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Twitter Sentiment, Support and Resistance Update

Here’s a quick update on Twitter sentiment, support and resistance ahead of Bernanke’s Jackson Hole speech. We’re seeing sentiment hold up this week even as the market chops around.  This is in stark contrast to the huge level of negative sentiment we saw when the S&P 500 Index was consolidating just above 1400 earlier this month.  So we have more positive sentiment ahead of Friday.  The change comes as people are optimistic about the news coming from Wyoming (for those of you in New York and Chicago that don’t cross the Mississippi unless you’re going to Los Angeles or Hawaii…Wyoming is a western state with a small town called Jackson Hole).  Many tweets are also softening their stance that 1425 can’t be broken. The support and resistance numbers are coming in a tight range between 1390 and 1425.  If one of those levels are broken we could see 1500 to 1550 on the upside and 1300 to 1260 on the down side.  We do have several outliers calling for 666

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Bullish Percent Index Mixed

As with many of the internal indicators for the market over the past several weeks the Bullish Percent Index of the S&P 500 Index is showing some indecision.  This index is one of our favorite broad market breadth indicators because it uses point and figure charts to determine if a stock is in an uptrend or down trend.  This method takes much of the ambiguity out of technical analysis. Currently the BPSPX is showing good strength as the market has rallied out of the June bottom.  It is increasing in value each week as more stocks enter up trends.  This is normal behavior for a sustainable rally that we’d like to see continue.  On a daily basis, the BPSPX has been trading sideways for the past several days, which is also normal for a healthy market that is consolidating.  We don’t want to see the daily turn down for any extended period of time.   One thing that concerns us is the negative divergence of the BPSPX with the value

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Market Overview 8/25/2012 – Slight Positve Bias

Twitter Sentiment, Support and Resistance August 24, 2012

This week we’re continuing to see a neutral market that is strengthening.  It is running into resistance at a previous top, but underlying conditions are strong enough to give us a slight positive bias.  We create our market views based on the health and strength of the current rally rather than on news and events.  We care about “how” the market reacts to news not the news itself, so we realize that we’re at odds with many other market prognosticators. We wholeheartedly agree with what most people think the market “should” be doing, but we’ve found that trying to force a market to our will isn’t a good investment strategy.  The news from Europe, tail risk of Israel vs. Iran, and stalling at resistance have us scared, but it hasn’t caused concern in the indicators we follow. Positive On the positive side we see our economic indicators trying to bottom.  Previous attempts to gain strength in our economic indicators since the beginning of 2011 have failed so we’re watching this

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Twitter Sentiment for the S&P 500 Index Makes New High

Our Twitter sentiment indicator for the S&P 500 Index is finally showing some strength as the market is attempting to break out to new 52 week highs.  The consolidation at 1400 on SPX induced extremely negative sentiment levels.  The longer the market stalled just above 1400 the more negative people got with their tweets driving both daily and smoothed sentiment to the lowest levels since the June low.  It appears that this build up in sentiment got enough people committed to the short side of the market to allow a break out above 1410. The move to 1415 was enough to get people excited about this rally’s potential pushing our daily sentiment indicator to our highest recorded levels.  The consolidation on 8/17/2012 just above 1415 did not dampen sentiment and is helping to move our smoothed sentiment indicator quickly higher.  We’ll be watching to see if a break through 1422 brings higher sentiment readings or a contraction back below the zero line (as has been the case for every higher

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Long Cash Strategy 60% Long

We saw continuing improvement in our core market indicators this week allowing us to add exposure to the market in our Long / Cash hedge strategy.  We are now 60% long and 40% cash.  Most of our measures of market strength, trend, and risk are positive, while most of our measures of the economy and quality are lagging. This is the point during strong bear market rallies where we often see whip saws.  During the 2000 to 2002 bear market this level of exposure was often associated with a market peak within a few weeks.  However, during normal up trends this level of exposure generally signals a continuation of the up trend. In the chart above green lines are adding exposure and yellow lines are raising cash.

 
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Double Tops are Meaningless for Intermediate Term Investors in an Uptrend

Published on August 16, 2012 by in Eating Cat

I keep seeing talk about a double and triple top forming in the S&P 500.  These market prognosticators are foretelling doom for the stock market because it is approaching a double top.  They often cite all the problems in Europe, a slowing economy, and even the US debt problems as to why the market is going to fail right here.  Although I agree that all of the fore mentioned items are problems, I don’t agree that reaching a previous price point will bring those problems to a crisis point. Double tops (and double bottoms) are simply places of short term support or resistance.  I’m always amazed to hear technicians pointing to a double top as a great place to get short over the intermediate term.  If you’re not eating cat then a cursory glance at a medium to long term chart will tell you that double tops and bottoms should only be used for a trade with the trend or for a very short term trade against the trend. Take

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Apple vs. the S&P 500 Index

It’s interesting to see the difference in sentiment for Apple and the S&P 500 index.  Both the index and AAPL had significant corrections from March to late May or early June.  The corrections were followed by a retracement that has brought them both back to within a percent of the previous highs.  However, that’s where the similarities end.           Take a look at the chart of AAPL and you’ll see that Twitter sentiment continues to improve as it moves higher.  Even the few sharp sell offs have barely taken the sentiment indicator negative.  Meanwhile Twitter sentiment for SPX has exhibited the exact opposite behavior.  It has had a hard time getting above the zero line even though it has several peaks above peak and valleys above valley.  Right now sentiment for SPX is breaking down hard even though the market is merely consolidating above 1400.  It appears that market participants think AAPL will break out to the upside while SPX is a good short at these

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Twitter Sentiment Breaks Down from Triangle

Our smoothed Twitter Sentiment Indicator broke down from a triangle pattern today.  Levels this low on the smoothed average haven’t been seen since the June lows.  We’ll be watching the market over the next few days to see if it indicates selling pressure or too much bearish sentiment.            

 
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SPX Twitter Sentiment Nearing Apex

Sentiment on Twitter for the S&P 500 Index continues to compress.  The smoothed average of sentiment is reaching the apex of a triangle pattern.  We’ll be watching closely to see if a break of the triangle coincides with a clear direction for the market.  Overall sentiment for SPX continues to be negative with most tweets calling for a top or at least some backing and filling before moving higher.  So far the rally out of the June lows just hasn’t been believed by market participants.  An 11% rally hasn’t been enough to garner conviction from the majority of traders. On the positive side our Twitter Support and Resistance numbers continue to climb with several more calls for 1420 and 1500.  Fewer and fewer tweets have calls for the recent lows or the June bottom.  Will the calls for higher prices win or will it be the negative sentiment brought about by 1400 on SPX?  

 
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Financials Showing Sentiment Strength

Over the last two months as the S&P 500 index has been moving steadily higher, financial stocks have put on a stealth rally.  Little noticed has been the underlying strength of Twitter sentiment for C, GS, and BAC.  While sentiment for SPX pokes above zero only to fall again, sentiment for the banks can’t be kept down.  It’ll dip for a day or two below zero only to pop right back up.  In the last couple of weeks sentiment has risen sharply as investors think the bottom is in for financials. The chart of Goldman Sachs below is representative of the most of the other bank stocks.  It has rallied about 15% off the recent lows with Twitter sentiment skyrocketing.  It’s too early to tell if the .74 reading on sentiment delivered on 8/8/2012 represents an over bought condition since 8/9 brought a 1% increase in the stock, but sentiment still remained high.   I would have expected more negative tweets as GS approached its 200 day moving average and

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