Last week the Twitter stream warned of a choppy market or a short term top. This week I’m starting to see signs of chasing by market participants. The daily momentum indicator that tracks sentiment for the S&P 500 index (SPX) on the Twitter stream is being whipped back and forth with fairly large prints (greater than +13 or less than -13). This is causing 7 day momentum to rise rapidly when the market climbs then fall rapidly when the market declines. This pattern usually indicates chasing by traders and adds instability to the market due to the indecision and quick flip flops in positions.
Another indication of uncertainty comes from price targets tweeted by traders. The range for SPX had narrowed to 2100 to 2140 which is where actual price has been for the past two weeks. The lack of price targets above or below the recent range indicates traders aren’t sure if the market will break higher or lower. Once again, they’re waiting. If the market falls below 2100 then there is a small level of support at 2085, but nothing below. Bulls want to see that level hold or risk a trip back to the bottom of the previous range at 2040.
Sector sentiment is mixed this week, with mostly weak readings. There is a bright spot from the defensive sectors that are showing relatively weak readings amid a small decline in the market.
Breadth calculated between the most bullish stocks on Twitter and the most bearish continues to drift lower due to a decrease in bullish stocks and an increase in bearish stocks. The overall reading is still very healthy for the market, but the increase in bearish stocks indicates that value buying may be on hold at the moment.
Indecision and chasing underlie in the market. This creates an unstable environment that increases the likelihood of a sharp drop if the 2085 level on SPX doesn’t hold. The indecision suggests bulls will likely need a clean break above 2150 before becoming emboldened. Overall the picture is one of more chop with a bias to the downside over the coming week.