Monthly Archives: August 2017

Now What?

Last week I mentioned that we should get a short term top. We got it this week. Now what? Let’s start with 7 day momentum and sentiment for the S&P 500 Index (SPX). It has now made a clear break below its uptrend line. This indicates that the bears are in control for the moment. We’ll be watching for any downtrend in sentiment to be broken to the upside to indicate the dip is over.

 

SPX also broke below minor support at 2450 this week. That level is now minor resistance. However, the large range between 2400 and 2500 will likely restrain any short term moves. Meaning, a break of either level will point the next intermediate term direction.

 

Breadth between the most bullish and bearish stocks on Twitter is sending mixed signals. It has been diverging from price for three months, but it’s still well above the normal bullish range. This gives the market plenty of room to work with for a short term dip.

 

Conclusion

We’ve got the start of a short term dip. The bulls want to see SPX reclaim 2450, 7 day momentum to start a new uptrend, and the number of bullish stocks to break above its negative divergence. It make take a few weeks of weakness in the market before we get a resolution. The most important thing to watch is the range between 2400 and 2500. A break of either level will give us an intermediate term direction.

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Cracks in the Dam

Two weeks ago, I mentioned that sector sentiment calculated from the Twitter stream was overbought. When this occurs a short term top is usually in place within a few weeks (almost always in one week). When it stretches to two weeks, sector sentiment stays overbought during the period. We’ve now gone two full weeks from that warning. During that time, the S&P 500 Index (SPX) has traded sideways, but no top has formed. Coincidentally, (or not – since the indicator is a good one) sector sentiment has been overbought now for three weeks. Here’s the chart as of last Friday:

Below is the previous week’s chart. Three full weeks of overbought sector sentiment is warning that a short term top should show itself soon.

 

Sentiment from Twitter for SPX is breaking its confirming uptrend line. It needs to hold right here or the short term top will materialize quickly.

 

Breadth calculated between the most bullish and bearish stocks on Twitter is starting to fall as a result of an uptick in the bearish count. This indicates traders are finding shorting opportunities. This isn’t a good sign near a market top.

 

Support and resistance levels gleaned from Twitter are telling us traders are watching the last lows near 2460 before getting concerned. That level and 2450 are most hold areas for the bulls.

 

Conclusion

There are some cracks in the dam. Sector sentiment has been overbought for three full weeks, 7 day sentiment for SPX is breaking its uptrend, and the count of bearish stocks is rising. Expect a short term top very soon.

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