Monthly Archives: November 2015

Patiently Waiting While Risk Rises

Last week I mentioned that 7 day momentum calculated from Twitter for the S&P 500 Index (SPX) needs to hold above it’s last low to show that the bulls aren’t jumping ship. This week the last low is holding, but just barely. The rising trend of sentiment has been broken and 7 day momentum is now back at a level that would have been considered oversold during the past three years…until recently that is. This puts sentiment at a critical point. If it breaks lower it will signal that the bears are winning the battle for the long term. A turn higher in sentiment would be extremely bullish because it would signify that the last few dips were most likely outliers, rather than a start of a new trend of lower sentiment.

Daily sentiment led price lower on the current decline due to market participants tweeting the the market had run too far too fast. Now we’re getting a dip, but it’s on low volume. This indicates a lack of buyers rather than a big increase in sellers. It seems for now the bulls are content to wait before showing any panic.

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Breadth calculated from the Twitter stream shows the bulls holding firm. The number of bullish stocks is holding up which indicates traders are keeping their winners. However, it seems they’re quick to launch their losers. This is the thing that is most concerning at the moment. With the number of bearish stocks close to levels seen just before the market tumbled in August, the odds increase for a sharp decline. On the positive side, overall breadth is still well above zero so the long term trend is still bullish.

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Support and resistance levels generated from trader’s price target tweets show uncertainty. Or at the least, sitting on the sidelines. Price targets aren’t leading the market. Instead of tweeting predictions, market participants are tweeting observation of the current price level. One other concern is that there are no tweets below the 2020 level on SPX. The white space on the chart means traders don’t know where support is. This often leads to a waterfall decline if the current support breaks. The bulls want to see several levels of support show up on the twitter stream if 2020 breaks or look out below.

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Sector sentiment is mixed. Nothing of importance that I can see.

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Conclusion

So far this looks mostly like a normal dip after a strong rally where buyers dry up. It doesn’t look like aggressive selling. However, risk is showing up in several indicators. 7 day momentum is close to diving into deep oversold territory, the number of bearish stocks creates instability, and lack of support below the market can lead to a waterfall decline. The bulls need to take charge soon or it’s likely we’ll revisit the August low.

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Quick S&P 500 Update

Here’s a quick update to Twitter sentiment for the S&P 500 Index (SPX). 7 day momentum is barely holding its confirming uptrend line. It looks like it’s time for some short term consolidation. I’d like to see 7 day momentum hold above its last dip at -.10. That will indicate the bulls aren’t jumping ship at the first sign of weakness. You can follow the daily chart here.

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Breadth continues to move up, but like 7 day momentum it’s taking a pause. The most important thing I’m watching for on this chart is a decline in the number of bearish stocks. That would signal that market participants are picking up a broad base of stocks again. The daily breadth chart is here.

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Support and resistance levels generated from the Twitter stream are basically the same as the last several weeks. However, the range is moving up a bit. 2040 and 2060 on SPX are fairly critical support levels that the bulls want to see hold.

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Conclusion

Looks like we’re finally going to get some consolidation. 7 day momentum needs to hold above its previous low and SPX needs to hold above 2040 to keep the bullish trend intact.

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Righting the Ship

Breadth from the Twitter stream is painting a clear pattern of accumulation similar to the October/November 2014 rally. The number of bullish stocks is now rising rapidly and the bearish stocks are falling. This suggests that traders are once again looking for buying opportunities.

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Sentiment for the S&P 500 Index (SPX) also continues to improve. It held the confirming uptrend line and moved higher over the past week even with the choppy market. Market participants are getting more comfortable with the idea of new highs.

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Looking at the chart for the Nasdaq 100 (QQQ) there is a clear pattern of bearish sentiment turning bullish. It is consolidating at all time highs without serious damage to 7 day momentum. With the strong readings it will take quite a bit of price loss to break the current uptrend in 7 day momentum. This is an important line to watch going forward. If it breaks then we’re likely to suffer a more serious consolidation before the market can move higher. You can see the daily chart of Twitter sentiment for the Nasdaq 100 here.

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Support and resistance levels gleaned from the Twitter stream for SPX show a clear line of resistance at 2100. As I expected, the market is pausing at that level. One other thing to notice on this chart is that traders aren’t tweeting price targets outside the daily range. This indicates indecision or waiting. A break higher will likely be associated with some chasing.

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Sector sentiment is mostly positive. The two kinks are consumer staples continues to show strength and industrials can’t seem to get any momentum.

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Conclusion

Sentiment from the Twitter stream is righting itself. Most of the readings suggest the market will break higher after some consolidation near the 2100 area.

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