Continued Drift

By | November 16, 2014

Our Twitter momentum indicator for the S&P 500 Index (SPX) continued to drift this week as the market posted a small gain. It is attempting to turn down, but lack of confidence from the bears on Twitter is holding 7 day momentum up. The StockTwits indicator moved up into what is normally an over bought condition that has caused the market to pause in the past. Both streams are indicating that we should see some consolidation or sideways movement over the next week.

141116spx

Support and resistance levels gleaned from the Twitter stream show slight optimism from the bulls, with scattered tweets calling for prices between 2050 and 2080 on SPX. The most tweeted levels are 2050 and 2070. Below the market support has virtually vanished. There are a small number of tweets calling for 2010 and an even smaller number targeting 1955 and 1825. It appears that the bears have been beaten up so badly that they’re reluctant to even predict lower prices. When this occurs it can cause instability due to the fact that bulls don’t expect a dip and almost no bears are short the market. When selling starts it often accelerates if it breaks the first support level (2010 on SPX).

Breadth between the most bullish stocks on social media and the most bearish is starting to show some improvement in the short term, but continues to diverge from price over the last several months. The divergence is mainly due to an increase in the number of bearish stocks making the lists.

141116breadth

Sector strength is starting to look more healthy with leading sectors (with the exception of energy) showing the most strength and defensive sectors lagging in support from the Twitter stream. This is an encouraging sign given the fact that last week the sectors were indicating a short term top. There still appears to be some rotation to safety, but not at the pace of the previous week.

141116sectors

Overall social media is suggesting optimism from the bulls and silence from the bears. This should allow the market to continue to drift sideways or higher. If there is any weakness it will be critical for SPX to hold the 2010 level or selling could accelerate quickly as bulls who aren’t expecting a dip take profit and bears start to short.

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