Encouraging Signs

Although Twitter sector sentiment predicted a short term top in the market last week, there are some encouraging signs popping up this week. First is breadth between the most bullish and bearish stocks on the Twitter stream. It is finally showing some positive momentum. The number of bullish stocks started to increase as soon as the S&P 500 index (SPX) broke above 2100. The cross back below 2100 on SPX didn’t do a lot of damage to the bullish list. The number of bearish stocks is falling as traders finally abandon short positions.

The next positive sign come from price target tweets. Traders are once again calling for new all time highs. While at the same time we’re seeing tweets for support in the 2075-2080 area on SPX. This chart tells us there is more hope than fear.

Seven day momentum and sentiment from Twitter for SPX is pushing up against a level that has marked tops starting in July 2015. If we’re in a bear market I’d expect to see this indicator deteriorate rapidly. A small dip that recovers and breaks above the “bear market” overbought level would be very bullish and should result in new all time highs.

Sector sentiment was mostly positive this week. As I mentioned before, I’d like to see some weakness in the defensive stocks as a sign investors are preparing for a rally rather than protecting their portfolios.

Conclusion

We’re seeing positive signs from breadth and price target tweets, but seven day momentum is at a “bear market” overbought level. If momentum can move above that level then we’ll probably see new all time highs in SPX.