Our core market health indicators deteriorated enough today to warn that some consolidation is ahead of us in the market. We’re not making any changes to our portfolios yet, but will by the close on Friday if the indicators don’t turn back up. We require a weekly close just to avoid whipsaws. This isn’t a prediction…remember, I can’t see the future. Instead, we try to align our portfolios to hedge out perceived risk. Bottom line, it looks like the odds of the market moving substantially higher over the next several weeks are very low. While the odds of the market moving sideways or falling is getting more likely. Now is a good time to look at your portfolio and think about trimming your losers, high beta positions, or anything you’re not comfortable with. Have a list ready in case you decide to raise cash.
Our Twitter Sentiment indicator for the S&P 500 Index (SPX) got turned back at the zero line again today (smoothed sentiment). Over the past several weeks it hasn’t been able to get above zero even as the market ground higher. The daily indicator keeps printing lower highs and spikes lower on any down day in the market (volume and intensity spikes higher). It looks to us like traders are dancing close to the door right now. Their tweets suggest that they don’t like the rallies and are terrified of any down day. Sentiment gave its first warning of price moving lower on 1/29/13 when it diverged from price, then broke the confirming trend line. The next few days will tell us a lot about the conviction of the bulls.
Apple (AAPL) looks like it wants to fall to Twitter Support around 420 to 425. Sentiment just keeps confirming the down trend by either chasing price and failing to create any positive divergences that can break the downtrend line.
Twitter sentiment for Goldman Sachs (GS) gave warning two days ago that it needs to pause. Sentiment has been diverging from price for several weeks and now has broken the confirming uptrend line. Please be aware that signals against the trend fail fairly often or are early so this is nothing more than a warning to pay close attention if you own the stock. It also serves as warning for the general market if financials start to lose favor.