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Breadth from Twitter Stream Goes Sideways

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Over the past week breadth calculated from the Twitter stream moved sideways.  The number of stocks with the most strength increased, but so did the number of stock showing the most weakness on the Twitter stream.  This indicates that the market is starting to separate the weak from the strong.  This is different from 2013 where all stocks tended to move together and our breadth measures responded with deep dips on small down moves in the market. One thing to note is that the current dip in price has been almost as damaging to breadth as the fall to 1740 on the S&P 500 Index (SPX) in early February. Breadth from StockTwits recovered sharply, but it was a result of stocks leaving the weak list rather than an increase in the number of stocks in the strong list.

 
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Chasing and Uncertainty Continue

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Over the past week the market had a good rebound. Many of the indicators I follow moved up, but didn’t recover as fast as the market. It appears as if market participants are being whipped around without much conviction. Not a lot has changed from last week. New highs are still painting a down trend, the bullish percent index is at about the same level, and our market risk indicator improved slightly. The notable changes come from the percent of stocks above their 200 day moving average and the ratio between one month volatility (VIX) and three month volatility (VXV). The percent of stocks above their 200 day moving average recovered back above 80%, however as I’ve mentioned before the headline number isn’t telling the whole story.  Over the past three weeks the market dipped less than 4%, but dragged 15% of the stocks in the S&P 500 Index (SPX) below their 200 dma.  A 2% rise repaired two thirds of the damage. This tells us that a large number

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Consolidation Warning for S&P 500 Index

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Today at the close a consolidation warning for the S&P 500 Index (SPX) was issued from the Twitter stream. As I noted over the weekend, the signals have been coming late over the past several months as traders seem to be chasing price. The nature of the current bounce should give more clues as to the strength of the market. This signal has plenty of room to fail so I’ll be watching to see if the Twitter stream cheers the bounce or fades it.

 
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Social Media Breadth Following Market Down

140414TwitterBreadth

Breadth from Twitter is following the market down, but not as rapidly might be expected. The number of stocks in the bullish list is at the lowest point this year, however the number of stocks in the bearish list isn’t rising rapidly. Many traders on Twitter believe the momentum stocks are due for a bounce which is causing fewer bearish tweets. Breadth from StockTwits is catching down to breadth from Twitter.  The number of stocks in the bullish list is shrinking, while the bearish list is holding fairly steady.

 
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Make or Break Time

By almost all the measures I track it’s make or break time for the market.  I’m seeing a pattern in both core and ancillary indicators that has often marked lows in the market over the past few years.  Each time our indicators were close to signalling an extreme warning the market promptly turned back up and resumed the rally out of the 2009 lows. Over the longer term when our indicators have reached these levels the market rallied 35% of the time and had an extended decline or choppy period 65% of the time.  As you know, I can’t see the future so all we do is go with the odds.  As a result, our core portfolios raised cash and/or added a hedge yesterday.  Here are some highlights of things I’m seeing that makes me cautious. The ratio between near term volatility (VIX) and 3-Month volatility (VXV) is currently rising as a result of both VIX and VXV moving up.  This is a condition that has only occurred a few

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Raising Cash and Adding More Hedge

This past week our core market health indicators continued their recent trend.  All of them except for our measures of the economy fell. Our measures of trend fell sharply and ended the week well below zero.  As a result, we’re raising more cash and/or adding a larger hedge to our core portfolios.  By the close today our Long/Cash portfolios allocations will be 20% long and 80% cash.  Our hedged portfolio will be 60% long stocks that we believe will out perform the market in an uptrend and 40% short the S&P 500 Index (or use the ETF SH).  Below is a chart of our portfolio changes over the past year.  The yellow lines represent raising cash/adding hedges.  The green lines represent removing hedges and adding more longs to the portfolios. As I pointed out a few weeks ago, historically our indicators deteriorating to these levels have resulted in an extended choppy market or an extended decline 65% of the time.  35% of the time these conditions marked a short term low

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Number of Weak Stocks on Twitter Rising

Breadth from the Twitter stream rose slightly last week as a result of an increase in the number of stocks in the bullish/strong list. However, the number of stocks in the bearish/weak list rose as well. This suggests that traders are finding more short opportunities and is a sign of weakness in the overall market. Another sign that traders are pressing their shorts is the performance between a short of the S&P 500 index (SH) and an actively managed short fund (HDGE). Notice that HDGE is rising faster than SH.  Add this to the list of warning signs I’ve mentioned over the past few months. Breadth from the StockTwits community is rising.  It comes from a slight increase in the strong stocks and a decrease in the number of weak stocks.  Although this seems at odds with the Twitter stream it really isn’t.  I only use the most active 100 symbols for the StockTwits list so they tend to be larger and more established companies.  As a result, the rise

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Twitter Sentiment Compressing

Over the past week our Twitter Sentiment indicator for the S&P 500 Index (SPX) moved dramatically on a daily basis, but the smoothed indicator is being compressed as the market moves sideways to up.  When the market moved to all time highs the daily indicator confirmed the move with prints in the +25 area, but that was quickly reversed as price consolidated on Thursday then fell on Friday.  This suggests that traders are being whipped around by price and are a bit jittery. Smoothed sentiment has held its confirming uptrend line for nearly two months, but is also being held in check by a three month down trend line that has a negative divergence with price. This compression indicates that the battle between the bulls and the bears is becoming more evenly matched as time moves forward. It also suggests some indecision which will need time to resolve. Support and resistance levels also show indecision by traders on the Twitter stream.  Last week when SPX moved above 1885 only a

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Broad Based Selling Without Fear

Published on April 5, 2014 by in Market Comments

Last weekend I mentioned that the stock market was undergoing rotation, however, no real fear was associated with the selling.  This week we have a market that looks like it may have started some broad based selling, but again without much fear from market participants.  During the week most of the indicators that I follow strengthened. Then came Friday, which showed an entirely different character than I’ve seen in a long time.  It reversed the gains in our internal indicators and also created some concerning chart patterns in individual stocks. As you know, I try to give a few things each week to watch as the most important clue to the direction of the market.  This week what I’ll be watching most closely is the action of the stocks that had held up while momentum, bio tech, and social media stocks were being ravaged by selling. On Friday, many of these stocks were sold aggressively along with stocks that have been weak since the first of March. Google (GOOG) is

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And the Trend Continues

Today at the close (4/2/14) quantified messages from the StockTwits stream reconfirmed the uptrend in the S&P 500 Index (SPX).  It closed the consolidation warning that was previously in place with smoothed messages breaking above the down trend line that was confirming the consolidation.  Unlike the last two times SPX got to all time highs the smoothed indicator moved above its previous peak.  This indicates that the StockTwits community is more comfortable with new highs now than they were in early and mid March. The message from this signal is that the odds favor the market continuing its uptrend in the near future.  Here’s a post with  more information about consolidation warnings and confirming signals. Our sentiment indicator for SPX from the Twitter stream is slightly at odds with the StockTwits community. First, the Twitter indicator didn’t issue a consolidation warning on the recent weakness.  Second, it is more reluctant to push higher as the market breaks out which continues the negative divergence with price.  This indicates a bit more

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