Gauging Investor Sentiment with Twitter: New Update
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The Downside Hedge Twitter Sentiment Indicator for the S&P 500 Index (SPX) continued to show relatively good strength again last week. Two weeks of downward price movement has only brought smoothed sentiment back to the trend line we drew near the beginning of September. Price on SPX is back to the same level as early September; however, smoothed sentiment is much stronger. This divergence is showing a positive bias by traders tweets even though the market has traded down for two weeks.
Monday and Tuesday our daily Twitter Sentiment indicator got very negative at -.25 and -.27, but on Wednesday it started a positive divergence with price by printing -.13 even though the market was still falling. On that day we started to see tweets mentioning bottom picking. Many investors tweeted about wanting to buy at lower levels (in the 1420 range) and there were a lot of traders tweeting about support and a durable bottom.
The Twitter Support and Resistance levels on SPX only had a few tweets calling a bottom at 1400. Most tweets mentioned the 1420 to 1425 range as a support level. As mentioned above, there were also tweets about wanting to buy any dip into the 1420 area. As a result, we consider 1422 as very important support and then 1400 as the next major support level.
On the up side, 1450, 1475 and 1500 were the most tweeted targets. Most of the calls were for 1475 and 1500. As a result we consider 1450 to be minor resistance, with 1475 and 1500 being major resistance. With our smoothed sentiment indicator holding up, and the support and resistance range staying fairly narrow between 1420 and 1475, we believe we’re seeing signs that the market is most likely experiencing healthy consolidation, rather than starting a major move down. Any move below 1422 will be cause for concern. A move below 1400 will most likely bring very heavy selling.
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.