Below are the intensity scores for the most bullish stocks on Twitter over the past week and month.
Market Tops Give You Plenty of Time
Recently I’ve seen a lot of people mention on Twitter and various blogs that the market doesn’t give you time to get out at tops. I have to politely disagree. If you’re an intermediate or long term investor the market will almost always give you warning that it is preparing to consolidate. As an example, here is one of our early warning posts from last October. Often the first warning signs are well ahead of the actual top, so the key to successful investing is in waiting for the weight of evidence to turn before making major changes to your portfolio. Here at Downside Hedge we move money slowly as market conditions change. From mid February we’ve been seeing signs of deteriorating market conditions. Our canaries in a coal mine post on 2/19 highlighted some of the deterioration that we’ve been seeing. The S&P 500 Index (SPX) was trading near 1520 at the time. SPX is now near 1565 and most of those conditions are still in place. For a
Emerging Markets and Financials Holding Up – Not Always Good
Over the past six weeks emerging market stocks (EEM) and financial stocks (XLF) have shown surprising relative strength against the S&P 500 Index (SPX). Both of these indexes have been able to hold their 50 day moving averages even as SPX has clearly broken below its own. In addition, while SPX has broken several levels of support including its recent uptrend line, both EEM and XLF have held theirs. EEM in particular looks to be consolidating just above a breakout of a down trend line. This should be a very positive sign. EEM and XLF are generally leading sectors. We often see them create positive divergences with SPX at the tail end of major corrections. The problem we have now is that these two sectors are showing strength near the end of a rally (rather than the first of one). When leading sectors lag it tends to cause confusion…and confusion leads to consolidation or a down trend. These two sectors are trying to tell us something about the market. One
Emerging Market Sentiment Strengthening
Yesterday we posted an article featuring an Emerging Markets ETF (EEM). That post focused on price alone, showing the building strength in emerging market stocks. Today I’ve posted a chart of EEM with its Twitter Sentiment Indicator. Our smoothed sentiment indicator for EEM is finally showing some strength. Previously, a rally in price would move our indicator quickly to an over bought condition. Then any weakness would send sentiment rushing back to an over sold condition. This signals high anxiety by traders as they react to every price move. If you look at the time period from 8/10/2012 to 8/21/2012 you’ll see that price for EEM traded in a flat range. However, Twitter sentiment deteriorated almost every day so that by the 21st our smoothed indicator was below zero even though price had been fairly stable. Traders were so indecisive about EEM that even a sideways consolidation caused them to tweet about the top being in place. When a security is in a healthy condition our sentiment indicator tends to
Critical Point for Emerging Markets
In early August we posted that we were watching for strength in emerging markets (EEM) as a sign that world economies are getting healthy (see post for why). At the time we thought emerging markets looked like they were trying to make a bottom. We annotated the chart with trend lines we felt were important. The chart below shows those trend lines extended to the end of the chart (I also added a long term trend line to the bottom of both charts…more about that later). As you can see, both EEM and the S&P 500 Index (SPX) have obeyed their respective trend lines. This is a healthy sign, however, after two months of good behavior we’re reaching a critical point. EEM has broken above its down trend line. This is happening just as SPX is touching the upper boundary of a long term rising wedge. The breakout and movement in price from EEM is positive in its out performance of SPX over the past few months. This is a
Watching Emerging Markets for Strength
We’re watching emerging markets closely here looking for signs that the world economy is strengthening. EEM is a good instrument to watch for clues to the economy because it is heavily weighted to financials, information technology (chips), energy, and materials. These are all sectors that do well when the economy is growing. In addition, EEM is weighted to Asia and Brazil, two areas that are sensitive to world economic conditions. EEM has been in a down trend for well over a year even as SPX has worked its way higher. In March as SPX was breaking above the 2011 highs, EEM tested its down trend line. It was a failure that signaled the world economy was weakening. It appears that EEM will test the down trend line again if SPX makes new highs above 1422. We’re watching EEM closely because a break above the trend line would be one sign the economy has some underlying strength. Another failure or non confirmation by EEM would point to a continued stall in
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