Over the past several weeks daily sentiment readings from the Twitter stream for the S&P 500 Index (SPX) have had trouble getting above zero. Negative sentiment persists even on days when the market rallies. Since the first of July the daily indicator has only had one print above the moderate level of +11. This caused a weak response in 7 day momentum during the early July rally. For the last three weeks 7 day momentum has been mired below zero and is currently trying to turn up from the most oversold level in nearly three years.
The volume and intensity of tweets increased 50% above average on Thursday and Friday. This shows a high level of interest from both bulls and bears which often mark inflection points. It usually takes at least five to seven days of extreme intensity to put in a durable low so I suspect we'll see a bit more selling before that low is made.
Another sign of persistent negative sentiment comes from the number of bearish stocks. It hit a three year high this week. This caused breadth to fall in the face of a rising number of bullish stocks. The leaders are getting more support and the laggards are being abandoned.
Support and resistance levels gleaned from Twitter are painting a clear line in the sand at 2040 for SPX. 2020 is a secondary support level. There are almost no tweets for prices above the market so everyone is looking down. This suggests a clear low will need to be made before traders get aggressive on the long side.
Sector sentiment this week shows market participants moving to safety with high readings for consumer staples. Industrials and technology have the most negative readings. Not a recipe for a strong rally.
Conclusion
Negative sentiment persists. Daily momentum can't get above zero, 7 day momentum is near three year lows, the number of bearish stocks continues to grow, and price targets from traders are all lower. With the volume and intensity of tweets just starting to rise the odds favor more volatility before a durable low can be made.
