I wanted to do just a quick update today on the fight between the bulls and the bears on Twitter that we mentioned over the weekend. Twitter Sentiment for the S&P 500 Index (SPX) on a daily basis took a dip below zero again today even as the market moved substantially higher. It was still close to zero at -5, but not normal on a good rally day. This caused smoothed sentiment to break its confirming trend line. We take this as our first warning that the current rally may stall. It does not mean that a correction has begun, but it does tell us that traders and investors don’t like the break above 1500 and many of them are selling into it. This should at least cause some headwinds.
Our next warning of a more serious correction would occur if smoothed sentiment drops below zero as that would signal that the negative sentiment and selling has occurred over several days. In the past this has often been enough to cause at least a few days of heavy selling. If the market rallies much higher we may see a capitulation from the shorts and a quick rally higher with confirming sentiment as traders tweet about closing short positions. Now is a time to stay nimble.
Last Friday the NASDAQ 100 Index (NDX) or (QQQ) cleared its warning condition as sentiment broke sharply higher. Apple (AAPL) rallying was much of the cause of the warning being negated. We’ll watch for another negative divergence from price before getting too concerned with QQQ. It may also provide some hints to SPX turning down.
One more chart, Citigroup (C) flashed a warning last Friday. It is very close to the zero line on smoothed sentiment so the bulls and bears in Citigroup have been fairly evenly matched over the past several days. We’ll post another update either here or on Twitter @DownsideHedge if the warning is cleared or smoothed sentiment drops below zero (further confirming selling in the stock).
Please note, we will try to always post a chart on Twitter of any stock we actively follow (about 35 symbols) if there are changes to its Twitter Sentiment status (either positive or negative). We may not post them on this blog so be sure to check our Twitter page if you’re interested in every status change.