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Update: Gauging Investor Sentiment With Twitter

  • Written by Syndicated Publisher No Comments Comments
    December 18, 2012

    The Downside Hedge Twitter Sentiment indicator for the S&P 500 index (SPX) continues to confirm the rally out of the November lows. Tuesday’s break above 1425 brought with it a lot of tweets from traders going long with the belief that the market should go higher. However, Thursday and Friday’s readings give us our first warning that prices may consolidate further as the daily indicator has broken its recent uptrend line. It is currently following price which tells us that market participants are chasing the market rather than buying or selling based on their own projections. A large number of negative tweets mentioned the weakness in Apple (AAPL) and the ramifications to the major indexes if AAPL continues to fall. Many investors don’t believe SPX can hold up if AAPL breaks below the 500 level.

     

     

    The smoothed sentiment indicator is still reading above zero and is sitting right on its up trend line. This reflects the belief by market participants that the current rally can continue. However, it leaves us in a position where we need to see how it reacts to either a dip to the 1400 level or a run back up to the recent highs. We’ll be looking for confirmation or a divergence from any move for clarity.

    Twitter support and resistance levels moved up last week as market participants started tweeting about prices above the market. This adds further evidence that they are optimistic going forward. 1460 on SPX was the most likely level targeted in tweets and we even got a few for 1500 again. We consider 1435 as minor resistance with 1460 and 1500 as major resistance.

    Below the market, 1398 and 1400 were about the only levels mentioned. Those levels were tweeted often as a place traders would buy. This is creating a very strong and critical support level. We didn’t get enough tweets at the 200 day moving average near 1385 to even register on our charts so we can’t consider it anything but minor support. This is a bit disconcerting because that leaves a lot of white space below 1400. If the 1400 level breaks it will most likely bring very harsh selling as it catches people on the wrong side of the market. Bottom line, market participants are optimistic, but 1400 on SPX must hold as support.
    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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