Monthly Archives: April 2015

Lack of Confidence

Sentiment and momentum calculated from the Twitter stream for the S&P 500 index (SPX) is still confirming the uptrend, but has turned down as the market rises. This shows a lack of confidence by traders on Twitter that the market can move immediately to new all time highs. If the confirming uptrend line in 7 day momentum breaks lower after the current negative divergence it will warn that we’re probably headed back down into the current range.

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Another signs that shows a lack of confidence comes from price targets tweeted by traders. When SPX first broke above 2100 in February there were many calls for 2200. Currently the market is sitting just below all time highs, but traders aren’t tweeting significantly higher prices. 2140 and 2150 is about all market participants seem to hope for. It appears that everyone is waiting for a break higher before committing themselves. Below the market traders have created a strong line of support at the 2040 level.

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As a side note, the Dow Jones Industrial Average and Dow Jones Transportation Average have both painted a line which is extremely significant in Dow Theory. If both averages break the same direction it will start the next intermediate term trend. You can read more about the significance of a Dow Theory line at Downside Hedge.

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Sector sentiment is flashing a warning of a short term top. Almost every time all sectors have shown positive sentiment over the past several years a short term top was near. At the least, the market only moves slightly higher or chops around when this happens. The last occurrence was March first which proved correct.

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Breadth calculated from bullish vs. bearish stocks continues to show healthy readings. The number of bullish stocks has been falling since last July, but put in a low in January. This is creating a triangle that if broken to the upside would be very positive for the market.

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Overall sentiment from Twitter shows a lack of confidence from market participants. 7 day momentum has painted a negative divergence as price rises, price targets aren’t significantly above current levels, and the defensive sectors show positive sentiment. This suggests we’re probably due for some chop before the market can move much higher. A break above 2120 on SPX could see a quick trip to 2140, but will need to be accompanied by more optimism to carry much higher.

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Time To Watch Alibaba

At the end of March we issued a buy signal for Alibaba (BABA). Since that time the stock has rallied then given up all of its gains. During the same time period momentum calculated from the Twitter stream has been mostly flat and is now falling. This isn’t the type of action I like to see on a long trade. Especially when trying to catch a bottom. As I’ve mentioned before, discipline matters when trading stocks. If you don’t have the discipline to close a failed trade at a small loss you’ll find yourself with a large number of stocks sitting in your portfolio with big losses. If you made this trade in BABA then it’s time to watch 7 day momentum. It is on the verge of breaking its new up trend line. If it does then the odds will favor another flush down for the stock before it can attempt a bottom. You’re better off closing the trade and waiting for another opportunity than you are holding and hoping the stock will rally. You can track 7 day momentum on the daily chart of BABA here.

Twitter Sentiment for Alibaba (BABA)

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Not Much Damage

Friday was a fairly large down day for the markets that had little to no impact on sentiment from the Twitter stream. The volume and intensity of tweets rose, but the daily print for momentum for the S&P 500 index (SPX) came in at a moderate -8. Many market participants don’t consider Friday’s decline as a significant event. In fact, the number of bullish tweets increased nearly 25% above the average of the last two weeks when the market was rising. This indicates that the bulls are still committed. The number of bearish tweets rose 50% which signals an awakening of the bears, but their intensity is still within a normal range.

7 day momentum has a small negative divergence, but is still confirming the current uptrend. Until that trend breaks the advantage is with the bulls.

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Another sign that Friday’s action wasn’t significant can be seen in the stocks that had the most bearish sentiment on Twitter. The list is filled with stocks that have been in consolidations or down trends for several weeks or months. This isn’t the type of action we typically see at the start of a serious decline. When the list of bearish stocks is filled with market leaders it sends a strong signal that the market is at risk of a correction. We had that type of warning last September when leading stocks lead to the downside. Currently no such warning exists. If the market is weak over the next several day keep an eye on the bearish stock list. If it begins to fill with recent market leaders some caution will be warranted.

Bearshi Stocks on Twitter

Breadth calculated between the strong and weak stocks on Twitter is still showing robust positive numbers with the number of bullish stocks continuing to rise. The number of bearish stocks aren’t rising which is another indication that Friday didn’t do a lot of damage.

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Support and resistance levels generated from the Twitter stream give us a clear picture of why traders aren’t turning bearish in significant numbers. Friday’s action stayed well above strong support of 2040 on SPX. In addition, many traders started tweeting 2065 and 2050 as likely places for the market to catch. The multiple levels of support below the market indicates bullishness in the face of a decline.

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Resistance is still strong at 2120 on SPX with another small cluster near 2140. The major support and resistance levels of 2040 and 2120 have been fairly consistent for more than two months. This makes the range the most important thing we can watch over the coming days. If either level is broken it will be extremely important and will most likely bring with it a quick move in the direction of the break. The reason for this is that a large number of market participants are waiting for a break before committing to a direction.

Sector sentiment is showing strength in the leaders and weakness in defensive stocks which is generally bullish for the market.

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Overall the picture being painted by Twitter sentiment is still bullish, but we’ve got several things to watch that will warn of a more significant decline. Warnings will come if leading stocks start showing up in the daily bearish lists or the number of weak stocks (on the breadth chart) start to increase. You should get more concerned if 7 day momentum/sentiment for SPX breaks its uptrend line and very cautious if 2040 on SPX is broken to the downside.

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Range Bound With Encouraging Signs

The market has been range bound for the last few months between 2040 and 2120 on the S&P 500 index (SPX). During the consolidation we’ve seen mostly healthy signs coming from the Twitter stream. First is 7 day momentum which continues to confirm higher prices by holding its up trend line.

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Next the number of bullish stocks is rising in the short term…even if they’re falling in the long term.

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Support and resistance numbers are still in the same rage as we’ve seen before. SPX has 2040 on the bottom and 2120 as a top. This range has lasted long enough that when it breaks it should be significant.

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Sector sentiment is showing pretty tepid numbers for almost every sector which add weight to the argument that people are waiting in the range for something to move the market.

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Watch the range as it is giving us the most information at the moment. Any break will most likely point the next direction for the market.

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Pharma and BioTech Sentiment Compressing

I’m starting to see compression in sentiment in some of the major Pharma and Biotech stocks. When sentiment and momentum compress in a triangle it represents an inflection point for the stock. The direction of the break either creates a buy signal or a warning of more consolidation ahead. Below are some example charts. Here’s a detail example of a buy signal for Apple (AAPL) for those of you who are unfamiliar with our trading method.

Pfizer (PFE) is and example. You can watch for a break of the triangle in the coming days here.

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The triangle in Biogen (BIIB) isn’t quite as defined so you should watch is as a stock that is potentially warning. If it breaks below the uptrend in 7 day momentum it will indicate more consolidation is needed before the stock (and possibly the sector) can move higher. You can track Twitter sentiment for Biogen here.

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Twitter momentum for the Biotech ETF (IBB) is still warning. It had a negative divergence with price and is still in a clear down trend. Bulls want to see the downtrend in momentum broken. Here’s the IBB chart.

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You can see the full list of pharma stocks here and the a partial list of biotech stocks with Twitter sentiment here.

 

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Ready to Move Higher

Over the past week the market worked off the over bought condition created in the Trade Followers momentum indicator calculated from the Twitter stream for the S&P 500 index (SPX). The daily prints have been mostly positive even though the market was declining. This indicates market participants on Twitter believe that healthy consolidation is occurring rather than the start of a new down trend. 7 day momentum continues to hold its up trend line which confirms the move higher out of the January lows as well.

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Breadth calculated between the number of bullish and bearish stocks on Twitter has returned to very healthy levels due to the low number of bearish stocks. The number of bullish stocks has continued to make lower highs since last July, but the number of bearish stocks isn’t rising. This indicates that market participants are looking for value. They aren’t pushing weak stocks lower, but at the same time they’re not aggressively pushing stocks to new highs. The market should continue to hold up well until the number of bearish stocks starts to rise significantly.

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Support and resistance levels gleaned from Twitter for SPX are showing a bit more uncertainty than momentum and breadth. Most of the tweets have targets at either the top or bottom this year’s range. Support is at 2040 and resistance is near 2120. This wide range indicates traders are waiting for a resolution before making a commitment.

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Sector sentiment is also showing some weakness with consumer discretionary stocks below zero and defensive sectors showing strength. This indicates that investors are getting more cautious in their portfolio construction.

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Overall sentiment from the Twitter stream indicates the market is ready to move higher, but many traders are waiting for new highs before committing money. The number of bullish stocks isn’t rising rapidly and strong resistance stands at 2120. Until market participants get more conviction expect the market to drift higher with some chop along the way.

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