Still Looking Healthy But Risky, Too

Even with last Thursday’s drop in price, sentiment for the S&P 500 Index (SPX) is still showing healthy signs. Take a look at price targets tweeted by traders on Twitter. Notice that the first time SPX dipped near 2320 traders were tweeting price targets as low as 2200. On the current decline, traders aren’t so fearful. Instead, they’re tweeting support in the 2320 and 2300 areas. This is both good and bad. The good news is that the market should attempt a rally at one of those two levels. The bad news is that there is no support below 2300 so if that level breaks it could get ugly very quickly.

Another good sign comes from the number of bullish stocks on the Twitter stream. It continues to rise even as the market is falling. This is a positive sign that suggests traders are buying the most bullish stocks during this decline.

7 day momentum and sentiment for SPX is now at the bottom of its normal bullish range. This is another good/bad sign. The good news is that the market should rally soon if we’re still in bull mode. The bad news is that any further deterioration in sentiment will likely be accompanied by a large move downward in price.

Conclusion

Sentiment from Twitter is still healthy, but there are danger signs too. The healthy signs are less fear in price targets, 7 day momentum still inside the bullish range, and an increase in the number of bullish stocks. The risk comes if the market can’t hold 2300 or 7 day momentum breaks below its bullish range. You can see the daily chart here.