. This indicates there is volatility in the actions of market participants that is not accompanied by large moves in price. This creates an unstable foundation for the market and brings with it
Today the Federal Reserve minutes suggested that they may start to taper bond purchases sometime in the future. The market sold off on the news. I’m ignoring the news and the market’s move until Friday. Over my 30 years of investing and trading I’ve observed that the real direction of the market after Fed announcement doesn’t usually appear until the Friday after the minutes are released. The algos take over the first day, then it takes a day or two for money managers to decide how they want to be positioned in light of the news. If the market rebounds by Friday then there is a good chance the uptrend will continue. While a continued sell off will most likely mean more selling ahead. One thing to note about general market sentiment is that small moves lower in price are once again causing large shifts in sentiment. The chart of the Nasdaq 100 (QQQ) below illustrates the point. The underlying numbers show the bulls getting quiet while the bears are
The consolidation warning that was issued for Amazon (AMZN) on 10/10/13 has been cleared. This signal was a huge miss and illustrates two points that I often mention. The first is that trading against the trend will lower your batting average. The second is that the execution of a trade is much different than trade signals. A person who tried to short AMZN on this signal would have got a warning the very next day as the stock moved higher. A week later the stock gapped to new highs. This should have told anyone short the stock that the signal was a miss and consequently it was time to take the loss and wait for another opportunity.
Small cap stocks (IWM) have cleared their warning as of the close today (11/19/13). I’m still seeing weakness in some of our other indicators and the underlying tweets, so I’d wait for a break to new highs before giving the all clear signal.