As the S&P 500 Index (SPX) made a new closing high this week momentum and sentiment from both Twitter and StockTwits confirmed the move by making a print above their prior peaks. 7 Day momentum from Twitter also has a higher low which indicates a new uptrend is most likely under way. The recent consolidation for SPX has taken the froth out of sentiment readings that were extremely over bought at the end of the year. Market participants became bearish as the market traded sideways, but now it appears that they’re willing to accept a break to new highs.
Another sign that traders are expecting new highs comes from support and resistance computed from the Twitter stream. Our computer system is finally picking up tweets that contain price targets above the recent range and above the December high. The vast majority of tweets are for higher prices. The most tweeted level above the market is near 2140 on SPX. There is some small resistance at 2120. Support comes in at the top of the recent range near 2065, then 2040 and 2020.
Last week we posted this chart of VIX on Twitter. It showed traders still protecting portfolios and expecting volatility.
The market moved higher and VIX broke below its uptrend line but, 7 Day momentum from Twitter is still inside a triangle. This indicates that there is still some indecision and caution. I suspect that a clear break above 2100 on SPX will remove the doubt.
Breadth between the most bullish and bearish stocks on Twitter and StockTwits is still painting a negative divergence with SPX. The number of strong stocks on Twitter have recovered to levels seen in November and December. The problem is the number of stocks breaking down with a stream of tweets containing decidedly negative sentiment is still fairly large. What we’re seeing is a thinning market as it pushes higher.
Sector sentiment is healthy with most leading sectors positive and utilities negative. The weakness in utilities shows an expectation of higher interest rates due to an improving economy. One thing of concern for the sectors this week is strength in consumer staples. This indicates that a bit of rotation to safety is still underway.
Overall social media sentiment is suggesting traders want higher prices, but are still cautious. On a break to new highs we’ll want to see a sharp drop in 7 day momentum for VIX as this will indicate market participants are once again taking risk.