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Ignore the Fed…For Now

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

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Consolidation Warning from StockTwits Ends

The consolidation warning for the S&P 500 index (SPX) generated from quantified StockTwits messages on 11/8/13 has been cleared as of the close on 11/12/13. The move in smoothed sentiment back above its down trend line clears the warning. Since the warning came so close to the apex of a triangle this move higher could simply be a whipsaw similar to what we saw with the Nasdaq 100 (QQQ) earlier in the month.  The next few days will most likely give us the answer.  There are still a very large volume of tweets targeting 1775 on SPX as resistance. If that level is overcome the market will most likely push to 1800 before pausing again (with sentiment confirming the move).  If price stays below 1775 then I suspect we’ll get another warning from quantified StockTwits messages.  I’ll post another update when the picture becomes clear. Here’s the chart for QQQ that shows the whipsaw.  It is currently still warning.

 
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Profit Taking Continues

Much of the same conditions I mentioned last week are still in place.  Rotation and profit taking are still the major theme.  Our market health indicators mostly fell last week, but didn’t deteriorate enough to change our core portfolio allocations. Our Twitter sentiment indicator for the S&P 500 Index (SPX) fell sharply over the past week.  The daily indicator didn’t produce any strong readings even on days the market rallied.  The initial jubilation from traders on Twitter when SPX pushed above 1730 has quickly dissipated. Smoothed sentiment painted a negative divergence with price into the last peak which suggests traders were taking profit and shorting into that rally.  Then a small drop in price caused a steep drop in sentiment indicating that others started to pile on to the trade. That behavior was expected given the fact that SPX had a large volume of tweets projecting a top at the 1775 level.  The tweets lead price by two weeks and acted as a magnet to pull prices higher.  Once 1775

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Consolidation Warning for Nasdaq 100

A consolidation warning was issued for the Nasdaq 100 (QQQ) at the close on 10/29/13. Smoothed sentiment has been painting a negative divergence with price for over a month. The last rally in price did not bring with it significant tweets cheering the move. The selling in some of the momentum stocks has been weighing on QQQ as well. Please note, this isn’t a sell signal, rather fair warning that QQQ may need a bit of time to consolidate before moving higher. This consolidation warning comes a week after the small caps (IWM) warned.  Since that time IWM has been trading sideways even as the S&P 500 Index (SPX) has continued to move higher. This adds weight to the other indicators I’ve been seeing that suggest rotation out of the stocks that rallied over the summer into stocks that consolidated during that time. Although SPX is moving higher it is painting a negative divergence with sentiment from both Twitter and StockTwits.  They haven’t issued consolidation warnings yet, but the negative

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Profit Taking as the Market Moves Higher

Over the past week we got enough weakness in our measures of market quality to cause a shift in our portfolio allocations. Both of our long/cash portfolios are now 80% long and 20% cash. Our hedged portfolio is 90% long and 10% short (using SH). As the market moves higher I’m seeing profit taking in the momentum stocks that had strong runs through the summer.  Take a look at the charts of some of the stocks that are currently in the Twitter Top 10 Portfolio and you’ll see some very choppy tops. As money moves out of the momentum stocks it is finding its way into stocks that consolidated across the summer. This rotation is creating an improvement in market breadth which indicates that money managers are expecting a year end rally, but are getting more selective in the high fliers.  One thing of concern is that some of the stocks that are rallying are defensive in nature or have high dividends which indicates a rotation to safety. Our investor

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Most Active Stocks on Twitter

Most Active Stocks on Twitter - Weekly

Below are the stocks with the highest intensity (volume and scores) on Twitter for both the past week and past month.

 
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Traders are Chasing and Nervous

Twitter Sentiment QQQ

For the past few months Twitter sentiment for the ETFs that track the Nasdaq 100 Index (QQQ) and the Russell 2000 Index (IWM) have been painting a pattern that shows indecision by traders.  Each move up in price is met with high sentiment and each move down garners a lot of negative tweets.  This is causing our smoothed Twitter sentiment indicator to mirror price.  When sentiment mirrors price it shows us that traders are chasing.  Their tweets are reacting to price rather than predicting it. Smoothed sentiment for QQQ and IWM are currently showing very wide swings from bullish to bearish. This uncertainty is not a normal condition for actively traded and tweeted stocks.  Instead, as momentum builds for a stock, Twitter sentiment starts to trend with the stock in a well defined range.  Traders show confidence in their positions with a majority of tweets confirming the trend.  In up trends, down days don’t show large negative prints in daily sentiment which helps smoothed sentiment continue to rise (and confirm

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Most Active Stocks on Twitter

Weekly and monthly charts of the stocks with the highest overall intensity scores on Twitter.

 
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15 Most Bearish Stocks on Twitter

Weekly and Monthly charts of stocks with the most bearish intensity on Twitter.

 
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Top 25 Most Active Intensity on Twitter

Above are the stocks with the highest intensity scores on Twitter over the last week. Below are the monthly numbers.

 
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