Gauging Investor Sentiment with Twitter: New Update

February 18th, 2013

by Blair Jensen

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The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) is still warning of a pause or correction in the market. The daily indicator continues to paint lower highs even as SPX grinds higher. There is a theme building in the Twitterverse about the correction that just won’t materialize. Many people are tweeting about technical reasons the market should fall, but also warning that price hasn’t confirmed the weak internals. The tone is mixed with frustration and boredom as traders wait for a direction. The daily indicator has kept its prints in the neutral zone (-10 to +10) for almost two weeks, which is another sign of indecision by traders.

Smoothed sentiment strengthened from low levels last week, but continues to diverge from price and is still below zero. This shows that the bears continue to outweigh the bulls, however, they are very close to being evenly matched at the moment.

SPX was turned back at Twitter resistance of 1525 last week. This highlights the negative risk/reward scenario we mentioned in our previous update. When there is strong resistance just above the market but support has multiple levels well below current prices, traders are likely to close longs or enter short positions at the resistance level.

Twitter support and resistance levels are now tightening in a range between 1500 and 1525 on SPX. There are very few tweets above or below those levels. This suggests that traders are waiting for a break from the current range before taking action. There are so many tweets mentioning 1525 that a break above it will most likely cause a short covering rally that moves quickly higher. Any weakness will most likely cause a drop to 1500.

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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