Monthly Archives: September 2015

Looking Down

Last week sentiment was telling us that the market was going lower again. This week sentiment calculated from the Twitter stream for the S&P 500 Index (SPX) continues to decline. The rally out of the August low wasn’t accompanied by a large number positive sentiment reading. This indicates that market participants were selling into the rally rather than becoming bullish. Now that the market has turned back down, extreme bearish readings are showing up again. More people are looking down than up which will most likely result in a retest of the August low.

150928spx

Looking at support and resistance levels gleaned from the Twitter stream for SPX shows 1820 as the first area of support if the August low near 1865 breaks. With sentiment so negative the odds favor a break to 1820 before we have a chance of a sustainable bounce.

150928spxSR

Breadth calculated between bullish and bearish stocks on Twitter is showing an increase in the number of bearish stocks again. This suggests that value buying is stopping and traders are selling the stocks they picked up for an oversold bounce. If the number of bearish stocks overwhelms the bullish stocks it will indicate that the long term trend has changed to down.

150928breadth

Sector sentiment is mostly negative which reflects the broad based damage that has occurred.

150928sectors

Conclusion

Everyone seems to be looking down. Until we start to see a positive divergence in price from 7 day momentum or a break of the down trend line the most likely direction for the market will be down.

facebooktwittergoogle_plusredditpinterestlinkedinmail

Here We Go Again

Just a quick update this week. It looks like the market is going lower again. On Friday momentum and sentiment calculated from the Twitter stream for the S&P 500 Index (SPX) printed a -21. Readings more extreme than -20 near a short term high are usually an initiation thrust to the downside. This condition usually results in at least a few more days going lower. To make matters worse 7 day momentum is turning down from a confirming down trend line and also from below zero. The last three weeks of rally didn’t convince market participants that the market will continue to rise.

150920spx

Breadth calculated between bullish and bearish stocks drifted sideways while the market rallied. Both bullish and bearish stocks are falling. It’s the same pattern we’ve seen during the entire rally, which points to value buying while selling leaders.

150920breadth

Conclusion

Something needs to inspire market participants or the most likely path is a trip back to the August lows. If that happens the bulls desperately need to see a positive divergence in 7 day momentum. A lower low in momentum would indicate the retest won’t hold very long.

facebooktwittergoogle_plusredditpinterestlinkedinmail

Where are the Leaders?

One of the uses of the most bullish and bearish stock lists is to gauge the health of a rally. What I like to see is a lot of leading stocks in the bullish list that matches the length of the run. We’ve had a rally that lasted three weeks and is now taking a bit of a breather so let’s see what the three week lists tell us.

First let’s look at the most bearish list. Alibaba (BABA), Netflix (NFLX), Yahoo (YHOO), Mobileye (MBLY), Biotech (IBB) lead the list of bearish stocks during a three week rally. If the current rally is the resumption of the uptrend I wouldn’t expect to see so many popular stocks leading the list. Nor would I want to see FedEx (FDX) on the bearish list.

150918bearish3w

Looking at the bullish list doesn’t motivate me much. Do you see a large number of stocks that excite you? Is this the list of stocks you want to rely on to lead the market higher? Where is Google (GOOGL), Nike (NKE),  Goldman Sachs (GS), Facebook (FB), Salesforce (CRM), Netflix (NFLX), Cisco (CSCO), Skyworks (SWKS)? The only hope I see is some of the pharma stocks have a biotech component. With the list littered with beaten down stocks like Freeport MacMoRan (FCX), Intel (INTC), and Alcoa (AA) this looks more like value buying which means there’s probably more work to be done on the downside before we get a sustained move higher.

150918bullish3w

Conclusion

A lot of leading stocks have been bearish during a three week rally. At the same time the bullish list is missing a lot of leaders. At the moment they don’t inspire confidence. Keep an eye on the one month bullish list (and shorter time frames too) going forward. What we want to see is the momentum stocks leading again. Until then I’d expect more weakness than strength.

facebooktwittergoogle_plusredditpinterestlinkedinmail

Uncertainty Sprinkled With Hope

I’m finally starting to see some signs of hope on the Twitter stream for the S&P 500 Index (SPX). Last week’s rally lifted daily sentiment readings for the most part, and the strong rally on Tuesday resulted in a positive daily print in momentum. This shows a bit of hope, but the negative readings during the rest of the week indicate traders are uncertain. 7 day momentum is still in a clear downtrend even though price has been mostly rising since the first of the month. This suggests that there is still a lot of fear for lower prices.

150913spx

The uncertainty becomes more apparent in price targets tweeted by traders for SPX. The range is compressing which is showing that traders are reluctant to call for substantially higher or lower prices. Basically, they just don’t know so they’re making smaller bets.

150913spxSR

Breadth calculated between the number of bullish and bearish stocks on Twitter is stabilizing, but showing fewer bullish stocks almost every day. The number of bearish stocks is falling as well. This indicates market participants are taking profit or selling their leaders and nibbling at the most beaten down stocks. The bulls want to see a clear rise in the number of bullish stocks which would signal that dip buying is occurring in leaders. The worst outcome for the market would be a continued fall in bullish stocks accompanied in a rise in bearish stocks. That would almost certainly result in a resumption…and likely acceleration of the downtrend in SPX.

150913breadth

A sign of hope comes from sector sentiment. This week had strong readings for leading sectors and negative readings for defensive sectors. This is what we want to see continue for a healthy market going forward.

150913sectors

Conclusion

Fear is slowly turning to uncertainty sprinkled with a bit of hope. Daily sentiment readings are mostly negative, but recorded one positive print this week. Price targets are compressing which suggests uncertainty, but sector sentiment shows some hope with defensive sectors lagging.

Market Risk

As a side note, many of you know that I also write about “traditional” technical analysis indicators and portfolio hedging at Downside Hedge. On August 21st my market risk indicator warned…and I totally forgot to mention it here. Oops! In the future I’ll try to remember, but for those of you interested in portfolio management that attempts to ride the rallies and hedge out risk during uncertain and/or high risk environments you can see my thoughts here. Here’s how the portfolios were hedged on August 10th.

facebooktwittergoogle_plusredditpinterestlinkedinmail

Licking Wounds

Not a lot has changed from last week. The damage done to sentiment for the S&P 500 Index (SPX) continues to plague market participants. The best that can be said is that traders and investors are taking a break to lick their wounds in an effort to recover…and the recovery isn’t going well. Rallies in the market still aren’t coming with positive daily momentum readings which is causing 7 day momentum to stay mired at the lowest level over the past three years. Very few people are buying as most now believe that a retest of the August lows is inevitable.

150906spx

Another sign that a retest of the August lows is in our future comes from support and resistance levels gleaned from the Twitter stream. Most prices targets tweeted below the market are in the 1865 area where SPX last bottomed. Below that there is a cluster of support between 1820 and 1835. A break of SPX 1865 will like carry to 1835 or 1820 before buyers show up.

150906spxSR

Breadth calculated between the number of bullish and bearish stocks on Twitter is ticking up slightly. Unfortunately, the rise comes while the number of bullish stocks is falling. Market participants are selling their leaders and buying beaten up stocks. This provides some support for a temporary floor, but isn’t constructive in the context of a longer term bull market. The behavior is more likely bearish in nature.

150906breadth

Sector sentiment was not very constructive this week. It had leading sectors with mostly negative readings while consumer staples, a defensive sector, showed the most positive sentiment.

150906sectors

Conclusion

It appears that traders on Twitter are expecting at least a retest of the August lows. Rallies aren’t inspiring confidence and investors are selling their leaders and looking for value in the beaten up stocks. If this action persists the likely direction of the market will be down over the long term.

facebooktwittergoogle_plusredditpinterestlinkedinmail