Monthly Archives: June 2015

This coming week it’s going to be all about Greece. Unfortunately, the Greek drama comes amid a perfect storm of sentiment for the S&P 500 Index (SPX). Daily momentum calculated from Twitter for SPX continues to show chasing on very small moves in price. When SPX moves up daily momentum has extremely high prints and any down move creates larger than average negative prints. This is causing 7 day momentum to move from oversold to overbought with very little movement in price. It is now turning down from an overbought level that generally results in a few weeks of choppiness or decline in the market.

Price targets tweeted by traders have dried up. Almost no one is tweeting prices outside the daily range. This indicates that traders are uncertain and waiting for a resolution…usually of the current range, but most likely the Greece situation at present. One very troubling sign is the lack of support levels tweeted by traders. This condition creates instability because it indicates traders are uncertain about how far a decline will carry.

Breadth and sector sentiment indicate market participants are viewing this as a risk event rather than a structural or fundamental problem. I find this interesting (and ironic) given the fact that the structure of the European Union is what is at risk….a very fundamental problem. Nevertheless, breadth is showing an increase in the number of bullish stocks and a decrease in the number of bearish stocks. This indicates the long term trend is still up.

Sector sentiment is also fundamentally healthy with leading sectors showing the most positive readings.

Conclusion

Greece is currently being seen as a risk event that isn’t changing fundamental behavior by market participants. Unfortunately, this risk event is occurring amid uncertainty and instability in various measures of sentiment…which creates a perfect storm.

Over the past two months while the S&P 500 Index (SPX) has been grinding sideways to higher momentum and sentiment from Twitter finance has produced several extreme negative daily prints (below -20). This is a very unusual condition so close to new highs. A series of extreme negative prints is generally associated with a protracted decline. The last string of deep negative readings was near the lows in June of 2010 after the market had declined 10% over a span of two months. The current readings suggest that market participants are very skittish. It doesn’t take much price deterioration to bring out the bears.

The recent weakness has caused 7 day Twitter momentum for SPX to stall. It has a confirming uptrend line that is six weeks long, but now has a three week short term down trend line in place. The triangle created by the two trend lines shows a building of pressure between the bulls and the bears. When it breaks (either up or down) it will likely point the next intermediate trend for the market.

Support and resistance numbers gleaned from the Twitter stream for SPX indicate that traders are still indecisive and waiting for a reason to deploy cash or sell. Last week saw almost no tweets calling for higher prices. The tweets for lower prices clustered in a range between 2065 and 2085, which are the last few recent lows in the market. When the support and resistance range tightens it suggest market participants are waiting for the current range to be broken before taking action. The range has support at 2065 and resistance at 2120 for SPX.

Sector sentiment is still showing a fairly positive bias in the leading sectors.

Breadth between bullish and bearish stocks is also still healthy, but has seen a deterioration in the number of bullish stocks over the past month.

Overall sentiment from Twitter shows market participants dancing close to the door. They’re waiting for a break of the current range before taking action. Watch for a break of the triangle in 7 day momentum for SPX as it will likely point the next direction. You can see an interactive chart here.

Two weeks ago the Twitter stream was warning of a short term top in the market. Today it appears that market participants are waiting patiently as the market declines. The daily prints for Twitter momentum and sentiment have been moderate lately. This indicates the chasing I was seeing has slowed. As the chasing slowed the volume and intensity of tweets has started to increase a bit. This generally occurs at a time of uncertainty. If the intensity continues to rise it will indicate fear is starting to rise.

Last week the market fell to our minor support level of 2085 on the S&P 500 index (SPX). This level held, but is being retested again today. There are virtually no tweets calling for prices below 2085 so if it breaks the 2040 area comes back into play. One thing of note is that there were also very few tweets calling for higher prices either. This is a sign that traders are uncertain and are sitting instead of taking action.

Breadth calculated between bullish and bearish stocks continues to print healthy long term readings. Last week the number bullish stocks increased and the number of bearish stocks decreased even as the market declined. This suggests some buying is occurring under the covers.

Sector sentiment is also painting a healthy picture with leading sectors positive and defensive ones negative.

Overall sentiment from Twitter is showing signs of waiting as evidenced by moderate prints on daily momentum and very few tweets outside the current range. The waiting is occurring with a healthy backdrop from breadth and sentiment.