Trade Followers

Last week the market broke through the September high which was the first level of minor resistance on the Twitter stream. Now there are two major resistance levels in the way for the S&P 500 Index (SPX). 2040 was the breaking point of a sideways range during the first of the year. It is now getting the most tweets which makes it major resistance. Just above that is 2060 where the 200 day moving average comes into play. At the least we should expect some consolidation in the 2040 to 2060 area. This would be healthy for the market to shake out some weak holders.

I’m finally starting to see some signs of hope on the Twitter stream for the S&P 500 Index (SPX). Last week’s rally lifted daily sentiment readings for the most part, and the strong rally on Tuesday resulted in a positive daily print in momentum. This shows a bit of hope, but the negative readings during the rest of the week indicate traders are uncertain. 7 day momentum is still in a clear downtrend even though price has been mostly rising since the first of the month. This suggests that there is still a lot of fear for lower prices.

Over the past several weeks I’ve been chronicling the change in sentiment on the Twitter stream as it lead the market lower. In early July sentiment turned from bullish to neutral. By the end of the month sentiment had clearly turned bearish evidenced by both momentum and the rise in the number of bearish stocks. As the market traded sideways in early August sentiment continued to show mostly bearish readings then made an attempt to rise back above zero. That attempt failed and we watched the S&P 500 Index (SPX) fall hard as market participants panicked.

As I’ve been highlighting over the past several weeks, 2040 on the S&P 500 Index (SPX) was a crucial support level. It garnered more tweets from market participants than any other level over the past several months. With everyone watching 2040 as support it made it likely that any break of that level would result in increased selling. Last week I warned that on a breach “selling will likely accelerate”. 2040 broke and we got the expected result. I must say that I was surprised by a 3% down day on Friday though.

I’m starting to see signs that market participants on Twitter are turning from bullish to neutral. This is the first sign of longer term weakness from the Twitter stream that I’ve seen since mid to late 2012. Before the strong rally that started in late 2012 it was common for 7 day momentum to stay below zero for extended periods of time as traders were accustom to periodic corrections. The lack of a decline greater than 10% in since then has kept 7 day momentum mostly above zero with a few small dips that quickly reverse higher. It seems that we’ve all been conditioned to buy the dip.

Last week the Twitter stream warned of a choppy market or a short term top. This week I’m starting to see signs of chasing by market participants. The daily momentum indicator that tracks sentiment for the S&P 500 index (SPX) on the Twitter stream is being whipped back and forth with fairly large prints (greater than +13 or less than -13). This is causing 7 day momentum to rise rapidly when the market climbs then fall rapidly when the market declines. This pattern usually indicates chasing by traders and adds instability to the market due to the indecision and quick flip flops in positions.

I’ve posted warnings of a short term top for the S&P 500 Index (SPX) over the past couple of weeks and since that time the market has been choppy. I’m now seeing evidence of sentiment from the Twitter stream that indicates SPX is due for a move higher. The evidence suggests that SPX should break out of its recent range. The first clue comes from 7 day momentum which has moved down into oversold territory.

Sentiment and momentum calculated from the Twitter stream for the S&P 500 index (SPX) is still confirming the uptrend, but has turned down as the market rises. This shows a lack of confidence by traders on Twitter that the market can move immediately to new all time highs.

Over the past week the market worked off the overbought condition created in the Trade Followers momentum indicator calculated from the Twitter stream for the S&P 500 index (SPX). The daily prints have been mostly positive even though the market was declining. This indicates market participants on Twitter believe that healthy consolidation is occurring rather than the start of a new down trend. 7 day momentum continues to hold its up trend line which confirms the move higher out of the January lows as well.

The Trade Followers 7 Day momentum indicator for the S&P 500 index (SPX) has confirmed the new uptrend and is indicating that it will most likely have staying power. One kink in the works is that momentum is overbought. This indicates that the market will need to digest recent gains before it can break to all time highs.

Last week we highlighted several signs coming from Twitter that a short term top was in the making. One of them was Twitter momentum for the S&P 500 Index (SPX) turning down from over bought levels and at the same time creating a negative divergence. This week momentum is warning that the selling we saw last week will most likely continue. After painting a negative divergence, 7 day momentum has broken its newly formed uptrend line. This suggests that investors and traders are not committed and were quick to exit positions established during the February rally.

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.

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.

Traders on Twitter and StockTwits are still waiting for a break of the current range before making any commitment to the market. As the S&P 500 Index (SPX) has oscillated in a range between 1990 and 2065 the Trade Followers momentum and sentiment indicators have continued to fall. The StockTwits community is getting more bearish as the range continues. The new up trend line from StockTwits has been broken to the downside which indicates there was no enthusiasm for last week’s rally.

Last week the Trade Followers social media indicators for the S&P 500 Index (SPX) suggested that the market wasn’t out of the woods yet due to several factors. Chief among them was a warning from our sector sentiment readings. They indicated that market participants were rotating to safety as the market rallied. Every time all sectors were positive since we’ve been tracking them has resulted in a short term top within two weeks.