On 8/14 we wrote that a short term top was close based on overbought sector sentiment, lackluster daily sentiment, and strong resistance at 2200 on the S&P 500 Index (SPX). After that post, the market pushed just a bit higher then traded sideways to down until last Friday… when it fell of the cliff. Or at least it felt that way after so many days with little to no volatility. The daily print for Twitter sentiment for SPX on Friday brought out the bears, but not in enough force to create an initiation thrust. The reading was -18. We consider -20 near a short term top as a warning for more weakness ahead. The lack of an initiation thrust indicates the bulls are still in the fight and that they aren’t panicking yet.
7 day momentum and sentiment is compressing between a confirming downtrend line and the bottom of its “bullish” range. Whichever trend line is broken first will likely point the direction for a few weeks. The bulls need the “bullish” oversold level to hold.
The number of bullish stocks on Twitter continues to hold above normal bull market levels, however the number of bearish stocks is rising steadily. This indicates that bears are finding stocks to short. Breadth is telling us that the intermediate term bull is still intact, but showing a bit of weakness.
Support and resistance levels gleaned from the Twitter stream still show strong resistance at 2200 on SPX. However, there is very little support. Bulls want to see several levels of support tweeted if the market continues to fall as this will give us a place to catch.
We got the short term top as expected, but sentiment isn’t indicating that this is a long term problem yet. 7 day momentum and the number of bullish stocks are still in bull market territory, and Friday’s large decline couldn’t generate an initiation thrust. Our first warning of something larger will come if the “bullish” lines on either 7 day sentiment or the number of bullish stocks is breached to the downside.