The recent dip in the S&P 500 Index (SPX) has caused a quick dip in sentiment generated from the text of tweets on the Twitter stream. This is a fairly negative development. While there has been relatively little price damage, the damage to sentiment has been very negative. The daily indicator has posted a couple of -17 or below days in the last week. This is causing smoothed sentiment fall rapidly. We saw the same type of action in late July and again in early August, which resulted in a consolidation warning and a further drop in price by about 55 points on SPX before it caught.
The pattern being painted since the FOMC announcement last week has been one of chasing. It appears that traders on Twitter haven’t made any clear decisions yet and are simply reacting to price. Sentiment from Twitter is nearing a critical point where it’s about to drop below zero and break the uptrend line created out of the August positive divergence. As I mentioned when the consolidation warning was cleared on 9/10/13, the divergence wasn’t quite three weeks old so I will give this dip a bit of room and will redraw the up trend line to the current dip if it stays above the dip in sentiment from 9/3/13.
I don’t have enough data to create a trend line from StockTwits sentiment, but one thing to note is that it is showing much more strength than Twitter sentiment. In fact, it is painting the pattern I was hoping for if the market sold off. The daily indicator is painting modestly positive and negative readings indicating that traders on StockTwits aren’t showing panic or indecision. Instead, they see this as normal and healthy. At this point, it appears that traders on Twitter are chasing and StockTwits traders are waiting.
On more point, today had a high volume and intensity from both StockTwits and Twitter. It reached the levels of the FOMC announcement and the highest levels since the dip in June. Volume and intensity tend to increase on serious dips so this is giving us an indication that traders are at the very least starting to get nervous.
Twitter support and resistance levels are showing the next layer of support just below SPX at 1687 and then the 1675 to 1680 area. The 50 day moving average is almost up to 1675 so those are the levels I’ll be watching for a possible bounce. In addition, I’d like to see daily sentiment start to diverge from falling price and make prints well above zero as a sign that market participants are buying the dip.