Monthly Archives: May 2015

Looks Like Chasing

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.

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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.

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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.

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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.

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Conclusion

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.

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Stocks Blowing Up Still Single Stories

Over the past few weeks several stocks have blown up due to bad earnings or future projections. Examples from yesterday include Michael Kors (KORS), Shake Shack (SHAK), and Workday (WDAY). For the most part the market is treating the news as specific to each company so they aren’t having much impact on the major indexes. This type of action is a positive for the market. If market participants start selling an entire sector when one stock misses it will warn of a decline in the general market. You can track the daily, weekly, and monthly bearish lists here (use the time frame links to sort the list).

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Expect Some Chop

Once again, I’m starting to see signs of a short term top or at the least choppy gains. 7 day momentum from the Twitter stream for the S&P 500 index (SPX) cleared its consolidation warning last week, but is now turning down from overbought levels. This usually means some sideways movement in the market while traders take profit and investors reassess their portfolio holdings.

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Another sign of a short term top is investors once again showing positive sentiment for defensive stocks. Currently every sector is showing  positive sentiment. Over the past few years this condition has almost always preceded a short term top or at least a choppy market while rotation occurred between sectors. The last two occurrences were April 26th and March 1st.

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Another sign of weakness that I’ve been watching is the increase in the number of bearish stocks on Twitter. This indicates that traders and investors aren’t doing as much bottom fishing recently. The number of bearish stocks isn’t a big problem, but without an increase in bullish stocks breadth between bullish and bearish stocks is falling. You can see the full list of bearish stocks here.

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Support and resistance levels gleaned from Twitter aren’t moving much. With the break in SPX above 2120 traders are still only targeting 2140 and 2150. I expected a quick rally to that area after a break of 2120, but it didn’t occur. This indicates market participants are still waiting before committing new money. Add to that the lack of tweets for substantially higher prices and it paints a picture of a market facing headwinds rather than tailwinds.

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Conclusion

I’m seeing the theme from the first of the year continue to play out. Each attempt to push higher in the market exhausts momentum so we see marginal new highs then a period of choppy consolidation. With momentum exhausted, sectors showing rotation, and lack of optimistic price targets it appears we’re due for more chop.

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Cautious Optimism

Last week I pointed out several signs from the Twitter stream that indicated the market should break higher. Most of those signs are still in place, but the current optimism is a bit tempered. On Friday the daily print for Twitter momentum (or sentiment) for the S&P 500 Index (SPX) was a very strong +31. This is the type of reading I prefer to see when the market is near all time highs. It reflects market participants cheering the move rather than panning it or putting on short positions. Another positive sign comes from the strong move higher from 7 day momentum after touching oversold territory.

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One thing tempering the optimism is the price targets tweeted by traders. Over the past week they only tweeted higher prices when the market was moving higher. This suggests traders aren’t that confident and are likely chasing price. They’re clearly still waiting for a break of the range. The tweets above the market are projecting 2140 to 2150 on the S&P 500 Index (SPX). This is only 1% above current levels and is another indication of caution. I suspect that a clear break of 2125 on SPX will bring a quick move to 2140 / 2150 as traders close shorts and jump on the long side. However, they’ll be quick to take profit at those levels which should cause the market to stall.

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Breadth calculated between bullish and bearish stocks on Twitter continues to show healthy readings, but is declining due to an increase in bearish stocks. Market participants are now less likely to buy beaten up stocks. However, there are still plenty of stocks with positive momentum for them to buy. This is how a thinning market starts. Keep an eye on breadth over the next several weeks as it can give warning of a market top.

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Sector sentiment is mixed. Leading sectors all have healthy readings, but consumer staples are showing strength too. This indicates that some rotation to defensive stocks is occurring as the market pushes higher.

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Overall sentiment from Twitter indicates cautious optimism. Market participants are cheering the move higher (or at least resigned to a small push higher), price targets are slightly above the market, and breadth is still healthy…but thinning.

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Sentiment from Twitter for S&P 500 Index Oversold

I’ve posted warnings of a short term top for the S&P 500 Index (SPX) over the past couple of weeks and since that time the market has been choppy. I’m now seeing evidence of sentiment from the Twitter stream that indicates SPX is due for a move higher. The evidence suggests that SPX should break out of its recent range. The first clue comes from 7 day momentum which has moved down into oversold territory. The low readings come as the market is pushing up against the top of the current range (between 2040 and 2120) which seems counter intuitive. One of the benefits of a technical analysis indicator generated from Twitter is that the Twitter stream provides context. By looking at recent tweets we can see a pattern of traders shorting the top of the range. This is something I’ve seen a few times when the market has been trading in a range and over the past several years has resulted in a break higher rather than lower.

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Breadth calculated between the most bullish and bearish stocks on Twitter remains healthy with the number of bullish stocks generally rising. The number of bearish stocks has had a slight uptick, but nothing significant yet.

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Support and resistance levels gleaned from Twitter for the S&P 500 Index (SPX) continue to show an important range between 2040 and 2120. With the current move back near all time highs traders have become more optimistic with their price targets. The recent rally has brought calls for the 2050 are on SPX. This increases the odds that the market will break higher from the range.

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Sector sentiment is also giving positive indications with the defensive sectors showing negative sentiment and leading sectors mostly positive.

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Overall sentiment from the Twitter stream suggests the market should move higher. 7 day momentum is oversold due to traders shorting the top of a range, traders are projecting higher prices and are mostly positive on individual stocks, and sectors show a move away from defensive stocks. Any move out of the top of the range should be quick as traders cover their shorts and people who have been idle buy the break out.

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Twitter Sentiment for Bonds Painting a Triangle

At the first of February bonds (TLT) broke their confirming uptrend line from 7 day momentum on the Twitter stream indicating it was time to close the long trade. Since that time momentum has been confirming the down trend, however, in mid April 7 day momentum reached oversold levels which is often a precursor to a short term bounce. Almost three weeks later we’ve got the makings of a positive divergence indicating that there is the possibility of a long trade in the near future. If 7 day momentum can create a low sometime after tomorrow (three weeks from 4/14/15 low) that remains above the 4/15 low then moves high enough to break the confirming down trend line it will create a buy signal for TLT.

If the newly created uptrend line is broken to the downside it will indicate that bonds will likely have more weakness before we see a tradeable bounce. Basically, the break of the current triangle will point the next direction. You can track Twitter momentum and sentiment for TLT here.

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Consolidation Warning for S&P 500 Index

At the close yesterday (4/30/15) a consolidation warning was issued from 7 day momentum calculated from the Twitter stream for the S&P 500 Index (SPX). The warning comes from a negative divergence that lasted more than three weeks which was followed by a break of the confirming uptrend line that began  in January. This suggests that sentiment on the Twitter stream is falling and likely turning from bullish to bearish.

As a reminder, a consolidation warning doesn’t mean the market is making a long term top. It merely means bulls are stepping aside and the bears are asserting themselves. When this occurs the market struggles to move higher and often dips more than 5%. Long story short, the odds favor lower prices in the short term.

Stock Market Warning Indicator

Another sign of weakness in the market is leading stocks starting to show up in the daily most bearish list. When the bearish list contains mostly leading stocks it warns of a larger decline ahead as in September of last year. Currently, only a few are showing up so it is just a small warning that the market is thinning. You can track the daily most bearish list here. I’m also watching the weekly lists and breadth between bullish stocks and bearish. If the number of bearish stocks starts to rise quickly it will add more weight to the warning.

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