Every weekend on SimplerStocks, I post a StockTwits sentiment table. This is just a spreadsheet of the sentiment readings compiled by StockTwits, by analyzing the “twits” that are posted.
I have found that extremes in sentiment are useful indicators to use IN ADDITION to good chart analysis.
The theory is that the “crowd” is usually wrong. But what is extreme? I was one of the first people with StockTwits, so I have watched the sentiment closely for years.
I have found that for most stocks, a sentiment reading in the 90’s is pretty extreme. Twilio (TWLO) had 98 percent bullish sentiment right at the top.
The key is to COMBINE the bearish sentiment in TWLO with a short TRIGGER. In this case the trigger was the break of the daily ATR Trailing stop.
Amazingly, even after a 50 percent drop the bullish sentiment in TWLO right now is STILL 88 percent!
For the overall indexes, I have found that a reading over 60 percent is significant. The other factor is if ALL the indexes are either bullish or bearish. As seen, almost every index is seeing bullish sentiment right now. That has me very defensive overall.
For more of Chris’ setups like this, visit him at Simpler Stocks