Friday was a fairly large down day for the markets that had little to no impact on sentiment from the Twitter stream. The volume and intensity of tweets rose, but the daily print for momentum for the S&P 500 index (SPX) came in at a moderate -8. Many market participants don’t consider Friday’s decline as a significant event. In fact, the number of bullish tweets increased nearly 25% above the average of the last two weeks when the market was rising. This indicates that the bulls are still committed. The number of bearish tweets rose 50% which signals an awakening of the bears, but their intensity is still within a normal range.

7 day momentum has a small negative divergence, but is still confirming the current uptrend. Until that trend breaks the advantage is with the bulls.

Another sign that Friday’s action wasn’t significant can be seen in the stocks that had the most bearish sentiment on Twitter. The list is filled with stocks that have been in consolidations or down trends for several weeks or months. This isn’t the type of action we typically see at the start of a serious decline. When the list of bearish stocks is filled with market leaders it sends a strong signal that the market is at risk of a correction. We had that type of warning last September when leading stocks lead to the downside. Currently no such warning exists. If the market is weak over the next several day keep an eye on the bearish stock list. If it begins to fill with recent market leaders some caution will be warranted.

Breadth calculated between the strong and weak stocks on Twitter is still showing robust positive numbers with the number of bullish stocks continuing to rise. The number of bearish stocks aren’t rising which is another indication that Friday didn’t do a lot of damage.

Support and resistance levels generated from the Twitter stream give us a clear picture of why traders aren’t turning bearish in significant numbers. Friday’s action stayed well above strong support of 2040 on SPX. In addition, many traders started tweeting 2065 and 2050 as likely places for the market to catch. The multiple levels of support below the market indicates bullishness in the face of a decline.

Resistance is still strong at 2120 on SPX with another small cluster near 2140. The major support and resistance levels of 2040 and 2120 have been fairly consistent for more than two months. This makes the range the most important thing we can watch over the coming days. If either level is broken it will be extremely important and will most likely bring with it a quick move in the direction of the break. The reason for this is that a large number of market participants are waiting for a break before committing to a direction.

Sector sentiment is showing strength in the leaders and weakness in defensive stocks which is generally bullish for the market.

Overall the picture being painted by Twitter sentiment is still bullish, but we’ve got several things to watch that will warn of a more significant decline. Warnings will come if leading stocks start showing up in the daily bearish lists or the number of weak stocks (on the breadth chart) start to increase. You should get more concerned if 7 day momentum/sentiment for SPX breaks its uptrend line and very cautious if 2040 on SPX is broken to the downside.