Lack of Confidence

By | April 26, 2015

Sentiment and momentum calculated from the Twitter stream for the S&P 500 index (SPX) is still confirming the uptrend, but has turned down as the market rises. This shows a lack of confidence by traders on Twitter that the market can move immediately to new all time highs. If the confirming uptrend line in 7 day momentum breaks lower after the current negative divergence it will warn that we’re probably headed back down into the current range.

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Another signs that shows a lack of confidence comes from price targets tweeted by traders. When SPX first broke above 2100 in February there were many calls for 2200. Currently the market is sitting just below all time highs, but traders aren’t tweeting significantly higher prices. 2140 and 2150 is about all market participants seem to hope for. It appears that everyone is waiting for a break higher before committing themselves. Below the market traders have created a strong line of support at the 2040 level.

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As a side note, the Dow Jones Industrial Average and Dow Jones Transportation Average have both painted a line which is extremely significant in Dow Theory. If both averages break the same direction it will start the next intermediate term trend. You can read more about the significance of a Dow Theory line at Downside Hedge.

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Sector sentiment is flashing a warning of a short term top. Almost every time all sectors have shown positive sentiment over the past several years a short term top was near. At the least, the market only moves slightly higher or chops around when this happens. The last occurrence was March first which proved correct.

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Breadth calculated from bullish vs. bearish stocks continues to show healthy readings. The number of bullish stocks has been falling since last July, but put in a low in January. This is creating a triangle that if broken to the upside would be very positive for the market.

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Overall sentiment from Twitter shows a lack of confidence from market participants. 7 day momentum has painted a negative divergence as price rises, price targets aren’t significantly above current levels, and the defensive sectors show positive sentiment. This suggests we’re probably due for some chop before the market can move much higher. A break above 2120 on SPX could see a quick trip to 2140, but will need to be accompanied by more optimism to carry much higher.

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