The Downside Hedge Twitter Sentiment Indicator strengthened early last week while the market was waiting for news out of Europe and the US Federal Reserve. We found it encouraging that it held up even as the S&P 500 Index moved sideways. When SPX broke through minor resistance at 1440 it was accompanied by a sharp move up in our smoothed sentiment indicator. This move confirmed the rally as it also broke the trend of lower highs that has been in existence since the middle of June. In addition, smoothed sentiment finally registered a reading above zero as a multitude of traders tweeted that they were giving up on their short positions or committing new money as a result of the FED actions.
A short covering rally pushed the SPX to our next minor Twitter resistance level of 1475. After which, the market promptly gave up 10 points as longs tweeted about taking profit. It appears that the short covering rally that we mentioned last week is complete. We thought it might carry the market to 1500 since there were so many tweets about being short against 1440 and only isolated mentions of 1475 as a target. That assumption appears to be wrong.
This coming week we’ll be watching to see if SPX can consolidate above minor support of 1440 with continued strength in our daily sentiment indicator. We want to see people tweeting about any correction as a healthy event. If our indicator holds up we believe we should see the market move to the next major Twitter resistance level of 1500. Above that people are tweeting about 1570 and 1600.
Below the market most of the tweets call for SPX 1400 and 1422. There are tweets on a short term basis at 1440 and a few scattered calls for 1375, then a few outliers at 1167. Based on the volume of tweets we consider 1400 as major support with 1440 and 1422 as minor support levels.
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.
Images: Flickr (licence attribution)
About The Author
My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.
My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.
Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.
Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.