Monthly Archives: December 2015

Should I Buy or Should I Sell?

This week it looks like market participants are mixed in their opinions of the market (OK, more mixed than normal). It appears that there is a crowd that thinks the current down trend is overdone, while others believe it may be the start of something larger. The strongest evidence comes from Twitter sentiment for the sectors. Investors are getting bullish on recent lagging sectors like energy, basic materials, and financials. This indicates they’re dipping their toes in the water in these sectors, expecting a rally out of the current lows. Another set of investors are selling their technology and consumer discretionary stocks and rotating to the defensive sectors of consumer staples and utilities. This indicates they believe the current dip could morph into at least an intermediate term correction.

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Another sign of buyers during this dip comes from breadth calculated between the number of bullish and bearish stocks on the Twitter stream. Breath is moving up slightly as the market dips. The cause is an increase in the number of bullish stocks and a decrease in the number of bearish stocks. Both high fliers and beaten down stocks are being bought.

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Here’s the top of the most bullish list. It contains a lot of technology stocks even as the the sector as a whole shows negative sentiment. This tells me that the buying is selective and investors are looking for value. You can see the entire bullish list here.

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Twitter momentum and sentiment for the S&P 500 Index (SPX) shows a slightly bearish picture. 7 day momentum couldn’t move back above its confirming down trend line on the last rally. That indicates the short term down trend is still alive. Bulls want to see 7 day momentum move back above the down trend line.

Another sign of intermediate term buyers vs. sellers comes from daily momentum. It is printing extreme readings on both sides of zero with muted volume and intensity. Some of the lack of volume of tweets is due to the upcoming holidays, but volume also often drops when the buyers aren’t in direct conflict with the sellers. I generally see large volume spikes when the market falls the way it has for the past three weeks. Looking at individual tweets usually shows disagreement between the buyers and sellers where the volume of bullish tweets rises in response to the bearish tweets. That’s not happening now. In fact, both bullish and bearish tweet volume is falling. This indicates that soft buying and selling is occurring rather than the type of battle we saw before the market broke below 2040 in August.

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Price targets on Twitter for SPX paint an interesting picture of traders waiting for proof, one way or another. They aren’t tweeting prices below the market, so they don’t know if or when the selling will stop. However, they’re still tweeting projections above the market. 2020, 2040, and 2100 on SPX are important levels to reclaim for the bulls. 2100 has the highest volume of tweets. This suggests that we won’t get a rally with wide participation unless that level is surpassed.

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Conclusion

Buyers and sellers aren’t in direct conflict about the market at the moment. The buyers are picking up both bullish and beaten down stocks, expecting a resumption of the long term uptrend, while sellers are merely getting defensive rather than panicking. It looks to me that we’ll be in a holding pattern until 2100 can be broken to the upside…or a steeper more serious decline emerges.

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Look Out Below

Last Friday the S&P 500 Index (SPX) fell through it’s major Twitter support level at 2020. This morning the decline continues without any support levels being tweeted below the market. All I can say is look out below. When no one is tweeting support it means no one is confident the selling will stop. That often leads to a waterfall decline.

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Another discouraging thing I’m seeing comes from 7 Day momentum for SPX. It is currently confirming the down trend by making lower highs and lower lows. Investor sentiment has clearly turned bearish. Bulls want to see momentum turn back up and break the down trend line. Daily momentum hit a very negative -28 last Friday. This is often an oversold level so we have a chance of a short term low in the next couple of days.

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On the positive side, the long term trend is still intact. Breadth calculated between bullish and bearish stocks on Twitter continues to move sideways, well above zero. This is due to only a slight deterioration in the number of bullish stocks and a slight rise in the bearish count.

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Conclusion

I’m seeing short term bearishness, but no significant damage to the long term trend. Daily momentum is printing extreme oversold readings so a short term low could emerge within a few days.

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Positive Signs

I’m seeing continued positive signs for the market from the Twitter stream. First is that daily momentum and sentiment for the S&P 500 Index (SPX) is showing mostly positive prints again. This is the first time that it’s happened since the beginning of July (just before the August collapse). If the trend continues as the market consolidates under 2100 it will be a very positive sign and signal that the break should be higher.

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Another good sign comes from breadth on Twitter. It continues to crawl sideways while the market is consolidating. Most importantly the number of bearish stocks is falling again, while the number of bullish stocks is holding up. This is another sign that the market should break higher.

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Fear has left the market as evidenced by traders price target tweets. The two big declines in 2014 left lingering fear for several months. Subsequent price dips brought out calls for substantially lower prices on SPX. Notice that the last two dips (after the waterfall decline in August) weren’t accompanied by fear of a big decline. Market participants have left their fear behind and are now waiting for the current consolidation to end.

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Sector sentiment is mixed this week. Financials, technology, and consumer discretionary are showing strength, but materials and industrials are weak. In addition, the defensive sector of consumer staples is positive.

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Conclusion

We’ve got a mostly positive view coming from sentiment on the Twitter stream. Daily momentum prints are mostly positive, the number of bearish stocks is falling, and market participants have left their fear behind. The odds favor price breaking out to new highs.

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