On days that the market falls more than it has in recent weeks it’s good to look at the stocks that had the most bearish tweets during the day. What we look for is recent leaders because leaders leading to the downside warns that the market is likely to correct. Back in mid September the market had a big down day and the most bearish list was littered with recent leaders. We then warned that it was time to take some profit in the high fliers. By the first of October the market was well into a decline.
Flash forward to yesterday and the list of stocks with the most bearish sentiment doesn’t contain a lot of leaders. Only two recent leaders are near the top of the list. Biotech stocks (IBB) and Google (GOOG). The other stocks in the list have been in downtrends for a while. This suggests that the damage done yesterday wasn’t severe. One thing of note is that the full list of bearish stocks didn’t contain a huge number of biotechs. This suggests market participants aren’t abandoning biotechs and that it’s likely just profit taking at the moment. Keep an eye on the bearish lists over the next couple of weeks because it will tell you if sentiment is turning against the leaders.
Another thing to watch is the bullish stock lists. From there you’ll be able to see the early leaders if this decline is short lived.