Gauging Investor Sentiment with Twitter: New Update

January 27th, 2013

by Blair Jensen

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In the previous Twitter Sentiment update for the S&P 500 Index (SPX) we stated that any move into the 1490 to 1500 range on SPX would bring a pause "as longer term investors who are warning of a top continue to sell shares and shorter term traders sell against an obvious resistance level." Last week brought exactly that. On Tuesday the move to 1492 was stopped in its tracks. That day printed fairly negative sentiment even though the market moved higher. This was due to a large volume of tweets about selling that level. The bulls and the bears fought it out the rest of the week with every attempt at the 1500 level being sold (and tweeted about).

We ended the week with SPX barely above the 1500 level and daily sentiment barely above zero. Last week was a great example of a fight between the bulls and bears. The scoring of tweets rose by 35% over the previous week and by 50% over the level of two weeks ago. This is because the tweets came in both higher volume and intensity of language. However, the daily indicator still remained very close to zero as the bulls and bears were evenly matched. This tells us the battle has not yet been won by either side.

Our smoothed sentiment indicator fell last week, but continues to be above its current rising trend line, above zero, and painting higher lows. This suggests a slight bias to the upside. It is also nearing the apex of a triangle pattern telling us that the market is at a decision point. A break below the rising trend line on smoothed sentiment or a very negative print on daily sentiment will warn us that the market is most likely starting to correct. A break above the top of the triangle on smoothed sentiment will signal higher prices over the near term.

Twitter support levels rose again this past week as trader's tweets began to favor the 1460 level on SPX over 1440 to 1450. The 1475 support level remains in place. We consider 1475 and 1460 as major support. Twitter resistance levels moved up as market participants are starting to tweet a cluster of numbers in the 1520 area. We're keeping 1500 as resistance until it is broken decisively and placing another level at 1520.

It's decision time. Twitter sentiment has the bulls and bears fairly evenly matched at a major resistance level. We'll wait for a break in sentiment and price as it will give us the next near term direction.

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.

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