Perfect Storm

By | June 28, 2015

This coming week it’s going to be all about Greece. Unfortunately, the Greek drama comes amid a perfect storm of sentiment for the S&P 500 Index (SPX). Daily momentum calculated from Twitter for SPX continues to show chasing on very small moves in price. When SPX moves up daily momentum has extremely high prints and any down move creates larger than average negative prints. This is causing 7 day momentum to move from oversold to overbought with very little movement in price. It is now turning down from an overbought level that generally results in a few weeks of choppiness or decline in the market.

150628spx

Price targets tweeted by traders have dried up. Almost no one is tweeting prices outside the daily range. This indicates that traders are uncertain and waiting for a resolution…usually of the current range, but most likely the Greece situation at present. One very troubling sign is the lack of support levels tweeted by traders. This condition creates instability because it indicates traders are uncertain about how far a decline will carry.

150628spxSR

Breadth and sector sentiment indicate market participants are viewing this as a risk event rather than a structural or fundamental problem. I find this interesting (and ironic) given the fact that the structure of the European Union is what is at risk….a very fundamental problem. Nevertheless, breadth is showing an increase in the number of bullish stocks and a decrease in the number of bearish stocks. This indicates the long term trend is still up.

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Sector sentiment is also fundamentally healthy with leading sectors showing the most positive readings.

150628sectors

Conclusion

Greece is currently being seen as a risk event that isn’t changing fundamental behavior by market participants. Unfortunately, this risk event is occurring amid uncertainty and instability in various measures of sentiment…which creates a perfect storm.

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