Blair Jensen: Over the past week the Downside Hedge Twitter Inc (NYSE:TWTR) sentiment indicator for the S&P 500 Index (SPX) showed a bit of calming by market participants. When price moved back to the late November high the daily indicator spiked to the highest level ever. It registered a +37 as both bears and bulls seemed to acknowledge that higher prices were inevitable. The large drop in price on Wednesday didn’t bring overly bearish sentiment. The daily indicator printed a moderate -8 with the bulls sticking to their positions and only a small increase in the number of bears getting excited. There is talk of buying the dip and a Santa Clause rally by bulls, but not a lot of shorting by bears. Overall the current dip is being viewed as positive and has had a calming effect for traders on Twitter.
Smoothed sentiment is falling, but lagging behind price. It is still above zero and not falling rapidly. This indicates traders have stopped chasing. The moderate prints on the daily indicator suggest traders don’t have a lot of conviction in either direction.
Support and resistance levels generated from the Twitter stream compressed this week. Calls for substantially lower prices slowed down. The break below 1780 didn’t seem to faze traders. I had expected a break of that level to be more serious due to the number of tweets mentioning it must hold. What happened instead is traders merely changed their downside targets to the 50 day moving average near 1765. Previous support at 1745 is still being tweeted as well.
Above the market the most tweeted levels are 1780 and 1800. There were very few calls above the previous highs around 1810 on SPX which suggests traders are still waiting for a bottom to be formed before calling for a break to new highs. Support and resistance targets show people waiting in a range between 1745 and 1810. This is fairly wide, but narrowed substantially from last week.
Sector sentiment continues to show a rotation to safety by investors with the defensive sectors showing the most positive bias. I’m not sure if it is simply portfolio rebalancing after a good year or if investors are getting cautious.
Sentiment from the Twitter stream is telling us that there isn’t a lot of fear that the market is going to move substantially lower.