Yesterday I posted the most bearish stocks over the past two weeks for people looking for a short trade watchlist. For those of you who think the market is going higher here’s a long trade watch list. These stocks have had positive sentiment over the past two weeks and should continue higher. Over the coming weeks they’ll be stocks that you’ll want on a “buy the dip” watchlist. As always, don’t buy any list blindly. Do your own research.
The weakest stocks on Twitter over the past two weeks is littered with companies that missed on earnings. After a temporary bounce these types of stocks often resume their down trends. If you think the general market is going lower you might want to start looking for short opportunities. The most bearish list provides as starting point for your research into new short trades.
A few weeks ago I posted some information on how to manage our current gold stock trade. Here’s a quick update to the chart. Currently, momentum calculated from traders on Twitter is still holding trend, but is getting close to breaking lower. Keep an eye on this over the next few days as a signal to either close the trade or at least take an additional third off.
Last week’s rally didn’t inspire market participants on either StockTwits or Twitter. Thursday brought a strong daily print in momentum for the S&P 500 Index (SPX), but the readings from the rest of the week were fairly tepid. This indicates that traders and investors are wary at the moment. Uncertainty still reigns as evidenced from several signs. First is that the StockTwits stream put in a higher low in 7 day momentum while the Twitter stream did not. Next, the tepid readings during the short term rally suggests that even if the market makes new highs 7 day momentum will almost certainly paint a negative divergence with price.
Subscribers should keep a close eye on 7 day momentum next week. If the market rallies you want to see some strong confirmation rather than a negative divergence. A negative divergence will indicate that traders are taking profit and investors aren’t committing new funds. The daily indicator should print higher than 25 on a move above 2075 on SPX. If the newly created uptrend line in StockTwits momentum is broken to the downside then odds will favor a move below recent lows.
Breadth from the Twitter and StockTwits streams broke below the October lows last week. It did so with price on SPX 9% higher. It indicates that the leaders out of the October low aren’t being bought aggressively. This is a warning sign that a longer term top may be near (or already behind) us. At the least, short term caution is advised until breadth recovers the January highs. This is something to watch, but until breadth breaks below zero we have to assume the long term trend is still up…and any further weakness should be a buy the dip opportunity.
Support and resistance levels for SPX are in an extremely tight range near term which indicates uncertainty. Traders aren’t projecting price targets above or below current levels in any real volume. They are simply following price while waiting for a break of the wide range between 1975 and 2100. The range is probably the most important thing to watch over the next few weeks. A break in either direction will most likely start a new intermediate term trend.
Sector strength and sentiment are warning this week with all sectors, defensive included, showing strength. Every time this has occurred since we’ve been tracking it has marked a short term top within two weeks. It indicates that the defensive sectors are being bought as the market rallies. Rotation alone can create a short term top and all out defensiveness can create an intermediate term top.
Overall sentiment from social media suggests that we’re not quite out of the woods yet. Traders aren’t tweeting higher prices, breadth indicates that leaders aren’t being bought aggressively, a hold at recent lows and a rally aren’t inspiring high daily readings in momentum, and defensive sectors are being bought as the market rallies. A break to new highs in price needs to be accompanied by strong readings from momentum. A break below the newly formed uptrend line in StockTwits momentum will tilt the odds in favor of a break in the December low in SPX.
After months of lagging performance the Twitter Top 10 portfolio has finally logged a large gain against the S&P 500 Index (SPX). The portfolio is up over 3% from the first Friday of the month while SPX is basically flat. Celgene (CELG), Lululemon (LULU), FireEye (FEYE), and Starbucks (SBUX) are responsible for the majority of the gains. Bank stocks were the laggards.
Below is a performance chart and details of the January picks.
|Start Date||Symbol||Shares||Start Price||Start Total||End Price||End Total||% Gain / Loss|
So far this month the StockTwits Top 10 portfolio is playing catch up with the market. The S&P 500 Index (SPX) is basically flat from the first Friday of the month while the StockTwits portfolio is up about 1.25%. The out performance comes from Lululemon (LULU), Celgene (CELG), and Starbucks (SBUX).
There were four losers this month and six winners. Long time readers know that this isn’t normal. Usually almost all of the stocks move together. The current inconsistency in performance is another indicator of market participants getting selective. It backs up what we’re seeing from breadth from Twitter.
Below is a performance chart and details of the current picks.
|Start Date||Symbol||Shares||Start Price||Start Total||End Price||End Total||% Gain / Loss|
Over the past couple of days our Twitter and StockTwits breadth indicators dipped below their October lows. In the case of StockTwits it is now back to readings last recorded during the consolidation and rotation in May of 2014. The reading from Twitter is the lowest since September 2013 when it almost went negative.
The reason for the dip in breadth is due to both and increase in the number of bearish stocks and a decrease in the number of bullish stocks. This is a strong indication of bulls sitting on the sidelines rather than opening new positions. Meanwhile some traders are starting to add shorts.
Take a look at the most bearish stocks on Twitter over the past month and you’ll see that financial and consumer stocks are being hit. This isn’t what we want to see in a healthy market.
In early December I noted that 7 day momentum on Twitter was predicting lower prices for emerging markets (EEM). My expectation for the trade was that EEM would fall to either the January 2014 or June 2013 lows. Here’s the chart that accompanied my notice of the trade setup.
The trade made it to the June lows and has now bounced. Since it had a low risk/reward I suggested that traders must be nimble to make the trade. This is the type of trade that when my initial target is reached I take at least half the position off. Then I wait and see what happens with Twitter and StockTwits sentiment before closing the rest of it.
Below is a chart with the current situation for EEM. As you can see both Twitter and StockTwits are still confirming the downtrend for EEM. However, the last dip took 7 day momentum into oversold territory. It will be hard to push sentiment lower which will put pressure on the down trend line. As a result, the ETF (and momentum) needs to move lower soon or the trade signal will close (by breaking above the confirming down trend line). If price moves higher out of the current range and above the 50 day moving average I’d close the trade regardless of momentum…don’t let a gain turn into a loss.
If EEM breaks lower and makes it to $36 I’d be quick to close the rest of the trade…especially if momentum is painting a positive divergence.
At the first of the month subscribers to Trade Followers were able to see a long trade setup for gold stocks (GDX). The buy signal for GDX was a result of several factors. Trade Followers momentum started a down trend in September. The downtrend indicated that traders were selling shares and becoming more bearish on gold stocks as GDX fell. The price low in November 2014 showed capitulation selling with heavy volume on a swift drop. The next low in December was not accompanied by lower lows in 7 day momentum on Twitter. This indicated that traders and investors were accumulating shares and becoming more bullish on GDX even though price was falling. On January 2nd, 7 day momentum broke above its confirming downtrend line at the same time as GDX was breaking above its 50 day simple moving average. This created the buy signal.
For those of you who made the trade it’s time to start watching it closely. GDX is getting close to its 200 day moving average which is often a place that stocks pause or turn back down from a counter trend bounce. I often take profit by selling one third of a position when this occurs. When 7 day momentum breaks back below the newly confirming up trend line I take at least another third off the trade.
If I believe the downtrend is resuming at that point I’ll close the whole trade, but if the stock is still acting well when 7 day momentum is broken I may leave a third still in the trade. This allows me to give a short term counter trend bounce trade time to work into a long term holding using some of the profit from the two thirds I’ve sold as a cushion. Of course, a break back below the 50 dma, the newly established up trend line in price, or a break below recent lows would be places I’d reevaluate and decide if I want to continue to hold expecting a change in the long term trend or close the trade after clear signs the downtrend is resuming.