Market Overbought

By | July 23, 2017

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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