Monthly Archives: April 2016

Looking Up to Old Highs

The most significant event on the Twitter stream this week is renewed calls for the old highs on the S&P 500 Index (SPX) near 2135. Everyone is now waiting to see if that level can be broken to the upside. If it can, then I suspect we’ll see a huge rally as the bears cover and are forced to chase the market higher. Below the market there is support at 2080 and 2050. There are very few people tweeting the 200 day moving average, which indicates an upside bias over a test of the 200 dma. Calls for 1800 and 1810 dried up this week too. Just one more indication that people are looking up with hope rather than down with fear. A break below 2050 will likely see calls near 2020 (200 dma). If those levels are broken then I’d expect a swift move lower.

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Another sign that the move will likely be swift comes from 7 day momentum and sentiment for SPX. It coiled in a tight range for seven weeks then broke slightly lower, recovered, and broke slightly higher. It is now turning back down. It looks like tremors before the big one to me. The question is, which direction?

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Breadth wasn’t encouraging over the past few weeks. The market rallied and the number of bullish stocks fell. This indicates profit taking in the most bullish stocks rather than looking for other bullish opportunities. Bulls want to see this number climb if the market rallies.

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Conclusion

Market participants are leaving fear behind and starting to hope for new all time highs, but the tremors in 7 day sentiment indicate a swift move lower is also possible. Watch 2050 on the downside and 2135 above for a break. If those levels are confirmed by sentiment and breadth I’ll be expecting a swift move in the same direction.

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Still Waiting

We’re still waiting to see if the market is going to roll over at trend or have a strong break to the upside. Twitter sentiment for the S&P 500 Index (SPX) had a small break of its tight range last week, but then quickly recovered. It’s bumping up against the zero level again just as price on SPX is testing its downtrend line. That leaves us waiting for a break one way or another.

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Breadth calculated from the most bullish stocks on Twitter and the most bearish turned back up this week. This is a constructive change from the behavior of the last three weeks where price pushed higher, but breadth fell.

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Support and resistance levels tweeted by traders are still showing the same price targets. On the upside, 2080 and 2100 are the most tweeted levels for SPX. The market traded right up to 2080 this week, then paused at Twitter resistance. There’s not much anticipation for prices above 2100. This indicates indecision and waiting by many market participants. They want to see an upside break before committing more money.

Below the market 2020 and 1810 are still the most tweeted levels, although with less frequency. This is a small indication that most people are looking to see if the market can break to the upside rather than worrying a lot about the downside.

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Sector sentiment was constructive this week with leading sectors getting positive tweets and defensive sectors garnering negative tweets.

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Conclusion

We’re still waiting to see if the market can break its down trend line or if it’s going to turn over. Sentiment is still in a tight range, but breadth, price targets, and sector sentiment were all constructive. That gives a tiny edge to the bulls.

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Here We Go… One Way or Another

It finally looks like we’re going to get a short term top, but so far I’m not getting any strong signs that we’ve resumed the longer term down trend. One of the only chinks in last rally’s armor comes from breadth calculated between the number of bullish and bearish stocks on the Twitter stream. It turned down with price this week. It isn’t much of a dip yet, but if the trend continues then it’s likely that the bear market has resumed. During the November/December 2015 consolidation, breadth held steady as the number of bullish stocks held up. When the bullish count started to fall in late December it was warning of the subsequent decline. Currently, the number of bullish stocks is starting to decline and the number of bearish is rising. You can keep an eye on the daily chart here.

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7 day momentum and sentiment for the S&P 500 Index (SPX) calculated from the Twitter stream is still coiling in an extremely tight range below zero. Over the past couple of days, the volume and intensity of tweets reached the same levels as the February lows. This is an odd occurrence so close to a short term high. High levels of activity and intensity are usually associated with lows. Right now, both the bulls and bears are very engaged in the fight so when the sentiment range breaks it should be accompanied by a violent move in price. I suspect that when the current battle between bulls and bears is won that everyone will pile on with the victors. You can follow the daily chart here.

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The price levels to watch on SPX are 2080 and 2100 on the upside and 2020 on the downside. Those levels are garnering the majority of tweets. I suspect that if any of these levels are broken we’ll see 7 day momentum and breadth confirming the move.

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Sector sentiment is showing weakness in financials. This is another chink in the rally’s armor, but a small one at the moment.

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Conclusion

Here we go… one way or another. 7 day momentum is coiling with a higher than average volume and intensity of tweets, the number of bullish stocks is stalling at the last rally’s highs, and support and resistance levels are close at hand. If support or resistance is broken and accompanied by breadth and 7 day momentum we should get a violent move in the same direction.

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Breadth Rolling Over

Yesterday did a lot of damage to the number of bullish stocks on the Twitter stream. It is causing breadth to roll over. This isn’t the action the bulls want to see. Keep an eye on this chart going forward. If the bullish count continues to fall quickly and the bearish count starts to rise, we’re likely going to see a good sized retracement of the current rally. You can see the interactive chart here.

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Crunch Time

Every day that goes buy I’m more surprised by this rally. But, it’s getting close to crunch time. Now it looks like the market is preparing to make a violent move (not that the 14% rally over the past six weeks hasn’t been violent). The question is, which direction? Take a look at 7 day momentum for the S&P 500 Index (SPX). It has been consolidating in an extremely tight range for the past six weeks. This is not normal behavior. Usually we get a pretty good trend or wide sideways consolidation that is correlated with price. The tight consolidation below zero while the market surges higher indicates traders don’t like this rally. They’re adding shorts and sticking to their bearish bias. If 7 day momentum breaks higher it will indicate that traders are covering shorts and likely result in chasing prices higher. If 7 day momentum breaks lower the bears will be vindicated and will likely press their shorts, while the bulls will turn fearful and take profit on recent gains. Either way, the move in price should be swift.

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Another sign that we’re approaching crunch time comes from the number of bullish stocks compared to price on SPX. The bullish count is back to the levels of the last rally while price is approaching its down trend line. The bulls want to see a surge in the bullish count as the down trend in price is broken. The bears want to see the market turn over near the trend line, while at the same time, the bullish count drops rapidly and bearish stocks rise (similar to the late June to late July 2015 period that resulted in a waterfall decline).

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Support and resistance levels are still very wide. This is a sign of fear and indecision. The lack of tweets below the market is concerning because waterfall declines occur when no one is tweeting support near current prices. 2100 appears to be the level that will bring chasers into the market if it can be eclipsed.

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Sector sentiment is mostly positive this week, which indicates renewed buying, but without overbought readings.

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Conclusion

It’s crunch time. Sentiment is coiling in a tight range below zero. When it breaks there will likely be a violent move in price in the same direction. Hold on tight.

 

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