Gauging Investor Sentiment with Twitter: New Update

October 29th, 2012

by Blair Jensen

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index (SPX) is currently painting a positive divergence with price. The break of support in SPX at the 1420 level printed a large down day in price, but Twitter sentiment didn't confirm that break. On Tuesday, while price was falling there were still a large number of tweets suggesting that SPX 1400 would hold. Many people talked about their confidence of the market's ability to recover. Surprisingly, there were enough positive tweets on Tuesday that daily sentiment did not reach oversold levels (which would have indicated an initiation thrust and project much lower prices).

The next three days of sideways to down movement in price on SPX brought with it less negative sentiment. Friday's action was enough to bring the daily indicator positive. The smoothed sentiment indicator reached mildly oversold levels and then turned up. So now we have a clear positive divergence with price after bouncing from just above a major support level. This suggests that we should see a near term rally.

Our Twitter Support and Resistance levels continued to build a floor below the market in the SPX 1400 and high 1390s range. However, most market participants are still looking down rather than up. We're seeing a large build up of tweets calling for support or downside targets in the 1375 to 1380 range. The tweets correspond to roughly the same range as the 200 day moving average for SPX. So below the market support is 1400 then 1375.

On the upside 1430 on the S&P 500 Index has now become resistance. Once the 1420 level broke to the downside, many people continued to tweet about 1430 as an upside target. We now have resistance at 1430, 1475, and 1500.

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.

Website by the Boston Web Company