Courtesy of Doug Short.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
The Downside Hedge Twitter sentiment indicator for the S&P 500 Index (SPX) spiked this week when the market first made new highs, but the subsequent days had tepid readings. This is causing a negative divergence in smoothed sentiment that is now three weeks old. This suggests that market participants aren’t enthusiastic about the move above 1950 on SPX. Regardless of the divergence, smoothed sentiment is still above zero and a confirming trend line so the odds favor higher prices even if they’ll be slow in coming.
Support and resistance levels gleaned from the Twitter stream continue the same pattern. Almost no calls for prices above the market and scattered tweets below. 1925 on SPX is the only real support and 2000 is resistance. However, there haven’t been significant tweets for the 2000 level for more than 2 weeks. This suggests that traders are simply watching the action rather than anticipating higher or lower prices.
Sector sentiment has had all positive readings for four weeks in a row. This is a very unusual circumstance and suggests that rotation to safety is ongoing. As I’ve mentioned before when all sectors have positive readings short term tops are near.
Overall sentiment is a bit cautious with smoothed sentiment diverging from price, traders reluctant to target higher prices, and the sectors suggesting market participants are rotating to safety. The silver lining is that smoothed sentiment is still above zero and a confirming trend line. This suggests the market should move higher, but it has some headwinds.
Blair Jensen at Downside Hedge tracks Twitter sentiment and provides hedging strategies for individual investors.
