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More Chop

Our Twitter Sentiment Indicator for the S&P 500 Index (SPX) is once again suggesting that more chop is in the near term future. Last week the daily indicator fell with the market, but had mostly positive readings. This indicates that market participants aren’t too concerned about the current weakness. Friday brought about more concern with a reading of -15 as traders tweeted about the situation in Iraq, oil prices, and extremely high bullish sentiment from various sources (AAII and CNN’s Fear & Greed Index).

Smoothed sentiment continues to decline as the excitement resulting from a break above the 1900 level on SPX has started to fade. It continues to paint a negative divergence with price which suggests there may be more weakness ahead. The weakness should be contained if the indicator stays above zero and its confirming uptrend line.

140614spx

Support and resistance levels generated from the Twitter stream continue to paint the same pattern from the first of the year where traders are reluctant to target higher prices. It has resulted in SPX making new highs then chopping around for a few months before moving higher again. The weakness in price this week has brought out scattered projections for a continued decline. No single area is getting more tweets than another. The downside targets range from 1860 to 1900 on SPX and correspond to the market’s range from March to May. This suggests slight fear and uncertainty.

For the third week in a row sector sentiment is showing positive readings in every sector. With the exception of the reading two weeks ago, the market has made a short term top when all sectors had positive sentiment. Last week’s “all positive” readings corresponded to another short term top. This week’s chart suggest that some rotation to safety is still underway.

140614Sectors

Overall sentiment is suggesting choppy sideways action in the near future. Smoothed sentiment generally supports the market, but is losing strength. Traders still won’t call for higher prices and some rotation to safety is occurring which should put downward pressure on the market.

 
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