Courtesy of Doug Short.
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The Trade Followers Momentum indicator for the S&P 500 Index (SPX) as cleared the consolidation warning that has been in effect since July 11th. The warning was removed at the close on Thursday when 7 day momentum broke above the down trend line that has been in place for a few months. The last dip in price for SPX also came with a positive divergence from momentum. This indicates that traders on Twitter saw the dip as a buying opportunity rather than the start of a larger correction.
Daily momentum posted a very positive print of +27 on Thursday which indicates a strong shift by market participants to bullishness. High readings on the daily indicator near short term lows act as an initiation thrust and are often followed by at least a few more days of buying. They also tend to be the beginning of a stronger rally. The combination of the high daily print and a break higher for 7 day momentum indicates market participants expect SPX to rally back to all-time highs.
We saw momentum for both small cap stocks (IWM) and the NASDAQ 100 (QQQ) break their down trend lines early in the week indicating that traders were taking on more risk. This is another sign that the market wants to go higher.
SPX settled right at its major resistance level of 1955 generated from price targets on the Twitter stream. The events in Ukraine have traders waiting and targeting a very tight range. Below the market support is near 1930. Odds favor a move higher if international tensions ease.
Breadth between the strongest stocks on Twitter and the weakest continues to deteriorate as fewer stocks show strong support. There is also a small creep up in the number of stocks showing weakness. This condition needs to reverse if the market continues higher or it will warn of a longer term top being formed.
Sector strength shows a continued mixed picture with both leading and defensive sectors garnering support from market participants. Consumer discretionary, basic materials, and technology are the leaders. While consumer staples give a bit of a warning as some rotation to safety occurred.
Overall momentum from social media is suggesting the market should move higher if the situation in Ukraine doesn’t flare up again. An initiation thrust from the daily indicator and a new buy signal from 7 day momentum show a strong desire to test the all-time highs. Support for small caps and technology add to the argument that investors are increasing their appetite for risk assets. A break above Twitter resistance at 1955 will confirm the move has legs.
Blair Jensen is president of Trade Followers. The Trade Followers algorithm quantifies social media and creates stock market indicators that track the momentum of the crowd on Twitter and StockTwits.
