Author Archives: TradeFollowers

Lack of Enthusiasm

This rally lacks enthusiasm from traders and investors on Twitter. Sentiment for the S&P 500 Index (SPX) didn’t move higher as the market finally jumped on Friday. The good news for the bulls is that sentiment held its confirming trend line (the bottom of the triangle).

 

Another sign that enthusiasm is lacking comes from the number of bullish stocks on the Twitter stream. It isn’t moving up with the market. Breadth is ok, but only because no one dares to short as evidenced by a decline in the number of bearish stocks.

 

Price targets for SPX show everyone looking at 2600. There are virtually no tweets at any other level with the exception of observations of current prices. It’s as if everyone sees 2600 as inevitable, but waiting to see what happens afterward.

 

Conclusion

The market is moving higher without enthusiasm from market participants. Sentiment is lackluster, the bullish count is falling, and price targets are all calling for 2600 on SPX. Without enthusiasm, I suspect we’ll get dip once SPX gets close to 2600. That dip should be larger than we’ve seen in a while.

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Sideways Consolidation

The S&P 500 Index (SPX) is consolidating in a sideways range. As SPX consolidates, sentiment from the Twitter stream is painting a triangle. The break of the triangle will point the next direction in the market. If it breaks to the downside, we’ll probably need a small dip before the market can continue upward. A break to the upside should see SPX at 2600 pretty quickly.

 

Here’s the support and resistance levels tweeted by traders for SPX. 2600 is where they expect the next rally to pause. Traders aren’t expecting prices to dip below the 2535 level at the moment.

 

Breadth calculated between the most bullish and most bearish stocks on Twitter is falling a bit as the market consolidates. One concerning thing in this chart is that the bullish count stalled even as SPX ran from 2500 to 2550. Bulls want to see the bullish count rise with the market.

 

Conclusion

The market is consolidating in a sideways pattern. Sentiment is painting a triangle so all we have to do is watch which direction it breaks.

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Everyone Waiting

Last week we mentioned that it was time for some consolidation. This week it looks like everyone is waiting to see what happens. The first sign of waiting and watching comes from support and resistance levels gleaned from Twitter for the S&P 500 Index (SPX). There aren’t many tweets for prices above or below about 2500.

 

Sentiment is decreasing as the market stalls. This is a normal condition that should result in the market resuming higher after 7 day sentiment hits the zero line or dips a bit lower into the oversold area. The lack of enthusiasm is another sign of market participants observing rather than hoping for higher prices.

 

Another sign of waiting comes from the number of bullish stocks on the Twitter stream. We’re not seeing a big increase in bullishness. However, we are seeing a decrease in the number of bearish stocks. This suggests that the market should rally once the current consolidation ends.

 

Conclusion

Everyone is waiting for a clear move in the markets. The indicators from Twitter suggest the move should be higher.

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Consolidation

Sector sentiment is again warning about a short term top with an overbought signal caused by all sectors showing positive readings. The last time this happened was late July and early August. A short term top followed as expected. At the least, we should expect some mild consolidation to clear the overbought reading.

 

Another sign that the market should consolidate comes from traders price targets on Twitter. 2500 on the S&P 500 Index (SPX) has been tweeted fairly consistently as resistance since May of this year. SPX is finally at 2500 and has consolidated near that level this week, but traders aren’t tweeting for prices above the market. Instead, they’re waiting and watching. I suspect that we may need a bit more consolidation before the market ultimately rallies above that level. If it can get above 2500 I expect chasing to follow and likely a rally into year end.

 

Sentiment for SPX calculated from Twitter is lagging price. This is a sign that traders and investors are observing rather than predicting. This is another indication that everyone is waiting to see if 2500 on SPX can be broken decisively.

 

Breadth calculated between the most bullish and bearish stocks on Twitter is holding fairly steady even as the market rallies. The problem is a lack of enthusiasm for a large number of stocks. The bullish count isn’t rising with the market. Another indication of people waiting rather than buying.

 

Conclusion

The market is likely due for a short term top or sideways consolidation at the least. Sector sentiment is overbought, sentiment for SPX is lagging price, and the market is bumping up against a strong resistance level. Add to that, a lack of tweets calling for higher prices and no significant rise in the count of bullish stocks and we get a picture of market participants waiting for 2500 on SPX to be broken decisively before acting. A break above 2500 should start a rally into year end.

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Decision Time

On July 23rd, I posted that a short term top was near due to overbought sector sentiment. We’ve now had a short term dip, but is it enough? If we look at 7 day momentum and sentiment for the S&P 500 Index (SPX) it has fallen to the level of minor dips over the past two years. However, it still has some room to fall if we’re going to see a more significant dip in a longer term uptrend.

 

Breadth calculated between bullish and bearish stocks on the Twitter stream is declining, but the bullish count shows an intermediate term negative divergence, and a short term positive divergence with price. The bullish count will likely give us a short term direction by breaking the triangle. If it can break higher it should signal that new highs are ahead.

 

The most informative long term indicator from Twitter this week is support and resistance levels. There is now a clear range between 2400 and 2500 on SPX. If either level breaks it will show us the long term trend.

 

Conclusion

It decision time for the short term. 7 day sentiment is where short term dips end, but still has some room for a longer dip (and remain bullish long term). The count of bullish stocks is painting a triangle that could break either way. The longer term trend should be decided by a break of either 2400 or 2500 on SPX.

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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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Market Overbought

Last week, sector sentiment gleaned from the Twitter stream had every sector positive. When this occurs a short term market top materializes usually within the following week. Once in a while, the sectors will paint another week with all of them in positive territory, then the top comes. Basically, when every sector is being bought aggressively it signals that the market is overbought.

 

Another sign that the market is overbought comes from trader’s price target tweets for the S&P 500 Index (SPX). There are virtually no tweets calling for prices either above or below current price. This indicates that everyone is waiting to see what happens next, rather than projecting higher or lower prices. With the recent move higher, I suspect that traders are getting reluctant to add new positions or add more to existing positions.

 

Sentiment for SPX calculated from Twitter continues to confirm a mid term uptrend. 7 day momentum has plenty of room to withstand a short term top, then continue higher before a larger dip appears.

 

Breadth calculated between the most bullish and bearish stocks on Twitter continues to hold strong. This indicates that a long term top isn’t expected by traders because they’re still bullish on a large number of stocks and aren’t finding bearish plays.

 

Conclusion

The long and medium term uptrend is still intact, but the market is getting overbought. We’ll likely see a dip this coming week.

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Next Target 2500

The S&P 500 Index (SPX) held the level everyone was watching and tweeting at 2400. Then it cleared the Twitter resistance level at 2450. Now, traders are tweeting 2500 as the next stop.

 

Not only did SPX hold above support, it held above its uptrending sentiment line. This indicates we should continue to rally (probably to 2500 before a pause).

 

The count of bullish stocks on Twitter has suffered lately, but made a strong move higher this week as SPX rallied. This is a good sign that the consolidation is over and buyers are once again enthusiastic.

 

Conclusion

Support, sentiment, and breadth all held critical levels during the last dip. Now, we should rally for a while.

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