Courtesy of Doug Short.
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The Trade Followers Momentum indicator for the S&P 500 Index (SPX) is still warning of consolidation, but showing some positive signs. As the market drifted lower the daily indicator didn’t record extreme negative prints. This was a result of many people on Twitter believing the events in Ukraine wouldn’t impact the market substantially. In addition, many tweets mentioned over sold conditions and made calls for at least a short term bounce.
Another bullish indicator is a positive divergence from 7 Day momentum and price. Twitter momentum is being compressed in a triangle created by the positive divergence and the confirming down trend line. A break of the triangle will likely point the next direction for the market. A break higher will clear the warning and suggest a move to all-time highs, while a break lower will indicate a failure of the rally and suggest further weakness in price.
Breadth calculated from the stocks with the most and least support on Twitter continues its slow decline as stocks fall from the strong list and new stocks are added to the weak list.
Support and resistance levels generated from Twitter show traders reluctant to target higher prices. In the past, this condition resulted in grinding higher rather than swift moves. Current resistance is near 1955. There were a lot of calls for lower prices as fear crept into the market this week. The largest number of tweets targeted 1890, 1880, and 1860 making them support.
Sector strength is mixed with some leading sectors showing strength and others showing weakness. The same condition exists for the defensive sectors. It paints a picture of investors dipping their toe in the water with recently weak sectors and taking profit from recently strong sectors.
Overall momentum from social media is suggesting that it’s time for a bounce, but without a lot of enthusiasm. The positive divergence is constructive, but without tweets for higher prices the market will most likely grind rather than rush higher, which would paint a bear pennant. The nature of any bounce should tell the tale. I’ll be looking for a bounce that brings confirmation from 7 Day momentum and renewed tweets for the 2000 level on SPX to indicate the rally 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.
