Optimism Abounds

By | August 24, 2014

Our Twitter momentum indicator for the S&P 500 Index (SPX) continues to confirm the uptrend after clearing its consolidation warning two weeks ago. Although the uptrend is intact, momentum from both Twitter and StockTwits is getting a bit frothy. Both are at the highest levels they’ve reached since December of 2013. In the past, peaks in the +12 to +15 range have marked short term tops. Both indicators are now showing readings above +20. This is a very overbought condition which should signal a short term top when momentum turns back down.

140823spx

Support and resistance levels generated from Twitter are also starting to confirm the uptrend with new calls for 2000, 2030, and 2050 on the S&P 500 index. These tweets indicate that traders believe the current rally can reach those levels. The number of tweets near the 2000 area makes it a place where traders will likely take profit so the market should at least pause there before moving higher. Below the market the most tweeted levels are 1955 and 1905, making them support.

Breadth calculated by comparing the number of stock with strong support on Twitter and StockTwits against those with weak support has turned back up, but continues to paint a negative divergence from price. I’d like to see this indicator continue its high readings on any further rally.

140823breadth

Sector sentiment is showing a bit of rotation to safety again with almost all sectors garnering strength from the Twitter stream. A short term top has almost always been put in place in the past when all sectors were positive. This is another indication that the market may need to pause.

140824sectors

Overall momentum is suggesting the market should move higher, but may need to clear over bought readings before it can do so. The large number of tweets near the 2000 level on SPX makes it a likely level to consolidate recent gains before a push to 2030.

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