Twitter sentiment Jan 27, 2013 18:17:52 GMT -6
Post by jeffolie on Jan 27, 2013 18:17:52 GMT -6
Market Overview 1/26/13 – Decision Point
January 26, 2013 by DownsideHedge
Once again we had a week where our core market health indicators moved sideways or strengthened with no moves large enough to change our portfolio allocations. Our Core Long / Cash and our Standard Long / Cash portfolios remain 80% long and 20% cash. Our Long / Short portfolio is 90% long and 10% short the S&P 500 Index (SPX).
Our core market health indicators that measure market risk, quality, trend, and strength are positive. Measures of breadth continue to confirm the move in SPX to new 52 week and multi-year highs. Our investor contentment index is still showing a very high reading, but is starting to contract signalling that the market may need to pause before moving higher.
All the major indexes except for NASDAQ are moving to new highs. Although NASDAQ is just a few percentage points away even with the drag that Apple (AAPL) is placing on the index. It is important to note that AAPL makes up a substantial portion of SPX and it continued to move higher as well. This is a sign that the markets see AAPL as a single story and that its problems won’t spill over to the general market.
Earnings season is going fairly well with many market leaders such as Goldman Sachs (GS), IBM, and Google (GOOG) reporting good earnings. These stocks appear to be leaving their recent troubles behind.
In our previous Twitter Sentiment update for the S&P 500 Index (SPX) we stated that any move into the 1490 to 1500 range on SPX would bring a pause “as longer term investors who are warning of a top continue to sell shares and shorter term traders sell against an obvious resistance level.” Last week brought exactly that. On Tuesday the move to 1492 was stopped in its tracks. That day printed fairly negative sentiment even though the market moved higher. This was due to a large volume of tweets about selling that level. The bulls and the bears fought it out the rest of the week with every attempt at the 1500 level being sold (and tweeted about).
We ended the week with SPX barely above the 1500 level and daily sentiment barely above zero. Last week was a great example of a fight between the bulls and bears. The scoring of tweets rose by 35% over the previous week and by 50% over the level of two weeks ago. This is because the tweets came in both higher volume and intensity of language. However, the daily indicator still remained very close to zero as the bulls and bears were fairly evenly matched. This tells us the battle has not yet been won by either side.
Our smoothed sentiment indicator fell last week, but continues to be above its current rising trend line, above zero, and painting higher lows. This suggests a slight bias to the upside. It is also nearing the apex of a triangle pattern telling us that the market is at a decision point. A break below the rising trend line on smoothed sentiment or a very negative print on daily sentiment will warn us that the market is most likely starting to correct. A break above the top of the triangle on smoothed sentiment will signal higher prices over the near term.
Twitter support levels rose again this past week as traders tweets began to favor the 1460 level on SPX over 1440 to 1450. The 1475 support level remains in place. We consider 1475 and 1460 as major support. Twitter resistance levels moved up as market participants are starting to tweet a cluster of numbers in the 1520 area. We’re keeping 1500 as resistance until it is broken decisively and placing another level at 1520.
It’s decision time. Twitter sentiment has the bulls and bears fairly evenly matched at a major resistance level. We’ll wait for a break in sentiment and price as it will give us the next near term direction.
Our market stability index finally moved out of the danger zone and back towards zero. This suggests that market participants feel that the market is acting “normal” and should not provide any large shocks. Our measures of the economy are still below zero, but are slowly crawling higher. This is the only thing keeping our portfolios from being fully committed to the current market.
About the only thing we can see that could affect this market is the fact that many traders and investors believe the market needs a correction before it can go higher. That should put some pressure on stocks until 1500 on SPX is broken decisively to the upside.
The market is poised to move higher over the intermediate term, however, it could use a rest. The 1500 level on SPX is a critical decision point. The market could turn back as the fight between bulls and bears continue, but a decisive break above 1500 will bring with it short covering and traders chasing price. Let that level be your short term guide.