Lack Of Trade Signals Shows Uncertainty

Since the first of the year, the number of long trade signals from Twitter and StockTwits sentiment trend have dropped dramatically.  On the chart below the green lines are long signals and red lines are short signals. For those of you who haven’t seen it, here’s a post that outlines how we trade the trend of sentiment from Twitter and StockTwits.  Generally we see long signals after the market has fallen and starts to rebound, but the two dips this year haven’t created them (the signal at the bottom in April was for silver (SLV) so it can’t really be counted as a good sign for the market).

The lack of long signals indicates that stock charts are being broken and also that traders on Twitter and StockTwits are chasing, rather than anticipating trades, as stocks are falling.  With the number of momentum stocks that are extended far below their moving averages I’d expect to at least start to see some counter trend bounce signals.  But for the most part those stocks have sentiment that is confirming the down trend rather than painting a positive divergence.

Bottom line, when trade signals aren’t being generated it shows uncertainty from other market participants and makes it is a time to be cautious.