The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index (SPX) showed a strong reading of +.22 last Monday. This was near a turning point in price. As we’ve noted in previous updates, extreme readings in the daily indicator near market turning points often act as an initiation thrust (in this case pointing to higher prices). The rest of the week brought those higher prices. However, sentiment started to diverge. Tuesday and Wednesday printed negative readings in daily sentiment as traders tweeted about consolidating Monday’s strong up move. Then Friday’s extremely strong price action generated a lot of tweets about the market running too fast on low volume. This has created a negative divergence in the short term, which warns that the market may pause in the next few days.
Smoothed sentiment has broken clearly above, and held, the zero line. This signals that there is more room for the market to rally over the intermediate term. Continued readings above zero will keep a positive bias in place. We’ll be watching for a negative divergence, a close below zero, or a break of the recent trend line on smoothed sentiment for clues that the rally has run its course.
Our Twitter Support and Resistance levels generally followed price this week suggesting that traders were chasing the market rather than setting targets for their trades. There were only scattered tweets above and below the market, which suggests that market participants are uncertain about future price movement. Even so, the tweets did have a slight bias to the upside, targeting resistance at 1435 and 1475. Support below is at 1400 and 1380. However, these targets were calculated mainly from prior resistance rather than a large volume of tweets targeting them as lows. We’ll want to see more tweets at 1400 and 1380 to have confidence that those levels are major support.
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)
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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