Over the past week I saw improvement in almost all of the indicators I follow. However, the improvement was somewhat tepid. The indicators paint a picture of market participants willing to nibble and take small risks, but not expecting a lot of upside over the near term. Market breadth continues to improve on the headline numbers, but individual charts show a much more delicate picture. This isn’t a problem for now, but something to watch closely if the market pauses or dips. If a retracement back to the 1850 to 1800 level on the S&P 500 Index (SPX) brings with it a sharp decline in the percent of stocks above their 200 day moving average and the bullish percent index it will be a warning sign that the intermediate term trend is changing. A retracement without a sharp decline in breadth will indicate that the weak hands were shaken out during the dip in January and buyers are stepping up. Breadth is the indicator I’m watching most closely this coming
The S&P 500 Index (SPX) finally closed and held above 1850 a couple of times this past week. This is a positive development for the market if 1850 continues to hold. A break back below 1850 will indicate that the market needs more time to digest the 2013 gains. This coming week price is the indicator to watch most carefully. Although price has broken a major resistance level there are still several indicators giving mixed signals. Our market health indicators that monitor the economy and market strength are still negative, and our measures of market quality keep bouncing along just above zero. This isn’t the underlying environment I like to see when the market is breaking out to all time highs. This suggests a bit of caution is warranted over the next few weeks. Our investor contentment index continues to fall from fairly high levels while our market stability indicator is recovering from very low levels. This suggests investors are less comfortable the higher the market goes, but are losing
Over the past few weeks I’ve highlighted some things that suggest the market is in a trading range between 1800 and 1850 on the S&P 500 Index (SPX). Another thing I’m seeing that indicates uncertainty is the lack of trade signals generated from the Twitter stream. During the early months of 2013 as the market was coming out of a choppy period there were a lot of long signals generated (green vertical lines on the chart below). As the market started to turn over in May several short signals were generated (red lines). Throughout most of the year the pattern of buy signals as the market rallied out of lows and sell signals at the beginning of declines continued. The dip into early February this year has broken that pattern. There were a few sell signals as the market declined, but no buy signals on the subsequent rally. When I look at individual charts I see sentiment confirming the price decline as a stock consolidates. Bank of America (BAC) and
The S&P 500 Index (SPX) is finally trading above 1850, but traders on Twitter still aren’t targeting higher prices. There is still a fairly well defined range between 1800 and 1850. I suspect that today’s action will bring with it calls above 1850 as the day progresses, but so far 1850 is the highest target with any significant number of tweets. Smoothed sentiment also has a fairly large negative divergence with price as many traders don’t believe prices can move much higher. Nevertheless, price is what matters. A few daily closes above 1850 will clear the way for a new leg higher. Sector sentiment continues to be mixed and doesn’t give us much information about the market. The one thing that has surprised me is the under performance of Consumer Staples while the other defensive sectors of Utilities and Health Care have been so strong.
As many of you know, my goal at Downside Hedge is to provide information and ideas that you won’t find in other places. This week I suspect will be one of those times where I share a theme that many (most) will disagree with. I believe we’re in a trading range. I could be wrong, but for now I think the most important information we’re getting from the market is the range between 1800 and 1850 on the S&P 500 Index (SPX). First let’s look at the evidence that makes my point of view look foolish (then I’ll give my justification). SPX has just put in a very steep V bottom. That chart pattern almost always resolves with the market going on to new highs. The Nasdaq 100 (NDX) is leading the market and has already printed new highs. The NYSE cumulative Advance/Decline (NYAD) line turned up sharply over the past few weeks and is confirming the move higher. The percent of stocks above their 200 day moving average has
The consolidation warning issued for the S&P 500 Index (SPX) on 2/7/14 has ended. This ended being another whip saw and suggests that the uptrend in the market is underway again.
Quantified messages from the stock twits stream narrowly avoided a consolidation warning last week. It has now reconfirmed the uptrend with the messages supporting the market increasing enough to break the downtrend created by bearish messages. This suggests that the bulls are back in charge and that there aren’t enough bears to push the market lower. Throughout the down trend the number of positive messages about the market held firm, but the negative messages increased. The bearish messages have subsided and are now back to the same intensity as early in the year. Meanwhile, quantified tweets issued a consolidation warning last Friday. The signals from the Twitter stream looks like it will be a whip saw unless the market turns over very quickly. Score one for the StockTwits community.