Author Archives: TradeFollowers

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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Make or Break Time

It’s make or break time for the market. Sentiment for the S&P 500 Index (SPX) is sitting right on top of its confirming uptrend line. A clear break of this line would indicate that the bulls are retreating and the bears have gained control. It would most likely result in SPX falling below 2400.

 

Support and resistance levels gleaned from the Twitter stream for SPX show how critical the 2400 level is. Everyone is talking about 2400 and almost nothing else. There aren’t any clear support levels below 2400 so if it breaks we could see a waterfall type decline as everyone panics.

 

The recent weakness is finally having a negative impact on the number of bullish stocks on Twitter. This indicates that fewer stocks have enthusiastic buyers. The bearish count is still low, which means sellers aren’t materializing yet.

 

Conclusion

The market is at a critical point, 7 day momentum and sentiment is on the line between bullish and bearishness, there isn’t any clear support below 2400, and enthusiastic buyers are drying up. If the market can’t rally from here, it’s likely that 2400 will break and the decline after that will be swift.

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Not Much Damage

We’ve had another week where the Nasdaq 100 (NDX) was volatile and suffered a bit of damage, but sentiment for the S&P 500 Index (SPX) is still holding up. As long as 7 day momentum stays above it’s current trend line the market should continue to advance.

 

A lot of people are looking up to 2500 as the next target for SPX. Of course, they’re all waiting to see if 2400 holds too.

 

Breadth is showing improvement mainly due to a decrease in the bearish count.

 

Conclusion

Everyone is waiting to see if 2400 on SPX hold. However, they’re waiting with optimism that volatility in NDX won’t spill over into SPX.

 

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Still Bullish

Even with Friday’s ugly market action, investors and traders on Twitter remain bullish. The daily sentiment and momentum indicator for the S&P 500 Index (SPX) had a positive print on Friday. Seven day momentum remains in an uptrend and it’s likely the market will as long as that uptrend is intact.

 

2450 on SPX is a resistance level that has been tweeted since January. Once the market passed 2400, then 2450 was the next likely place to pause. It looks like we’ve got that pause. Support is at 2400 and 2350. I expect the market to hold somewhere in that area unless the trend in 7 day momentum is broken to the downside. One other thing of note, traders’ tweets didn’t show any fear on Friday. Notice the lack of tweets calling for prices below 2400 on SPX.

 

Breadth is repairing itself with the bullish count rising and the bearish count falling. This is another indication that we’re likely seeing a pause rather than an intermediate term top.

 

Conclusion

Bullishness still reigns. Until we see fear in traders’ price targets, a significant decline in the count of bullish stocks, or a break of the confirming trend line in 7 day momentum we should expect the market to move higher (even if it needs to rest for a week or so).

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Not Much Hope

Last week, we were looking for a break higher in 7 day momentum and sentiment to signal a resumption of the rally.  We got that break and the S&P 500 Index (SPX) finally made a clear move above 2400. Unfortunately, most of the bullishness was observation of new highs and not excitement for even higher prices.

 

The move higher stopped right at the 2420 resistance level tweeted by traders. The next resistance area is 2450, but there aren’t many tweets calling for higher prices so it may be a slow slog higher.

 

Another drag on the market is the number of bearish stocks on the Twitter stream is rising. This isn’t a good sign when the market is at all time highs because it indicates a thinning market.

 

Conclusion

The market made new highs, but without much hope. Higher price targets are sparse, the count of bearish stocks is rising, and individual tweets don’t have a lot of enthusiasm for higher prices. It’s likely that any price gains will come sluggishly.

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Waiting for Signs of Bullishness

I’m busy this weekend, but here are some updated charts with a conclusion to follow.

 

 

The S&P 500 Index (SPX) is in a well defined range of 2300 to 2400 with minor support at the last lows near 2320. 7 day momentum and sentiment from Twitter for SPX is in a clear short term downtrend. If that trend is broken to the upside it should confirm a resumption of the rally. The number of bullish stocks on Twitter is rising, but is still diverging from price. Put all together, we’re waiting for more bullishness to show up in 7 day momentum and the bullish count so we can finally make a clear break above 2400 on SPX.

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Thinning Breadth Near All Time High

On Friday, the S&P 500 Index (SPX) made it back to challenge 2400, but the number of bullish stocks on the Twitter stream is diverging from price. This indicates that traders are buying fewer stocks as the market pushes higher. Other signs of sentiment from Twitter suggest that SPX should move above 2400, but won’t have broad based support. Bulls want to see the number of bullish stocks increase if the market breaks out significantly.

 

7 day momentum and sentiment calculated from tweets for SPX has painted a healthy pattern where sentiment turned up ahead of price and is now consolidating at an expected resistance level. This pattern suggests the market should break higher, but may need another few days of consolidation.

 

Support and resistance gleaned from Twitter for SPX shows a clear range between 2300 and 2400. There is also strong support at 2320. If the market can get above 2400, it should move fairly quickly to 2450 as that area is getting calls from a large number of traders.

 

Conclusion

Sentiment for the market is indicating we should get a clear break above 2400 on SPX, but breadth is thinning. This puts the market in danger of a larger decline when the rally concludes. Bulls want to see the bullish count rise if the market breaks out.

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