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.
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.