Gauging Investor Sentiment with Twitter: New Update
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The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) is showing indecision with most of the readings on the daily indicator in the +5 to -5 area. Neither the up or down days in price can move sentiment far away from zero. Friday's positive price action was met with negative sentiment, suggesting that traders are shorting these levels and don't believe price can move substantially higher. The daily indicator is starting to paint a pattern similar to mid February just before the market fell sharply for a few days.
Smoothed sentiment has fallen back to the zero line as price has drifted sideways. During this time the intensity of tweets has fallen off slowly. This is another sign of indecision by market participants as they are tweeting less and giving fewer reasons for their bias.
Twitter support and resistance levels compressed this week with the calls for both 1500 and 1600 on SPX drying up. The majority of tweets targeted 1530, 1540, 1550, and 1576. This tight range suggests that a break of the recent lows in the 1545 area could bring on some swift selling down to 1530. While a move above 1576 should carry to 1600. A tight range of support and resistance is another sign of indecision by traders. They are waiting for a break in the range before committing themselves.
Twitter sector sentiment has basic materials, energy, and technology with negative readings. Financials are showing weakening sentiment with consumer staples, utilities, and health care showing strength. This gives a minor warning that market participants are shifting their portfolios to defensive stocks.
Twitter sentiment, sectors, support, and resistance are suggesting caution. Market participants are showing indecision in sentiment, rotation to defensive sectors, and a tight range in support and resistance. This highlights a lack of enthusiasm for higher prices and a mildly bearish overall bias. We'll be watching sentiment closely this next week as it should lead price either higher or lower. If we get a break of the current range with confirmation from sentiment, it should give the market a direction for the next few weeks.
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.