Everyone is Waiting, But…

By | June 5, 2016

I’m seeing strong signs from the Twitter stream this week that everyone is simply waiting for something to happen. But sector sentiment is showing an overbought condition with every sector printing positive sentiment readings. Almost every time this happens it marks a short term top. The few times this indicator has failed, the market rallied one more week which again had all sectors positive, then the short term top was put in place. As a result, I don’t expect much upside until this condition clears. For a bullish resolution, I’d like to see some negative readings in the defensive sectors (consumer staples, utilities, and to some extent health care) as the market dips.

160605sectors

The first sign I’m seeing of waiting comes from breadth between bullish and bearish stocks. It is drifting slightly higher, but not for a great reason. It appears that the bears are giving up on their shorts, but the bulls aren’t buying with enthusiasm. The bulls are waiting for a break to new highs before committing more to this rally.

160605breadth

Next we have 7 day momentum and sentiment still drifting sideways, albeit in a larger range. The lack of trend, either up or down, adds to the argument that market participants are waiting for something to happen before they take action. Two weeks ago 7 day momentum painted a triangle patter that usually points to a good move in price when it breaks, but this time it didn’t happen. This indicates sentiment is following price, rather than leading.

160605spx

Add to that the price target tweets. They are all coming at or very near current prices. Almost no one is tweeting any speculative price targets. This means people are observing rather than taking action based on hope or fear.

160605spxSR

Conclusion

Everyone is waiting for something to happen, but we’ve got a sign that a short term top is near. We’ll have to see if a dip causes people to act.

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