Earlier in the month I wrote that people on Twitter finance were turning from bullish to neutral. Now I’m starting to see a rise in bearish sentiment the likes of which we haven’t seen since late 2012. The most prominent sign comes from breadth calculated between the most bullish stocks and the most bearish stocks on the Twitter stream. The number of bearish stocks is rising rapidly and is now at the highest level in nearly three years. This is a sign that investors are starting to show concern for their losing positions and traders are shorting weak stocks. The rise in bearish stocks has caused breadth from Twitter to fall below the January and October lows.

This is an unusual condition with the market so close to all time highs. There are more people who own stocks than those who short stocks which gives a natural upward bias to the aggregate number of bullish tweets. As a result, we shouldn’t see a large number of bearish stocks until market participants sour on their own positions. The fact that the bearish list is growing rapidly indicates a lot of damage is occurring in individual stocks. Not something we want to see near all time highs in the S&P 500 Index (SPX).

Drilling down to the list of bearish stocks over the past month you can see there are a lot of material and industrial stocks. But, there is a rising number of stocks in industries ranging from home furnishings to aerospace. As the bearishness engulfs more industries it will place a drag on the general market so keep an eye on this list. You can see the full list which is updated daily here.

The sentiment and momentum picture for the S&P 500 Index (SPX) shows a pattern of hope and chasing followed by disillusionment. The failure to reach new highs during the June rally caused 7 day momentum to fall to its most oversold level in three years. Then it showed tepid readings during the July rally. This indicates market participants didn’t believe new highs were possible. 7 day momentum is now back below zero and daily momentum just painted an initiation thrust that usually means a few more days of selling.

Price targets gleaned from Twitter for SPX show that traders were caught off guard when the market fell last week. Most of the tweets were for slightly higher prices, but as the week progressed the price targets followed the market down. One interesting thing is that there is no evidence of fear yet. Usually, a steep two day decline will bring out tweets for lower levels. Support and resistance levels remain pretty much the same with the exception of 2100 on SPX changing back to resistance. Major support is 2040 on SPX and major resistance is 2140. Not surprising given the fact that it’s the most recent trading range.

Sector sentiment is showing the most strength in the defensive sector of consumer staples. However, with financials, consumer discretionary, and technology still positive the picture is mixed.

Conclusion

The bear is starting to stir. The list of bearish stocks over every time frame is growing, breadth from Twitter is worse than the January and October 2014 lows, and 7 day momentum showed a weak response to the recent rally. The Twitter stream is still neutral on the market, but a dip in 7 day momentum below the last low will be a warning that the bulls are turning to bears.