Over the past week we got several signals from the Twitter stream that a short term top is likely. At the very least we should see a choppy market rather than a strong rally higher. Momentum and sentiment generated from the Twitter stream for the S&P 500 Index (SPX) has turned down from over bought levels which often precedes a short term decline. In addition, the turn lower has created a negative divergence between 7 day momentum and price. If the newly formed uptrend line in momentum is broken to the downside (after this negative divergence) it will create a consolidation warning and increase the odds of a larger decline. The setup is similar to late September 2014.
Support and resistance levels gleaned from the Twitter stream for SPX show traders mostly targeting higher prices. There is virtually no support below 2100 being tweeted for SPX. This creates a situation where prices could fall rapidly if 2100 is broken to the downside. 2065 and 2040 are likely places for the market to pause if 2100 breaks. Above the market 2140 is the most tweeted price target and as a result is strong resistance. The recent high at 2120 is a minor resistance level.
Sector sentiment is flashing a warning sign this week as well. Almost every time all sectors have been positive over the past two years the market made a short term top within a few days. The one exception saw sector sentiment stay positive for all sectors for two weeks, then the top was put in place. When all sectors are positive it shows rotation to safety at the same time as leading sectors are being pushed higher.
The one bright spot this week comes from breadth between the most bullish stocks on Twitter and the most bearish. It has recovered from the previous negative divergence and is now showing healthy numbers. It is telling us that everything is being bought (similar to sector sentiment). A warning would come if we suddenly saw breadth decline and leading sectors showing weakness.
Overall the social media indicators are predicting at least a short term decline. A break of the newly created uptrend line in 7 day momentum that is associated with quickly declining breadth would warn that a larger down turn is probable.