Our core market health indicators didn’t change much this week so we made no changes to our core portfolios. Market Positives Our market risk indicator started showing concern during the selling on Thursday, but recovered substantially after the market bounced. This is the indicator we feel is most important to watch in the current environment. Higher concern about the Fed tapering QE or Japan’s woes will almost certainly show up in market risk before we see it in any of our other indicators. As we mentioned on Monday we felt like the S&P 500 Index (SPX) should catch at 1600 due to multiple forms of support converging. The two strong days that have followed indicate there were buyers waiting for that level which creates a good line in the sand. Our measures of market quality, trend, and strength are all positive. The selling last week didn’t do any substantial damage which indicates strength in the internal structure of the market. In addition, our market stability indicator held up fairly well
Just a quick update on our Twitter sentiment indicators for the S&P 500 Index (SPX) and sectors today since we didn’t do an update over the weekend. It appears to us that SPX is trying to decide what to do. Sentiment is showing a negative divergence from price, but it hasn’t met our three week to a month criteria that we use to provide meaningful signals. Over the next week we should have enough information to make a call (either a consolidation warning or confirmation of the uptrend). Support and resistance numbers generated from the Twitter stream stayed the same last week even with the big moves in price. Support remains 1650 and 1600 and resistance is at 1665 and 1700. We did get some tweets in the 1635 area pointing to the lows on Thursday and Friday. We’ll need to see them continue into this week to consider them support if 1650 fails. From a sector perspective the market looks like it wants to go higher. Consumer Staples and
Just a quick update on our Twitter indicators this weekend due to Mother’s Day. Our Twitter sentiment indicator for the S&P 500 Index (SPX) continues to confirm the breakout above 1600, however, the daily indicator is showing some lower prints. As the market pushed higher above the 1625 range we started to see a lot of tweets indicating traders thought the market was overbought. Those tweets mentioned technical indicators such as Bollinger bands, trend channels, the McClellan oscillator, and the distance the market is above its moving averages. This suggests that traders believe the market is due for a short term pull back. Smoothed sentiment is holding up well because bullish and bearish sentiment is fairly evenly matched even with all the mentions of overbought conditions. The trend of smoothed sentiment is up and it is above zero indicating that market participants have an overall bullish bias. Twitter support and resistance levels are showing a small layer of support at 1625 on SPX and a strong floor below the market
Over the past week our core market health indicators improved slightly, but didn’t move enough to change our portfolio allocations. Market Positives Once again the market ignored bad news. It won’t matter until it matters… What else can we say? Our measures of risk are still positive, but didn’t recover with the move up in the S&P 500 Index (SPX) last week. Market participants are starting to recognize that a small dip could turn into something larger. Nevertheless, risk levels are positive which gives the market room to rise. Mixed Signals The Nasdaq 100 Index (NDX) finally recovered with SPX, however it is still below the peak made last September so we consider it mixed. The Russell 2000 Index (RUT) regained its 50 day moving average, but has a very short term series of lower highs and lower lows. These conditions need to clear before we’ll believe higher prices in the broader market. Measures of breadth like the percent of stocks above their 50 and 200 day moving averages continue
We’re starting to see a few scratches on this Teflon market. Our core market health indicators fell significantly this past week even though the move in price was minor. We normally don’t see them with such negative readings when price has only fallen about 4%. None of them moved enough to change our portfolio allocations, but the amount of internal damage is disconcerting. Market Positives The S&P 500 Index fell below its 50 day moving average, but didn’t stay there. This is one more sign that buyers continue to step up when the market dips. Large moves down in price one day are met with a rally the next showing the conviction of people who are under invested. Our measures of market risk are still positive, but they deteriorated sharply this past week. Our market risk indicator isn’t close to a signal yet, which suggests complacency by market participants. Mixed Signals Measures of breadth such as the stocks above their 200 day moving average are starting to diverge from price.
This past week the market proved itself once again by refusing to let bad news stick. Our core market health indicators were mixed, but generally improved. This leaves our portfolio allocations the same. Market Positives Once again the most positive thing in the market is price. Every one percent dip seems to be met with buyers. Bad news continues to be seen as a buying opportunity and market participants don’t believe there is substantial risk to the downside. Ironically, the the technical indicator that is working best is price. Since the November low a 3.5% trailing stop would have been the only thing you would have needed to stay on the right side of the market. Our measures of market risk have been a good guide as well, but we never feel comfortable relying solely on measures of risk. This is because risk almost always enters the market suddenly and often doesn’t warn until price has already fallen. It is for this reason that we rely on a variety of
This past week saw the S&P 500 Index breaking out to new all time closing highs. All time intra-day highs are just a few points away just above 1576. However, our core market health indicators continue to deteriorate. These aren’t the type of internals we like to see near market tops. Our indicators are telling us that market participants are getting cautious…which makes us cautious too. Our Twitter sentiment indicator for the S&P 500 Index (SPX) is starting to show some strength but without much enthusiasm. Although daily sentiment is painting higher lows and has a good uptrend line it isn’t acting like it should when price breaks out to new highs. Thursday’s move came with a higher intensity of tweets (volume and scores), but the aggregated score for the day was only +10. The move above 1530 on SPX at the first of March is more characteristic of confirmation of a break to new highs. It came with a print of +21 on the day of the break out signaling
I’ve been meaning to create a sector rotation chart based on Twitter Sentiment for a while and finally got around to it today. The chart below represents the nine major sectors as represented by the SPDR ETFs. The legend next to the chart gives the ETF used for each sector. If a sector has positive Twitter Sentiment (7 day average) then it is represented on the chart in green. If the sector has negative Twitter Sentiment then it is represented in red. The theory behind a sector rotation chart is that during bull markets or extended rallies, Financials, Consumer Discretionary, Technology, Basic Materials, Industrials, and Energy stocks perform well. Bull markets often start with financials, consumer discretionary, or technology leading. Then as the rally gets established the more cyclical sectors of basic materials and industrials start to participate. Late stage bull markets see energy leading. It doesn’t always work out that way, but in general as markets move from the early bull stage to a final top and then turn