Gauging Investor Sentiment with Twitter: New Update
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The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) stayed mostly above zero last week even as the market traded in both directions. Throughout the week we saw a lot of tweets with traders looking to buy the dip. However, as the week progressed daily sentiment painted a negative divergence with price. Much of this divergence was created by pessimism about the fiscal cliff negotiations. In fact, SPX moved up on Thursday, but our daily indicator made a print below zero.
Smoothed sentiment continued to show good strength. It is well above its upward sloping trend line suggesting that the market can withstand a small correction. Taking both daily and smoothed sentiment into account we believe that we could see weakness again early next week. We'll expect our support levels to hold if we don't get a downward initiation thrust on the daily indicator, a negative reading in smoothed sentiment, or a break of the upward sloping trend line for smoothed sentiment.
Twitter support and resistance for the S&P 500 Index stayed in a fairly tight range last week. Unlike the previous week where traders were simply chasing price, we're seeing price targets and pivot points tweeted. Most of them are calling for higher prices. The tweets that called for lower prices (in the 1390 to 1400 range) often mentioned them as targets where they would be buyers. As a result, we consider 1390 to 1400 major support with the 1380 level still in play below.
Above the market, traders were targeting the 1425 to 1430 area as a likely place to pause so we consider it major resistance. We stopped seeing tweets calling for prices in the 1475 area causing us to change it to minor resistance (and an unlikely upside target at this point). Bottom line, it appears that traders are looking slightly upwards, but would like to see a healthy pull back first.
Note from dshort: Here is a YouTube video in which Blair gives an explanation of the indicator and examples of how he used it in his posts over the last several weeks.
For additional 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.