The consolidation warning issued for the Nasdaq 100 index (QQQ) on 5/12/14 has ended. This was another bad signal for QQQ and continues to show how resilient the general market has been since the beginning of 2013.
Here’s some quick charts of QQQ and SPX with Twitter and StockTwits sentiment readings. QQQ is most likely going to close its consolidation warning today. The StockTwits community still has SPX on a consolidation warning and doesn’t like the sideways action over the past few months. Sentiment from the Twitter stream isn’t too impressed with the recent action either. However, the break above 1900 today is bringing some strong readings. As a result, sentiment will probably break its downtrend line and signal the resumption of the uptrend in the next day or two.
Not much has changed over the past week. The market is still compressing in the range we’ve been watching. However, a bit of volatility was present with a trip to both the top and the bottom of the range. I’m still looking mostly at breadth for the most likely signs that the market will enter a correction or at least make a trip to the 200 day moving average. Our Sentiment indicator for the S&P 500 index (SPX) that reads the StockTwits stream is still on a consolidation warning and has made another lower high. Sentiment from the Twitter stream looks much the same, however it didn’t have a clear up trend so it couldn’t officially warn. This week it made a higher low and a higher high so we have good triangle in place to watch for hints to the direction SPX will break from the range. Currently the odds favor a break lower since smoothed sentiment has a negative divergence with price. Support and resistance levels gleaned from
Today at the close a consolidation warning was issued for the Nasdaq 100 ETF (QQQ) from the Twitter stream. This follows the consolidation warning for the S&P 500 Index (SPX) from StockTwits last Friday.
Sentiment from StockTwits for the S&P 500 Index (SPX) bounced from its confirming up trend line yesterday. It is trying to hold trend and avoid a consolidation warning. The next few days will be critical. In addition, sentiment from Twitter for the Nasdaq 100 Index (QQQ) has been compressing in a triangle. Generally the break of a triangle points the direction for the next move. Once again, the next few days will be critical for the market.
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 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.
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
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
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