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The Downside Hedge Twitter Sentiment Indicator for the S&P 500 Index (SPX) continued to strengthen and paint a positive divergence with price last Wednesday. This was further confirmation that we should see the near term rally we predicted last week. Thursday brought that rally; however, it was much stronger and shorter lived that we expected. We anticipated several days of grinding higher, but instead saw SPX move all the way to our major resistance level (and the 50 day moving average) near SPX 1430 by Friday morning.
Unfortunately, the price moving higher on Friday did not bring with it positive sentiment. Instead, many people were tweeting that they were shorting the market rather than expressing excitement about a move higher. Friday morning we tweeted that sentiment was very negative at -.20, which was a concern because it didn't match the price action. By Friday afternoon SPX had given up nearly all of Thursday's gains, and our sentiment indicator fell close to an oversold level at -.23. Large negative prints on our daily indicator in combination with a sharp reversal in price often signal an initiation thrust, so we'll be on guard for a large move down this coming week.
Smoothed sentiment continues to be constrained by a downward sloping trend line. Price on SPX rallied it back to the lows of early October; however, smoothed sentiment is at much lower levels. The lower peaks over time suggest a negative shift in sentiment by market participants as each short term rally brings fewer positive tweets. It appears that smoothed sentiment is confirming the concern generated by Friday's low level on the daily indicator.
Twitter Support and Resistance levels continue to be relatively narrow. The price action on Wednesday and Thursday turned a few people positive enough to start calling for upside targets in the 1460 to 1475 range on SPX. However, it evaporated on Friday as the market moved down sharply. Most of the up side tweets were again in the 1430 area, so we consider this the first level of major resistance with 1475 next. It's been so long since we've had tweets calling for 1500 that we're moving it to minor resistance and an unlikely upside target.
Below the market, SPX 1400 is once again the most tweeted level of support. That level is mentioned almost five times more often than any other level, so we consider it extremely important support. The 1375 to 1380 level are now being mentioned more often as a likely target. This is due to the fact that they are near the 200 day moving average on SPX. The combination of the moving average and the volume of tweets projects 1375 as likely support.
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.