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.
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.