The Trade Followers momentum indicators for the S&P 500 Index (SPX) continue to confirm lower prices with a series of lower highs. After trying to bounce, SPX broke through the 1955 support level that has been important on the Twitter stream for several weeks. It closed Friday near the next major support level of 1905 with 7 day momentum painting a small positive divergence with price. This divergence is a result of market participants tweeting that it’s time for a bounce. Many people are mentioning the 200 day moving average that hasn’t been touched in almost two years. Others are comparing this dip to previous declines during the long term rally. This suggests that a short term bottom is near. 

Once that low is in place it will be again time to watch the bounce. Since this bounce is coming from an obvious support level I’d like to see 7 day momentum paint a higher peak than the last two to indicate higher prices are ahead. A break of the current down trend line will provide hope, but not confirmation of a sustainable rally.

If the market continues to fall and 7 day momentum paints a lower low it will confirm the down trend and suggest that a larger correction is underway where rallies will likely fail.

Breadth from StockTwits and Twitter continue to deteriorate with fewer bullish stocks making the cut and at the same time more bearish stocks showing up in the lists. Last week I mentioned that finance, health care, and technology were holding up and that their performance gave some hope to the bulls. Unfortunately, those sectors experienced heaving selling on Friday with many of the stocks that had held up suffering declines of 5% or more. Without their support it will be difficult for the market to rally into the end of the year.

As mentioned above, 1905 on SPX is a strong support level. Below that there are scattered tweets, but nothing definitive. The lack of tweets below the market indicates hope and optimism from market participants. This can be dangerous near a strong support level because any break lower will turn hope into uncertainty and fear. 1905 on SPX is a must hold support level or we could see a cascade that carries price quickly to 1880 or 1850 where a small number of traders are tweeting support. Above the market 1955 and 2010 are the most tweeted levels with a small cluster near 1975. Watch those areas as likely resistance.

Sector strength shows positive readings in all of the defensive sectors and in financials, technology, and industrials as well. However, much of the strength in leading sectors came early last week. Friday saw a large decline in support for those sectors.

Overall social media is suggesting that traders are expecting a bounce near current levels. However, a break below 1905 on SPX would likely cause a swift drop before the market could catch. The nature of the next bounce should give us a direction for the rest of the year.