Odds Favor Lower Prices

By | September 28, 2014

Social media momentum indicators for the S&P 500 Index (SPX) continue to suggest lower prices are ahead. Last week we noted that traders on Twitter were chasing price and that it should cause some instability. That turned out to be the case as market indexes had 1% moves in both directions. This is another indication of uncertainty by market participants that is generally resolved with a large momentum move once everyone piles on to the same side. 7 Day momentum is showing large negative divergences with SPX which often precedes declines. We don’t have a confirming uptrend line on momentum for SPX to act as a signal line so we’ll watch for a drop below zero instead.

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Small cap stocks (IWM) broke the uptrend line from social media momentum on Monday last week which gave us warning that the triangle being painted by price would likely break to the downside.

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The Nasdaq 100 (QQQ) also broke the confirming uptrend line from momentum. This puts QQQ in danger of showing the same type of weakness that we’ve seen in small cap stocks over the past several months.

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Breadth from social media continues its slow drift lower as more stocks are losing support on Twitter and fewer stocks have positive tweets.

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More support and resistance levels are starting to show up on Twitter as price gyrates. We now have 2000, 2020, and 2050 as resistance on SPX. The 2020 level is garnering the most tweets so it is the line in the sand for the bears. Below the market 1980, 1955, 1940, and 1905 are the largest areas of support. 1955 seems to be the critical level with traders so a break below 1955 would most like carry prices to 1905 before the market could sustain a rally to new highs.

Sector strength is showing a preference for defensive stocks with Consumer Staples and Health Care getting the most support. The weakest sectors are Technology and Consumer Discretionary. As I mentioned last week, there appears to be a rotation to Financial stocks. This week Financials are positive which needs to continue for the market to rally.

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Overall social media indicators are suggesting that lower prices are ahead. Momentum for small caps and the Nasdaq 100 are currently warning, traders are tweeting a wider range of support and resistance, and investors are showing a preference for defensive stocks. These conditions give the advantage to the bears.

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