Once again, I’m starting to see signs of a short term top or at the least choppy gains. 7 day momentum from the Twitter stream for the S&P 500 index (SPX) cleared its consolidation warning last week, but is now turning down from overbought levels. This usually means some sideways movement in the market while traders take profit and investors reassess their portfolio holdings.

Another sign of a short term top is investors once again showing positive sentiment for defensive stocks. Currently every sector is showing  positive sentiment. Over the past few years this condition has almost always preceded a short term top or at least a choppy market while rotation occurred between sectors. The last two occurrences were April 26th and March 1st.

Another sign of weakness that I’ve been watching is the increase in the number of bearish stocks on Twitter. This indicates that traders and investors aren’t doing as much bottom fishing recently. The number of bearish stocks isn’t a big problem, but without an increase in bullish stocks breadth between bullish and bearish stocks is falling. You can see the full list of bearish stocks here.

Support and resistance levels gleaned from Twitter aren’t moving much. With the break in SPX above 2120 traders are still only targeting 2140 and 2150. I expected a quick rally to that area after a break of 2120, but it didn’t occur. This indicates market participants are still waiting before committing new money. Add to that the lack of tweets for substantially higher prices and it paints a picture of a market facing headwinds rather than tailwinds.

Conclusion

I’m seeing the theme from the first of the year continue to play out. Each attempt to push higher in the market exhausts momentum so we see marginal new highs then a period of choppy consolidation. With momentum exhausted, sectors showing rotation, and lack of optimistic price targets it appears we’re due for more chop.