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 showing as much indecision as technology stocks so that bodes well for them going higher after a pause.
TLT’s Twitter Sentiment is showing a short term positive divergence with price and today has broken above the the confirming down trend line. This suggests that TLT is ready for a bounce in the short term. It meets the criteria that we mentioned yesterday for potential trading signals from Twitter Sentiment. That bounce could reach the down sloping trend line.
If we put it all together it appears that bonds should move higher in the short term, while Nasdaq and small cap stocks consolidate a bit. The nature of that consolidation will help us determine the probable strength of any subsequent rally.