Our Long / Cash hedging strategy is now 100% cash. Please see our Long / Short Hedging Strategy Update for an explanation. In the chart below the green lines represent buying stocks for the portfolio (reducing cash). The yellow lines represent raising cash by selling stock.
Financial stocks (XLF) are once again reaching an important level. After the initial rally out of the 2009 bottom, financial stocks have traded largely in a sideways range. During this time the S&P 500 Index (SPX) continued to grind higher, although in a choppy fashion. XLF is now reaching the highs of the range it has been in for over two years. One of the reasons that this rally hasn’t been believed is that financials have lagged. Strong rallies that garner support from institutions and retail investors alike are often led by financial stocks. Money managers always feel better if the companies they work for are making money. Brokers are more confident if they can move product. Employees of large financial institutions know if deals are getting done and if the bank is making money. Whether it’s underwriting IPOs, backing mergers, engaging in proprietary trading, or selling product to retail investors, people in the financial industry see activity (or lack thereof) and it influences their psyche. So when financial stocks
We’re seeing something interesting in our Twitter Sentiment Indicator for the S&P 500 Index (SPX). Over the past two days we’ve had strong price moves on SPX that aren’t generating the high scores in sentiment that we’d expect. The behavior of the indicator caused me to dig down into the actual tweets for an explanation. We’re seeing a lot of people tweeting that they are adding to their shorts. They are mentioning bearish technical evidence such as divergences in weekly charts and Fibonacci retracement levels being met. A lot of traders believe the top is in and we won’t see higher prices. In addition, there haven’t been tweets calling for 1475 or 1500 since the 11th of this month. All of these things are keeping our daily Twitter Sentiment Indicator low. Our smoothed sentiment indicator had a negative divergence with price the last time SPX got above 1465. Then it painted a positive divergence in price on the last low. We interpret this as indecision and caution by traders. For
Once again we had a week where our market health indicators were mixed. While our measures of the economy rose slightly all of our other indicators fell a bit. We’re not concerned yet, but we’re getting close to levels that will cause us to start hedging if the market doesn’t move upward in the next few weeks. For now we’re still 100% long in our portfolio. Market Positives Our Twitter Sentiment Indicator is showing a positive divergence with price on the S&P 500 Index (SPX). Even as the market fell last week sentiment continued to rise. This was a result of many people tweeting that the 1420 to 1430 level would hold. Many investors are also commenting about wanting to buy in the 1420 area. The volume of positive tweets were enough to keep our daily sentiment indicator in positive territory on both Thursday and Friday even though SPX painted poor chart patterns. Our smoothed sentiment indicator continued to show strength hovering just below the zero line in a week
Yesterday we posted that the market was reaching a critical point of support somewhere between 1420 and 1430. We also stated that the next several days should be critical to the next major move in the market. I have a colleague who often jokes that if we just wait until tomorrow we’ll have enough information…so take my comments that follow for what they’re worth. We’ll know tomorrow. Mark Curtis Even though we’ll never have enough information to know for certain, when several lines of support all converge at the same time at the same price point you should pay attention. Take a look at the chart below. It is several charts of the S&P 500 Index with annotations of the various support levels that are all converging. Our Twitter Support and Resistance levels (computed from the Twitter stream for $SPX) show a huge line of support at 1430. SPX 1430 has the longest streak of tweets than any other level we’ve recorded (meaning several mentions every day in a row
Just after Labor Day we made a post about value stocks warning of the market nearing a top. Today we’ve updated the chart that shows Berkshire Hathaway (BRKB) and the S&P 500 Index (SPX). As you can see, the rotation to value has continued over the past month. This is evident by the price of BRKB continuing up while SPX moves sideways. As we mentioned in the previous post, this is a sign that we’re closer to the top of a rally than a bottom. Money managers continue to move slowly but surely to safety. This in itself isn’t a near term problem because it takes managers with a lot of money time to make major adjustments to their portfolios. Big dollar sellers try to sell into strength so they don’t move the markets much as they change positions. This slow steady distribution and rotation is what creates tops that last several months before they are recognized. When we look at value stocks (using BRKB as a proxy) out performing
Last week our market health and risk indicators were mixed. Some were up slightly and others were slightly down. This is a normal condition for a healthy consolidation and as a result we made no changes to our portfolio. We’re still 100% long in both of our hedging strategies. Market Positives Our Twitter Sentiment Indicator for the S&P 500 Index (SPX) strengthened substantially last week. The current move up started with a positive divergence with price as people tweeted that 1430 was a durable low. It had stalled early last week at the zero line as traders talked about their fear that the market couldn’t break out above the previous highs of 1475. But the consolidation on our daily sentiment indicator was resolved to the upside on Thursday due to the sharp upward move in price which held into the close for SPX. The move was strong enough to push our daily indicator into over bought territory. In fact, Thursday registered the highest reading to date which is an encouraging
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
The S&P 500 Index (SPX) painted and ugly chart pattern today. The market had a strong move upward in the first half hour of trading, then sold off the rest of the day. Selling after the initial pop is what we call a pop and drop. This isn’t the type of chart pattern we like to see during healthy rallies. It is continued evidence that there are still sellers waiting for opportunity to take profits. At the least, it means we need further consolidation before we can move substantially higher. Our Twitter Sentiment Indicator for SPX had a pop and drop today too. Initially, it registered strong readings, but then after the first hour there were many tweets about shorting the market and “I told you so” type tweets. There are a large number of people who think the top should be in. Many are pointing to the weekly charts that show two weeks of lower highs and lower lows. Adding insult to injury, it appears that the rotation to
During the last week all of our market health and risk indicators showed weakness, however, this is a normal condition during market consolidations. As long as the indicators continue to paint chart patterns similar to price we won’t be concerned. We get nervous when our indicators turn down faster than price. When that happens it is signalling underlying weakness in the market. So far we’re of the opinion that we are currently in a normal, healthy consolidation. None of our measures of the economy, risk, quality, trend, or strength deteriorated enough to cause any changes in the portfolio. We’re still 100% long. We’re aware of the fact that consolidations can turn into larger corrections so we’ll continue to monitor our indicators closely for signs of weakness. Market Positives Our Twitter Sentiment Indicator for the S&P 500 Index (SPX) continued to show relatively good strength again last week. Two weeks of downward price movement has only brought smoothed sentiment back to the trend line we drew near the beginning of September.