This past week saw the S&P 500 Index breaking out to new all time closing highs. All time intra-day highs are just a few points away just above 1576. However, our core market health indicators continue to deteriorate. These aren’t the type of internals we like to see near market tops. Our indicators are telling us that market participants are getting cautious…which makes us cautious too. Our Twitter sentiment indicator for the S&P 500 Index (SPX) is starting to show some strength but without much enthusiasm. Although daily sentiment is painting higher lows and has a good uptrend line it isn’t acting like it should when price breaks out to new highs. Thursday’s move came with a higher intensity of tweets (volume and scores), but the aggregated score for the day was only +10. The move above 1530 on SPX at the first of March is more characteristic of confirmation of a break to new highs. It came with a print of +21 on the day of the break out signaling
Today we want to highlight three charts that give a pretty good picture of the current conditions in the market. They are for the Nasdaq 100 (QQQ), The Russell 2000 (IWM), and Long Term Bonds (TLT). Since the first of December, Twitter Sentiment for QQQ has been painting a triangle pattern. During the same time period price is forming a megaphone. These two conditions together show some indecision for the Nasdaq 100 Index. We’re seeing slowing momentum in sentiment that could be pointing to a head and shoulders pattern forming (with the trend line we’ve drawn as the neckline). It’s still to early to tell which direction QQQ is going to break, but sentiment should give us a clue over the next few weeks as it reaches the apex of its triangle. IWM has a much stronger price pattern with sentiment confirming its current move. However, there is a short term divergence with price that suggests IWM needs to pause for a bit before going substantially higher. Small stocks aren’t
There is a lot of talk (actually hopes and dreams) of QE3 coming soon due to the signs of a weakening economy. I’m of the opinion that the economy isn’t what the fed is trying to help. The fed (and the European Central Bank) is trying to keep financial institutions solvent and sure up confidence in financial markets. Their actions over the past 3 years have not been targeting the economy and won’t be over the next few years. The economy is simply their justification for action. What the fed fears most is a loss of confidence that results in falling markets that destroy the balance sheets of financial institutions and even governments (can you say Greece, Italy, and Spain). While they’re standing back and watching the ECB and EU participants try to save European banks and countries, they are also implementing policies that make it easy for banks in the US to recapitalize through high earnings (ZIRP). They’re not implementing policies that help consumers…that would then strengthening the economy.