This week finally saw a bit of optimism on the Twitter stream for the S&P 500 Index (SPX). However, the overall response was fairly tepid. First let’s look at breadth calculated between bullish and bearish stocks. The market had a strong move in price last week, but breadth traded sideways. The number of bullish stocks didn’t increase much which indicates the buying wasn’t enthusiastic.
Next we have price targets for SPX gleaned from the Twitter stream. Notice that no one is calling for new all time highs even though they’re only 35 points away. Not the type of response that tells me people are getting on board this rally. My read of this chart is that market participants won’t get excited unless we reach all time highs.
Daily sentiment did have a few strong readings this week so we have a small sign that the bears are breaking. 7 day momentum and sentiment for SPX had a break below its triangle then a quick reversal to break above it. This shows continued uncertainty by market participants. It looks to me like chasing rather than motivated and hopeful buyers.
Sector sentiment was strong almost across the board. Weakness in utilities helps the bull case, but I would have liked to see weakness in the other defensive sectors too (consumer staples and health care). Basically, I think this rally needs a rotation away from defensive stocks and into leading sectors (financial, technology, consumer discretionary, etc.) before we can get a sustained move higher.
The bears are starting to crack, but the bulls aren’t enthusiastic. Breadth continues to lag, price targets are conservative, 7 day sentiment can’t pick a direction, and defensive sectors are still being bought. It looks like the market will need to break out to new all time highs before the bears turn to bulls.