We’ve been tracking Alibaba (BABA) since its IPO. Our momentum indicators have refused to issue a buy signal for the stock until now. The bearish trend of 7 day momentum has finally been broken to the upside after a positive divergence. This indicates that the buyers are starting to overwhelm the sellers. The long signal will be in place until the newly established uptrend line is broken to the downside. At that point it would be prudent to at least take profits if you don’t close the trade outright. You can keep track of Twitter momentum with the interactive chart of BABA here.
We’ve recently updated our breadth chart that is calculated from the Twitter stream to include the number of bullish and bearish stocks. This allows you to see a bit more detail about what is happening in the market. For example, currently the breadth indicator is holding up fairly well even though the number of bullish stocks has been falling since mid February. The reason for this is that the number of bearish stocks isn’t rising rapidly. This tells us that some value buying is occurring rather than aggressive selling in beaten down stocks. Contrast that with the number of stocks with weak support on Twitter at the end of January and you’ll see much more selling occurred earlier in the year. You can access the interactive chart here. If you hover over the lines you can see how the breadth indicator and counts changed over time.
Last week our Twitter momentum indicator for the S&P 500 Index held up relatively well as the market sold off. The daily prints are mostly healthy readings as 7 day momentum works off its extreme over bought readings from the previous week. It is holding above the confirming uptrend line which indicates the market wants to break higher.
Another positive sign for the market is the list of stocks with the most support on the Twitter stream. Friday’s daily list showed a lot of recent leaders and also some beaten down stocks. This indicates investors are looking for value rather than selling out right.
Breadth calculated between the strongest and weakest stocks on Twitter is showing the same thing. Although the number of bullish stocks is falling to levels seen in January and last October, the number of bearish stocks isn’t rising. So a lot of short selling isn’t occurring at the moment. You can see the current breadth readings here.
On days that the market falls more than it has in recent weeks it’s good to look at the stocks that had the most bearish tweets during the day. What we look for is recent leaders because leaders leading to the downside warns that the market is likely to correct. Back in mid September the market had a big down day and the most bearish list was littered with recent leaders. We then warned that it was time to take some profit in the high fliers. By the first of October the market was well into a decline.
Flash forward to yesterday and the list of stocks with the most bearish sentiment doesn’t contain a lot of leaders. Only two recent leaders are near the top of the list. Biotech stocks (IBB) and Google (GOOG). The other stocks in the list have been in downtrends for a while. This suggests that the damage done yesterday wasn’t severe. One thing of note is that the full list of bearish stocks didn’t contain a huge number of biotechs. This suggests market participants aren’t abandoning biotechs and that it’s likely just profit taking at the moment. Keep an eye on the bearish lists over the next couple of weeks because it will tell you if sentiment is turning against the leaders.
Another thing to watch is the bullish stock lists. From there you’ll be able to see the early leaders if this decline is short lived.
Twitter 7 Day momentum for the S&P 500 index (SPX) has confirmed the new uptrend and is indicating that it will most likely have staying power. One kink in the works is that momentum is overbought. This indicates that the market will need to digest recent gains before it can break to all time highs.
Support and resistance levels computed from the Twitter stream for SPX also indicate that the market will most likely need to at least pause for a day or so near 2120 before moving higher. This level offers resistance, but the 2040 area is much stronger. Below the market, support is at 2100, 2065, and 2040.
Breadth calculated between the number of bullish and bearish stocks on Twitter turned down with the last dip, but no real damage was done. The number of bearish stocks didn’t rise substantially as the market fell. This indicates that traders didn’t push their shorts. Instead, it looked like a lot of bottom fishing was occurring.
Sector sentiment from Twitter is showing lack of support for Basic Materials and tepid support for consumer staples. Overall this is constructive, but something to keep an eye on because when we see support for all sectors at once it almost always marks a short term top.
Market participants are bullish and want to push the market higher. However, we may need some time to work off the over bought readings in 7 day momentum. A bit of chop below the 2020 area on SPX before moving higher would work of that pressure.
Here’s another long watch list if you think the market is going to break higher. These stocks had the most support with bullish tweets over the past week. Leaders out of dips often continue their run higher when the market rallies.
Subscribers to Trade Followers should also look at the stocks in the two and three week bullish lists. They had strong support on Twitter as the market was stalling and declining.
If you believe the dip is behind us and the market is going to rally higher a good place to look for a watch list is the stocks with the most support on StockTwits as the market turned up. Over the past week here are the stocks with the most bullish messages from the StockTwits community.
Subscribers will want to check out the strongest stocks over the last two and three weeks to see the most bullish stocks as the market declined.
Twitter momentum for the S&P 500 index (SPX) has been warning for the last two weeks that the market was vulnerable to a decline. That warning is still in place, however 7 day momentum is starting to hold up in the face of market weakness. This often precedes an end to the decline. It’s still to early to make a bottom call so for the moment we need to watch the confirming down trend line in 7 day momentum. If it is broken to the upside it will most likely mark the end of the selling.
Breadth calculated between the number of stocks with strong support on Twitter against those with weak has turned down. This decline is a result of fewer bullish stocks and an increase in the number of bearish stocks. I consider the market to be in a long term uptrend as long as breadth is above zero. This indicator is suggesting some chop, but not a market top…yet.
Support and resistance levels gleaned from the Twitter stream proved to be a good guide to the action in the S&P 500 index (SPX) over the last few weeks. After breaking below 2100 on the S&P 500 Index (SPX) the market fell to our first support level of 2065. It paused there then sliced through to our next level of support at 2040. It is now holding the middle of the range between 2040 and 2065. I consider 2040 to be a critical must hold level. It has been tweeted most frequently as support for over six weeks. If it breaks there is minor support at 2020, but not much below so some caution is warranted below 2040.
Above the market 2065 is strong resistance with 2085 minor resistance. The narrow range between support and resistance with a lack of tweets either above or below the current range suggest any move out of the range will be swift.
Sector strength from Twitter is showing some encouraging signs. The defensive sectors are negative while Financials and Consumer Discretionary are showing strength. When the market starts a large decline we more often see strength in the defensive sectors. A decline this week with strength from Consumer Staples and Utilities would suggest an intermediated term correction is ahead.
The current message from the Twitter stream leaves us waiting for more information. The market is trading between long established support and resistance levels, 7 day momentum is weak, but trying to improve, and sectors show some bullishness. Watch the range between 2040 and 2065 on SPX. If the market breaks above or below those levels it will most likely be the start of the next large move.
Over the past week the strongest stocks on Twitter during February fell harder than the market. It was down 2.75%. The major cause of the decline was BlackBerry (BBRY) which was down over 9%. None of the other stocks in the list stood out either way.
Below is a performance chart and details of the current picks.
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Over the past week the strongest stocks on StockTwits during February fell with the market. They are down just over 1%. There are no outliers in performance. For the most part the stocks look like they’re consolidating strong gains from the prior month.
Below is a performance chart and details of the current holdings.
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