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Update: Gauging Investor Sentiment With Twitter

  • Written by Syndicated Publisher No Comments Comments
    December 11, 2012

    The Downside Hedge Twitter Sentiment indicator for the S&P 500 Index (SPX) is confirming the current uptrend. Both daily and smoothed sentiment are showing very strong readings that reflect the optimism of market participant’s tweets. We saw a good number of tweets early last week predicting the market would hold support and that any dip should be bought. This proved to be true as the dip to 1400 on SPX was bought aggressively. Later in the week traders were tweeting about trading the current range, but still wanting to be buyers to levels as low as the 1385 on SPX (near the 200 day moving average).

     

     

    Smoothed Twitter sentiment continues to print well above zero and above its rising trend line. This is due to a large volume of tweets mentioning that the fiscal cliff disagreement would be solved. In addition, there were many tweets suggesting that the market will be range bound until the issue is behind us. Not very many traders want to be aggressively long or short until they have more clarity, which is giving an overall bullish bias to sentiment.

    Our Twitter support and resistance levels have tightened significantly adding further proof that traders are waiting for a break of the current range of 1385 on the downside and 1425 on the upside in the S&P 500 Index (SPX). We are still seeing tweets for 1400 on SPX as support. However, 1385 is getting so much attention that we believe that 1385 is the current line in the sand for the bulls. For this reason we consider 1385 major support. A break below 1385 would most likely bring more selling.

    Above the market, traders were tweeting 1425 in large volume as a target for SPX, but no higher. This is interesting considering the fact that our Twitter sentiment indicator is showing so much strength. We suspect this reflects the fact that traders are tweeting that they want a correction that they can buy rather than a push higher right now. A break above 1425 on SPX may catch many traders off guard, which could create a quick rally to 1435 or 1450 as those waiting for a dip start to chase prices higher.

    Overall from a sentiment, support, and resistance perspective we have to conclude that money managers and traders are waiting with optimism. They believe the market is going higher, they want to be buyers below the current level, but they’re willing to wait for a clear signal before allocating much money.
    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.

     

    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.
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