Gauging Investor Sentiment with Twitter: New Update
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The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index drifted lower all week as the market consolidated. We prefer to see it strengthen during consolidations, but are encouraged that it isn't deteriorating rapidly. Our smoothed sentiment indicator still has a pattern of declining tops over the medium term even as the market is putting in higher highs. This could be indicative of a buildup of short positions and weak long positions being shaken out or a preview of something negative. Our interpretation is that we're seeing a wall of worry with smoothed sentiment staying below zero as the market rises.
We saw an extreme negative sentiment reading on 8/30/2012 caused by a down day of less than 1%. This is near the same levels of sentiment seen at the June lows telling us that the market is very skittish. Friday showed indecision as the rally into the close wasn't enough to overcome the negative tweets generated by the midday sell off.
Twitter Support and Resistance levels stayed fairly wide last week. We saw targets on the S&P 500 Index of 1250 and 1280 on the downside, with an outlier of 666. Upside tweets only saw calls for 1500. The vast majority were of tweets were between 1390 and 1422 with 1400 being the most widely mentioned. What was very interesting to us is that Ben Bernanke's Jackson Hole speech on Friday did not bring any large up or down side calls. The range for tweets on Friday came in between 1398 and 1415. The tight range indicates traders still aren't sure which way the market will go and are waiting for a break from the range before committing to a target. Once again, surprising considering the anticipation of the Bernanke's speech.
Blair Jensen at Downside Hedge tracks Twitter sentiment and provides hedging strategies for individual investors.