Last week I pointed out several signs from the Twitter stream that indicated the market should break higher. Most of those signs are still in place, but the current optimism is a bit tempered. On Friday the daily print for Twitter momentum (or sentiment) for the S&P 500 Index (SPX) was a very strong +31. This is the type of reading I prefer to see when the market is near all time highs. It reflects market participants cheering the move rather than panning it or putting on short positions. Another positive sign comes from the strong move higher from 7 day momentum after touching oversold territory.
One thing tempering the optimism is the price targets tweeted by traders. Over the past week they only tweeted higher prices when the market was moving higher. This suggests traders aren’t that confident and are likely chasing price. They’re clearly still waiting for a break of the range. The tweets above the market are projecting 2140 to 2150 on the S&P 500 Index (SPX). This is only 1% above current levels and is another indication of caution. I suspect that a clear break of 2125 on SPX will bring a quick move to 2140 / 2150 as traders close shorts and jump on the long side. However, they’ll be quick to take profit at those levels which should cause the market to stall.
Breadth calculated between bullish and bearish stocks on Twitter continues to show healthy readings, but is declining due to an increase in bearish stocks. Market participants are now less likely to buy beaten up stocks. However, there are still plenty of stocks with positive momentum for them to buy. This is how a thinning market starts. Keep an eye on breadth over the next several weeks as it can give warning of a market top.
Sector sentiment is mixed. Leading sectors all have healthy readings, but consumer staples are showing strength too. This indicates that some rotation to defensive stocks is occurring as the market pushes higher.
