The Twitter Top Rules All?

  • Posted by
  • on November 8th, 2013


A tidy story with headline potential, yes. A sample of how Wall Street plays the crowd to ensure a supportive climate for fee generation, maybe. A famous date we’ll remember as the top of the 2009-2013 bull run? Doubtful.

Trust me, as a student of sentiment and market history I get the potential for the Twitter top. A rip-roaring year to extend an aging bull, billions flowing into mutual funds and ETFs, money managers playing beta chase, a famous IPO that sucks up every available dollar, and a nasty reversal from an all-time high that engulfed all of the past two weeks of trading. Nothing bullish about any of that, I know.

But let’s look at the data. Following are three different tests run on similar setups:

1) Dynamic Hedge-  46 instances in the past 4 years in which $SPY fell at least 1% but remained above its 50 day moving average. Nothing leading to a strong bias in either direction, though he notes the bullish opportunity from a follow-on selloff in his alpha curves.

2) PastStat- 30 instances since 2000 in which $SPY fell at least 1% on at least twice the prior day’s volume. He actually sees a slight short-term bullish edge to that setup.

3) AlvarezQuant- 29 instances since 2001 in which $SPX closed above its 10 day moving average for 15+ days and finally fell below. As he says, “after a very strong market, the first pullback does not appear to be a sign of future weakness.” He goes on to separate which types of stocks have performed best after similar setups, a really nice twist on standard testing.

I’m not playing pollyanna by any means, just pointing out that hard data often conflicts with market myths. I personally see no way to spin this week’s events as bullish, and my concerns about lagging market internals only increased with Thursday’s broad decline. Here’s a quick look at the (negative) progression of my Breadth Dashboard over the past 2 weeks:

On 10/22, we made an all-time high in the 1750s; the high amount of green reflects a high number of healthy stocks


Thursday morning, we easily eclipsed those highs and traded into the 1770s;  note the loss of green despite the excitement


By Thursday’s close, we’re back to the 10/22 levels; not only had we lost a ton of green but red starts to infect the intermediate trend



As pointed out by QuantifiableEdges, $SPY had never made a 20 day high and 10 day low in the same session until yesterday. My data shows that $TWTR had not traded publically until yesterday. That puts a 1.0 correlation between days in which Twitter comes public, and days in which the S&P stages a historic reversal. Enough to construct a trading plan and throw out every useful piece of data I collect, right?

Sorry, back into my cave to study the internal price action and follow the same boring blueprint I follow every day.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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