Over the past week as the market has been experiencing larger range days the volume and intensity of tweets has been building. In the past we’ve seen volume pick up at turning points as traders and investors get more intense in their opinions. Some of the intensity is fear and some is indignation, however, the emotion we see most often lately is resignation. There are a lot of tweets where even bulls are tweeting that the market needs a rest. This is showing up in the daily indicator where today the S&P 500 Index (SPX) rose 19 points and daily sentiment gave a negative print of -2.
The Twitter stream today was filled with traders looking to short the market or add hedges to their portfolios. This isn’t the type of action we’d like to see if the market is going to make an attempt at the recent highs in SPX near the 1530 area. We’d rather see confirmation of the current move with traders chasing the rally or getting long in anticipation of new all time highs (and of course tweeting about it). With so many shorts piling up and bulls resigned to a pull back, now is a time to be cautious. Remember, Twitter sentiment gave its first warning a month ago and price has only been able to move a few points higher from that point. Today, smoothed sentiment is much lower than a month ago telling us that more and more market participants are turning bearish so be careful if you’re long.