Not much has changed over the past week. The market is still compressing in the range we’ve been watching. However, a bit of volatility was present with a trip to both the top and the bottom of the range.  I’m still looking mostly at breadth for the most likely signs that the market will enter a correction or at least make a trip to the 200 day moving average.

Our Sentiment indicator for the S&P 500 index (SPX) that reads the StockTwits stream is still on a consolidation warning and has made another lower high. Sentiment from the Twitter stream looks much the same, however it didn’t have a clear up trend so it couldn’t officially warn.  This week it made a higher low and a higher high so we have good triangle in place to watch for hints to the direction SPX will break from the range.  Currently the odds favor a break lower since smoothed sentiment has a negative divergence with price.

Support and resistance levels gleaned from Twitter showed some optimism from traders early in the week when SPX broke above 1900. That move brought out a few calls for the 1910 and 1920 area, which disappeared as soon as the market fell back below 1900. Throughout the week there were consistent calls for 1860 and a growing number for 1850 and 1800.  This is another slightly bearish sign with 75 points of risk and only 45 points of reward. The overall picture from price targets is that market participants are now anticipating a break from the range and projecting where they believe price will go.

Sector sentiment is slightly negative as well with Financials and Consumer Discretionary showing weakness while Utilities, Consumer Staples, and Healthcare are positive. Strength in Technology and Basic Materials removes some of the downward bias for the market as a whole.

In addition to the consolidation warning from StockTwits for SPX, the Twitter stream issued a consolidation warning for the Nasdaq 100 Index (QQQ). The warning came from a fairly long and narrow triangle in smoothed sentiment being broken to the downside. Since the warning came so close to the apex of the triangle it doesn’t have much wiggle room. That suggests the market must fall early next week or odds will start to favor a resumption of the uptrend for QQQ and most likely a break above 1900 for SPX.

Overall, sentiment is projecting lower prices. StockTwits sentiment has a consolidation warning in place for SPX and Twitter has one for QQQ. Traders are more likely to target lower price than high and sector sentiment is mildly bearish. Nevertheless, the market is in a range and a break will point the way so we should use that as a guide.

Conclusion

It’s not very often that the market is this easy to read. With our core market indicators mostly negative, but breadth and price not confirming we can simply wait for that confirmation before getting overly concerned. I suspect the wait for a direction is almost over. The market will either turn down in earnest next week due to large cap stocks joining QQQ and the Russell 2000 index (RUT) or QQQ and RUT will find a bottom and push SPX above 1900 which will signal a resumption of the uptrend. Rather than bet on a direction we’re moderately hedged and comfortably waiting.