Monthly Archives: March 2017

Warning Signs

We’re seeing some signs warning that sentiment for the S&P 500 Index (SPX) gleaned from Twitter is at a make or break point. The thing that is most concerning is that price is so close to an all time high as sentiment is deteriorating toward bearish levels. First let’s look at 7 day momentum and sentiment. It put in a low a few weeks ago that was at the bottom of the normal bull market range. Now it is attempting to turn down from zero. If it does turn down and break below the last low it will be very bearish for the market. On the bright side, price is lower, but 7 day sentiment is higher. This gives this indicator a tiny positive divergence, which could mean the low in sentiment is in place. If that is the case, price should follow higher. Bulls should be looking for a clear break back above zero on this chart.

 

Breadth calculated between the count of bullish and bearish stocks on the Twitter stream is also deteriorating. The bullish count is sitting barely above the normal bottom of the bullish range. Once again, it’s happening without much price weakness in SPX. A break lower in the bullish count will likely be associated (or followed) by a big break lower in price for the major indexes. You can see the daily chart here.

 

Price targets for SPX gleaned from Twitter show a cluster of support in the 2320 to 2330 area. These targets, all at different prices, have a fairly even distribution for the number of traders calling for each of them. This means that price could hold in that area, but it isn’t strong support. We prefer to see everyone calling for the same price. Notice how we had a straight line of resistance at 2400 that started in early February. When price reached that level everyone who wanted to sell or take profits did so at the same time. If price falls into the 2320 to 2330 range, the buyers will show up at different times which might not be enough to stop the slide.

 

Conclusion

We’re seeing several warning signs that the market needs to turn back up right now or suffer a much larger drop. 7 day sentiment and the count of bullish stocks are both at the bottom of their normal bull market range. Support below the market is scattered rather than solid. All of this is happening with price very close to all time highs, which suggests that any move lower in price will be a large one.

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Not Much Change

Over the past week, there isn’t a lot new to report regarding sentiment from the Twitter stream. The most significant item comes from the number of bullish stocks. It continues to fall even though the market moved up a bit. This indicates that traders aren’t aggressively buying the most bullish stocks near a market high. This isn’t a good sign for the bulls.

 

7 day momentum and sentiment for the S&P 500 Index (SPX) has moved back up to the zero line. The bulls want to see this break higher. The bears want it to turn down from the zero level as it will likely result in a larger decline in SPX than we’ve seen so far this year.

 

Support and resistance levels stayed the same. 2400 is strong resistance. 2350 and 2300 are support.

 

Conclusion

A weak response from the bullish count and 7 day sentiment sitting at zero suggest there aren’t very many committed bulls. Keep an eye on 7 day sentiment, because a turn down from here will likely have serious consequences.

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Buying Stalls

Over the past few weeks the number of bullish stocks on Twitter have fallen sharply. This indicates that buyers of the most bullish stocks dried up as the S&P 500 Index (SPX) pushed up into the 2400 area. Although buyers are slowing down, the sellers of bearish stocks haven’t materialized. That condition is keeping overall breadth at healthy levels.

 

Sentiment for SPX calculated from the Twitter stream has finally made a decisive break of the confirming uptrend line we’ve been watching. It corresponded with a break down in price as we expected. Now we’re watching for an upturn as the first indication that a low may be in place.

 

In our February 20th post we noted that 2400 on SPX was a strong resistance level. At the time, we thought the market would pause and then move to the 2400 level. Instead, the market made two quick jumps in price to touch 2400 and then backed away. There is small support at 2350 on SPX and larger support at 2300. Resistance is still above at 2400.

 

Conclusion

We’ve finally got the dip we’ve been expecting due to the flagging sentiment and lack of enthusiasm from buyers of the most bullish stocks. Now we’re watching to see if 2350 on SPX holds or if we’ll get a trip to 2300. Keep an eye out for an upturn in 7 day momentum that is accompanied by a resurgence in the bullish stock count for the first clues that a bottom has been put in place.

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