Gauging Investor Sentiment with Twitter: New Update
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The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index (SPX) strengthened again over the last week. The daily indicator spent most of its time above zero printing moderately bullish numbers. This is encouraging considering the fact that the market is pushing up into old highs and an obvious resistance level. Many traders are tweeting about shorting the old highs between 1565 and 1576 on SPX, but their tweets are being outnumbered by others suggesting that the market will continue to rally. The intensity of the bears is starting to wane and is showing up in lower volume readings for bearish tweets.
Smoothed sentiment crossed above its recent down trend line this week and has remained above zero. This completely clears the warning condition given on January 29th. Since the lows in late February, smoothed sentiment has confirmed the rally by moving almost straight up during the first few days, then leveling off slightly as the SPX nears all time highs. This slight weakness comes from bears shorting and some bulls tweeting that the market may need some time consolidating before breaking out.
Twitter support and resistance levels widened this week with the bulls starting to call for 1600 on SPX and a few bears tweeting about a trip back to 1500. Above the market most of the calls are for 1576 and 1600 making them resistance. Support is solidly at 1550 and 1500. It is interesting to note that we’re not seeing calls for 1525 to 1530 which was an old resistance level that caused the intensity of tweets to spike. If the market starts to trade lower we’ll be watching for renewed calls at that level to soften the selloff.
With 1565 to 1576 on SPX an obvious resistance level and many traders tweeting about shorting it we suspect the market is due for a pause. However, many market participants are clearly expecting SPX to follow the Dow Jones Industrial Average (DJIA) on to new all time highs so the pause could be shallow and short lived. We’d like to see smoothed sentiment stay above zero on any market pull back to confirm a shallow dip. A substantial break below the zero line could warn of a more serious correction.
Note: I have created a download page so readers can load the sentiment indicator into their own chart packages. It's located here.
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.