Gauging Investor Sentiment with Twitter: New Update
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Over the last week the Downside Hedge Twitter Sentiment Indicator stayed strong as a large majority of the tweets called for higher prices or talked about the market holding support. The smoothed sentiment indicator stayed above zero showing strength over several days even as the market consolidated. Of note is Friday's high reading on daily sentiment. The markets closed mixed, but daily sentiment recorded our second highest reading ever. Usually we only see high readings on significant price movement to the upside. A high reading on a flat day near market highs is in response to people tweeting their anticipation of a move higher (rather than calling a top or shorting the current level). We'll be watching to see if this indicates an overbought condition or is forecasting the next move.
Twitter Support and Resistance levels on the S&P 500 Index tightened substantially last week with most tweets calling for 1450 as a bottom and 1500 as a top. We see these levels as primary support and resistance with 1400 as the next major support level. We still have 1440 and 1422 on our radar, but consider them now to be minor support. This change is due to the large volume of tweets that consider 1450 as critical (rather than the previous break out point of 1440).
1475 on SPX is becoming minor resistance as people point to the most recent high as a level that needs to be overcome. However, 1500 remains major resistance as it is mentioned in a large volume of tweets over a two month period. The outliers on the high side from two weeks ago were not reiterated last week so it appears that the current consolidation is dampening the enthusiasm seen on the break above 1440.
We're watching for a break above 1475 on SPX or below 1450 for the next directional move. A break out above 1475 should carry the market to 1500. A break down below 1450 could bring a correction that falls to minor support at 1422 or even major support at 1400.
For background information on this indicator, see Gauging Investor Sentiment with Twitter.
Blair Jensen at Downside Hedge tracks Twitter sentiment and provides hedging strategies for individual investors.