Courtesy of Doug Short.
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The Downside Hedge Twitter Sentiment Indicator for the S&P 500 Index (SPX) has moved to TradeFollowers.com and been renamed Trade Followers Momentum. When we first conceived the idea to capture stock market information from the Twitter stream, we thought we’d mostly find opinions and future projections. As a result, we thought we were creating a sentiment indicator. After two years of studying the underlying data, we believe we’ve created a momentum indicator that captures a herding effect by market participants.
The Trade Followers algorithm looks for actions, events, fundamental analysis, technical analysis, observations, and opinions from market participants who use many different investment and trading techniques. When market participants tweet positive messages from their own analysis of the stock market or individual stocks the momentum indicator moves up. As more people tweet constructive information an uptrend in momentum is created. Conversely, as negative analysis builds it turns the momentum of the herd lower.
We use the trend of seven day momentum to create short term signals for the stock market and individual stocks. Currently, momentum from the Twitter stream for the S&P 500 Index is signaling a consolidation warning. This warning came after an uptrend in momentum that lasted over two months. The recent rise in price has brought momentum back to a down trend line. As long as the down trend in momentum stay intact the consolidation warning will remain open.
Momentum from the StockTwits stream has broken its downtrend line which shows more optimism from the StockTwits community and clears its consolidation warning. So we currently see a divergence from traders on Twitter and those on StockTwits.
Support and resistance levels generated from the Twitter stream for the S&P 500 index (SPX) have compressed to a 50 point range. There are many calls for SPX to climb to 2000, but very few above that level. This makes 2000 on SPX a resistance level. Below the market the recent low at 1955 is getting almost all of the attention which makes it support.
Sector relative strength is confirming the StockTwits community with leading sectors showing support from market participants and defensive sectors lacking support.
The overall picture from social media is mostly positive. Although Twitter Momentum is still on a consolidation warning, it is above zero and close to breaking a down trend line (which will clear the warning). Traders are mostly tweeting about the 2000 level on SPX so it should act as a magnet and then serve as short term resistance.
Blair Jensen is president of Trade Followers. The Trade Followers algorithm quantifies social media and creates stock market indicators that track the momentum of the crowd on Twitter and StockTwits.
