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The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) is still on a consolidation warning. Smoothed sentiment has made a low reading that is consistent with previous low points over the past year. Our first sign that the short term down trend is over will most likely be a positive divergence in smoothed sentiment. While a lower low in sentiment will indicate a larger and more serious decline is ahead.
The daily indicator is not showing extreme sentiment in either direction. It is mostly printing low bullish or bearish readings with a few moderate spikes. This indicates the bulls and bears are fairly evenly matched regardless of the direction in price.
Support and resistance generated from the Twitter stream is starting to show some fairly definite levels. Below the market 1650, 1630, and 1600 on SPX are clear levels of support. While 1680 and 1700 are the most tweeted price targets above. SPX fell below strong support at 1675 after a consolidation warning which lends weight to the bears and suggests that the current down trend isn't over yet.
Another indication of underlying weakness that I'm watching is the breadth of the 50 most active stocks on Twitter. Currently it is showing a negative divergence with price and an acceleration lower. This is a result of substantially fewer stocks in a confirmed (by Twitter sentiment) uptrend. The number of stocks in confirmed downtrends, consolidation warnings, and with choppy or unclear chart patterns is rising which indicates traders are getting selective or less confident in the stocks they talk about most.
Sector sentiment continues to confirm the uptrend with most of the leading sectors showing a positive bias. Financials are the only leading sector with weak sentiment. Adding weight to the bullish argument are defensive sectors showing a negative bias.
Sentiment is sending mixed signals with a consolidation warning accompanied by declining breadth while sectors are showing a positive pattern. In the short term this suggests that we shouldn't see strong upward price moves.
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.