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The Downside Hedge sentiment indicator calculated from the Twitter stream for the S&P 500 Index (SPX) continues to show fairly positive readings in the face of market volatility. The large moves in price over the past week only produced one moderately negative print on a daily basis.
Smoothed sentiment has broken out above its short term down trend line after bouncing from a longer term uptrend line. This suggests that traders were buying the dip to 1600 on SPX and also the 50 day moving average. Both of those touches on support came with higher sentiment readings than the previous dips. Smoothed sentiment stayed above zero over the past week while price fell indicating an overall positive bias by market participants.
Support and resistance levels gleaned from the Twitter stream widened over the past week suggesting that traders are becoming uncertain about the depth and length of the current consolidation. We got several calls for prices falling as low as the 1535 area on SPX. There were slightly fewer tweets targeting 1575 and the vast majority came in near the 1600 level. The tweets calling for 1600 mentioned it as critical support or a place traders were expecting a bounce. This indicates that any solid break of that area will most likely bring sharp selling.
Above the market traders are targeting 1650 and 1700 consistently, with scattered tweets in the 1660 to 1687 area. For now we'll leave our resistance levels at 1650, 1680, and 1700.
Sentiment in the sectors are still showing a mixed picture, but becoming more constructive with energy, industrials, and technology showing strength. The defensive sectors are still showing a bit too much strength to give us a completely bullish outlook.
Putting it all together, sentiment is telling us that traders want the market to go higher, but fear much lower prices. The tweets targeting several levels below 1600 indicate a recognition of risk. The uncertainty in sector sentiment suggests that some investors are still rotating to defensive stocks. While smoothed sentiment reconfirmed the uptrend and shows a willingness by traders to give the market the benefit of the doubt. Over the coming week we'll be watching how price and sentiment react to any dip near the 1600 level as it will provide clues about a rally or resumption of the down trend.
Note : I've created a video that focuses on how I use the indicator to trade individual stocks.
Here's some written explanation about the video that clarifies some things and also describes what the annotations on the charts mean.
Here also is a download page so readers can load the sentiment indicator into their own chart packages. It's located here.
Here is an earlier YouTube video that a basic explanation of the indicator.
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.