Most of the consolidation warnings issued for market indexes on 12/9/14 were cleared during the rally last week. Here’s a quick update of the two I consider most important (S&P 500 Index – SPX and Small caps – IWM). The general message is that odds favor higher prices into the end of the year. A bit of a stall here would be normal considering the strength of the recent run. But then a drift higher should be expected.
The strongest stocks on Twitter yesterday had a lot of energy names. This shows that people are starting to nibble at them even as oil continues to fall. Subscribers to Trade Followers should keep an eye on the weekly, two week, three week and one month bullish lists to see if the trend continues. For those of you who like to catch bottoms be sure to watch for a break of the confirming down trend lines from Twitter sentiment (7 day momentum). Here’s an example stock trade using Twitter that you can use as a guide.
On 12/9/14 our Twitter momentum indicators for several of the indexes gave consolidation warnings. Among them was a warning for the S&P 500 Index (SPX). This warning comes as a result of a strong rally in price that had a negative divergence from quantified tweets and a subsequent break of the bullish trend on the Twitter stream. When Twitter momentum diverges from price and breaks lower it signals that the herd is changing direction. It shows up on the Twitter stream as fewer traders tweeting about purchases and more market participants becoming skeptical of the rally. In addition, the Trade Followers algorithm picks up more tweets that contain selling, raising cash, or hedging.
Although 7 day momentum has broken trend and is now below zero, the daily readings are not extremely negative. Many market participants still believe SPX can rally into year end. This hope is muting the the downward pressure of tweets with negative bias or actions.
Another sign of hope for the bulls comes from small cap stocks (IWM). Momentum from both the StockTwits and Twitter streams are still confirming IWM’s uptrend as price paints a bullish consolidation pattern above its 50 and 200 day moving averages. 7 day momentum from Twitter is compressing in a triangle that often precedes strong moves in price. If momentum and price can move above their current resistance lines the odds favor higher prices for all indexes into the end of the year. A failure from here would would indicate a correction that would most likely carry to at least the October lows.
Breadth calculated between the most bullish stocks on Twitter and the most bearish is diverging from price, but still printing healthy readings. Breadth is slowly falling due to fewer strong stocks making the list, however there isn’t a large increase in the number of weak stocks. This is surprising given the fact that new lows on the New York Stock Exchange (NYSE) and Nasdaq are increasing rapidly. It indicates that traders and investors are becoming more optimistic about beaten down stocks as price falls.
The message from social media this week is profit taking with a bit of hope. The hope manifests itself with small negative prints on the daily indicator for SPX, confirming upward momentum for small cap stocks, and the lack of new stocks in the most bearish lists. The market can still stage a year end rally, but is in danger of a large decline if hope is lost.
Over the past week the Twitter Top 10 portfolio held up relatively better than the S&P 500 index (SPX). There were no real winners or losers given the fact that the market was down. Below is a performance chart and details of the current holdings.
| Start Date | Symbol | Shares | Start Price | Start Total | End Price | End Total | % Gain / Loss |
| 12/5/2014 | $BBRY | 1078 | 10.68 | 11513.04 | 10.09 | 10877.02 | -5.52% |
| $VZ | 233 | 48.61 | 11326.13 | 45.45 | 10589.85 | -6.50% | |
| $BBY | 319 | 35.63 | 11365.97 | 37.12 | 11841.28 | 4.18% | |
| $WMT | 135 | 84.12 | 11356.20 | 84.03 | 11344.05 | -0.11% | |
| $TGT | 154 | 73.66 | 11343.64 | 73.40 | 11303.60 | -0.35% | |
| $WFM | 235 | 48.29 | 11348.15 | 48.41 | 11376.35 | 0.25% | |
| $DIS | 121 | 93.76 | 11344.96 | 91.97 | 11128.37 | -1.91% | |
| $CELG | 106 | 114.13 | 12097.78 | 115.65 | 12258.90 | 1.33% | |
| $MU | 311 | 36.49 | 11348.39 | 34.33 | 10676.63 | -5.92% | |
| $F | 724 | 15.70 | 11366.80 | 15.15 | 10968.60 | -3.50% | |
| Cash | 164.88 | 164.88 | |||||
| Totals | 114575.94 | 112529.53 | -1.79% |
Over the past week the StockTwits Top 10 portfolio rose a touch. It was up about .5%. During the same time period the S&P 500 index had a fairly sharp move down. The out performance was a result of Lululemon Atheletica (LULU) which was up nearly 17%. The rest of the stocks in the portfolio had small gains or losses.
Below is a performance chart and details of the current holdings.
| Start Date | Symbol | Shares | Start Price | Start Total | End Price | End Total | % Gain / Loss |
| 12/5/2014 | $MU | 277 | 36.49 | 10107.73 | 34.39 | 9526.03 | -5.76% |
| $BBY | 284 | 35.63 | 10118.92 | 37.09 | 10533.56 | 4.10% | |
| $DIS | 108 | 93.76 | 10126.08 | 92.13 | 9950.04 | -1.74% | |
| $INTC | 269 | 37.67 | 10133.23 | 36.49 | 9815.81 | -3.13% | |
| $WMT | 120 | 84.12 | 10094.40 | 84 | 10080.00 | -0.14% | |
| $CELG | 111 | 114.13 | 12668.43 | 116.2 | 12898.20 | 1.81% | |
| $MSFT | 231 | 48.42 | 11185.02 | 47.25 | 10914.75 | -2.42% | |
| $IBM | 62 | 163.27 | 10122.74 | 156.62 | 9710.44 | -4.07% | |
| $KORS | 130 | 77.63 | 10091.90 | 77.59 | 10086.70 | -0.05% | |
| $LULU | 222 | 45.51 | 10103.22 | 53.23 | 11817.06 | 16.96% | |
| Cash | 172.47 | 172.47 | |||||
| Totals | 104924.14 | 105505.06 | 0.55% |
GoPro (GPRO) has been breaking down hard over the past several days. We warned about taking a position in GPRO back in October. Our reason was that Twitter momentum was painting a negative divergence and we needed to see price shake out and create a positive divergence. Here’s the chart we posted on 10/13/14.
Subscribers to Trade Followers have been able to track momentum over the past two months. They’ve seen Twitter momentum moving higher, but not creating a clear buy signal (momentum break down trend after a positive divergence). Price is now falling and momentum is confirming the fall. As a result, we’re still waiting for a positive divergence and a subsequent break of the down trend before considering a long trade.
It’s been three months since I’ve commented on gold (GLD) and gold stocks (GDX). The reason is that precious metals have mostly been falling and momentum on both StockTwits and Twitter haven’t painted a clear picture. The indicators show that traders have been chasing and sentiment gold is currently based more on emotion than anything else. I see a lot of talk on the streams about gold bottoming, but long time readers know I don’t like to catch falling knives. I prefer to make low risk trades that have a solid setup.
An example of a solid setup was the failed trade for GDX last August (slight gain, but couldn’t get any momentum). In early August the ETF had painted two higher lows and was consolidating in a sideways pattern right above its 50 and 200 day moving averages. At the same time momentum from social media was confirming the price move with higher lows. On 8/4/14 Twitter momentum broke higher creating a buy signal. Unfortunately, neither price nor momentum were able to hold a confirming up trend. On 8/22/14 we closed the trade with a tiny gain.
Since then we’ve been waiting for another good long setup, but it hasn’t occurred. Instead, momentum has mostly mirrored price. This indicates chasing…and that is not an environment where low risk trades are made. Gold may be bottoming, but I prefer to wait for a clear signal before making a trade.
On thing to note about Twitter momentum for GLD is that it is at an overbought level that has preceded dips in the past. This next dip might give us the setup we’re waiting for. Until then, patience, patience, patience.
I posted over the weekend that it was make or break time for the indexes. It appears that it might be break time. All of the indexes with the exception of small caps (RUT or IWM) issued a consolidation warning at the close today. A consolidation warning occurs when Twitter or StockTwits momentum breaks its confirming uptrend line after a negative divergence with price that lasted more than three weeks. What this pattern shows is traders becoming less bullish, taking profit, adding hedges, etc. as the market moves higher. When the confirming uptrend of momentum is broken to the downside it shows the herd turning bearish in the short term.
Here’s an update on the indexes, sectors, and Twitter breadth…with little commentary. The overall picture suggests the market is still holding up, but Twitter and StockTwits sentiment is close to breaking down. It’s make or break time for the end of the year.
The sectors are looking healthy and suggests we could see a drift higher into year end.
Breadth from the stocks with the strongest sentiment vs. those with the weakest sentiment still looks healthy.
Earlier in the week I posted the following chart on Twitter and StockTwits. In that post I mentioned that the StockTwits community was still confirming lower prices for emerging markets (EEM).
Our algorithm that scores tweets for bullish and bearish sentiment now has the Twitter stream predicting lower prices for EEM as well. A break down in price from the current bear flag and recent lows would most likely carry prices back to the January 2014 or the June 2013 lows…so you need to be a nimble trader to make the risk reward acceptable.
EEM also makes the weakest stocks on Twitter for the past week, two weeks, and past month. One thing to note is that this bearish list is sorted from strongest to weakest so EEM is the strongest of the weak stocks over the past month. You can see more stocks showing weakness on Twitter by subscribing to Trade Followers.
