Monthly Archives: October 2015

Looking Better

Momentum and sentiment for the S&P 500 Index (SPX) is slowly turning back to bullish. It’s been a tough road, but it looks like market participants are starting to get comfortable in the current range. 7 day momentum is holding its confirming uptrend line and has now put in a higher high…even if it’s barely above zero. It’s a small positive, but encouraging if it can hold.

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SPX paused for a couple of days just below major resistance at 2040 then blasted through it and the next level at 2060. It is now consolidating above both new support lines. A consolidation back to the 2040 area would be healthy as long as it holds.

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Breadth is slowly ticking up due to the number of bullish stocks rising…finally. Now we want to see the number of bearish stocks fall.

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Conclusion

Overall sentiment for the market is looking better. We’re not out of the woods yet, but with 7 day momentum back above zero, SPX above major support, and the number of bullish stocks starting to rise we’ve got a good start. The odds are tilting back in favor of the bulls.

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More Resistance

Last week the market broke through the September high which was the first level of minor resistance on the Twitter stream. Now there are two major resistance levels in the way for the S&P 500 Index (SPX). 2040 was the breaking point of a sideways range during the first of the year. It is now getting the most tweets which makes it major resistance. Just above that is 2060 where the 200 day moving average comes into play. At the least we should expect some consolidation in the 2040 to 2060 area. This would be healthy for the market to shake out some weak holders.

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If we get the consolidation I’ll be watching the action of 7 day momentum closely. What I’d like to see is a higher low than the late September low. This would give us a new confirming uptrend line and increase the odds that market participants are comfortable with pushing the market higher. If 7 day momentum prints a lower low it will be a very bad sign that we may have entered a long term bear market. This puts SPX in a critical position. You can follow the SPX chart yourself here.

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Breadth calculated between the most bullish and bearish stocks on Twitter fell farther this week. Once again, it is a result of the number of bearish stocks rising while the bullish stocks remained relatively flat. It appears that the value buying has paused and leadership buying hasn’t started en masse yet. What we want to see is an increase in the number of bullish stocks…and preferably those stocks should be in leading sectors. You can see daily updates to the breadth chart here. Also watch the daily and weekly bullish lists to verify that leading stocks are where sentiment is flowing. This link has multiple time frames (just click the “1 Week”, “2 Week”, etc. headers to sort the list by that frequency). This view makes it easy to spot stocks in long term up trends that have consolidated and are now moving higher again. Look at the “Long Term Ideas” section of this page to see how to spot consolidation periods for strong stocks and then buy the dip.

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UnitedHealth Group (UNH) is an example I found using the method mentioned above. Odds favor a break to new highs if 7 day momentum can hold the newly formed confirming uptrend line. You can see the daily chart of UNH here.

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Sector sentiment is mixed with Consumer Discretionary and Healthcare (Biotech included) showing weakness while defensive sectors show strength.

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Conclusion

Expect some resistance between 2040 and 2060 on SPX. If 7 day momentum holds up relatively well during that consolidation the odds favor a trip back to the highs…especially if the most bullish list starts to grow due to leading stocks garnering support. A failure in 7 day momentum or lack of leadership will likely end the long term bull market.

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Resistance

My read of the Twitter stream sees some resistance ahead for the S&P 500 Index (SPX). The most obvious sign comes from support and resistance levels gleaned from Twitter. Most tweets above current prices are at 2040 on SPX, which is the last major support level to break. It has now become resistance. The next most tweeted level is near 2060 where the 200 day moving average for SPX comes into play. It appears that traders on Twitter are not looking up with hope, rather they’re looking for a place to take profit or initiate shorts.

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Another source of resistance comes from sector sentiment. In the past when all sectors have had positive readings it indicated exhaustion and marked a short term top. The last instance was on May 22nd, just a few days after the all time high in SPX. At the least we should expect some chop before going significantly higher.

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Quantified tweets for SPX are showing a mixed picture. On the positive side, 7 day sentiment has finally broken its downtrend line. This is the first hurdle the market must make to right sentiment. Unfortunately almost everything else shows some resistance. Daily momentum is still having trouble making prints above zero which is causing 7 day momentum to turn back down from the zero line. The last time this happened was just before the market broke down hard in mid August.

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One thing of note on 7 day momentum and sentiment is that during the duration of the long term bull market overbought reading came in the +15 to +20 range while oversold readings were contained at -5 or -6. The last three dips in 7 day momentum were -11, -16, and -23. If the market is changing from long term bullish to long term bearish I expect to see overbought readings contained in the +5 to +10 range and oversold readings to shift to -15 to -20. It’s too early to make a call, but this is something to watch carefully going forward. You can see the daily chart of Twitter sentiment here. What the bulls really want to see is a dip in price for SPX that doesn’t do much damage to sentiment. This would indicate that market participants are buying the dip. A fall in 7 day momentum to -15 on the next dip would give strong evidence that the market has turned from bullish to bearish in the long term.

Breadth calculated from Twitter is showing value buying. The number of bearish stocks continues to make lower lows. Unfortunately, the number of bullish stocks isn’t rising significantly. This is another thing the bulls want moving higher. Until it does the market will suffer from a lack of leadership.

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Conclusion

The Twitter stream shows several signs of resistance for the market. Traders price targets are mostly resistance levels rather than higher price projections, daily momentum is still having trouble getting above zero, and sector sentiment shows exhaustion. It looks like we’re due for a short term top at the least. Watch 7 day momentum for indications that we’ve entered a bear market.

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Testing The Water

During the past week it appears that investors are starting to test the water. As the market retested the August lows, traders on Twitter started to accumulate more than just the extremely beaten down stocks. The one week bullish list shows a number of stocks that have corrected roughly 20% from their recent highs. This is in contrast to the previous lists that mostly held stocks that were down 35% or more. This is a good sign that suggests market participants are taking a chance that the recent lows will hold and using it to buy relatively strong stocks.

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Unfortunately, the bearish list still contains some recent leaders such as Apple (AAPL) and Tesla (TSLA). It seems that every week another leader is toppled. This is evidenced by the number of bullish stocks continuing to decline. Meanwhile the number of bearish stocks looks like it’s ticking up again. The market is getting to a critical point where it appears that another trip to the August lows will likely have the number of bearish stocks outnumbering the bullish ones. If that occurs breadth from the Twitter stream will turn bearish on a long term time frame which will indicate that much more pain is ahead.

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7 day momentum and sentiment from the Twitter stream for the S&P 500 Index (SPX) is trying to break its recent downtrend line. This would be the first positive sign that the worst may be behind us. Daily momentum has started printing readings above zero on days the market rallies. Although, the readings are in the low single digits they are at least positive. Over the past month even rallies had mostly negative prints.

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Support and resistance levels generated from the Twitter stream show traders chasing price. Tweets are coming after an upside price level is reached instead of in anticipation of a rally. Notice the lack of upside price targets on the chart below.¬†There just isn’t any hope for higher prices. Most traders are still looking down. The 1800 and 1820 levels on SPX are still the most tweeted areas other than the recent lows near 1865. The overall picture is resignation that 1865 will likely break lower and 1820 will be tested.

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Sector sentiment shows a few signs of hope with technology and consumer discretionary showing positive readings. The defensive sectors were negative this week which is a healthy sign the bulls want to see continue.

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Conclusion

Market participants are starting to test the water. Relatively strong stocks were bought on this last dip, 7 day momentum is trying to break its downtrend, and traders are starting to chase the market higher. The biggest problem I see is the number of bullish stocks continues to decline. If we keep losing leaders this market will likely go much, much, lower.

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