Buy the Rips, Buy the Dips: Sentiment During a Market Rebound

This week we saw the $VIX drop convincingly below 20 and the S&P 500 rise above 2000 again as stocks tentatively moved back towards normalcy. It’s interesting to note that a wide array of stocks in the Energy sector experienced spectacular moves skyward over the last few days, clawing back some of the losses investors have experienced as the price of oil has declined.

While spot volatility has continued to decline, many questions remain. Sentiment remains weak in broad ETF names like $SPY, reflecting a deep state of anxiety in the market. Was August’s VIX spike a temporary wobble in an otherwise healthy Bull-market or a precursor of a large decline on the horizon? Will the Fed respond to low domestic inflation and the economic weakness in Europe, China, or other emerging markets by delaying the rate take-off? Or will an increasingly healthy labor market put pressure on the FOMC to raise rates in their next meeting later this month?

It is against this backdrop that we explore the results of this week’s Stock Sentiment Screener. This screener came up with some new names this week as well as some old favorites which have been caught before.

Group POLAR: Sentiment Divergence

This group screens for stocks which have a large number of Bullish and Bearish messages occurring at the same time.

This week’s POLAR group was led by lifting equipment manufacturer Terex Corp ($TEX) which rose 13% on sharply divided sentiment flow: 1 out of 5 messages were Bullish against nearly the same amount on the Bear side. The polarized sentiment may be reflective of general uncertainty about the future of the company as its performance has been largely sideways since 2009 despite an overall rally in the market as a whole.

The community was neatly divided on the future of Rocket Fuel Inc ($FUEL), which despite its name develops technology for digital advertising and media sales. The stock price rose 11% this week providing a much needed relief for investors in the company which has seen its shares decline steadily since its IPO in 2013.

In an interesting story, the share price of natural gas and oil exploration firm Newfield Exploration ($NFX) rallied nearly 10% on the week, placing it near its high for the year. Investors were in disagreement on where the stock was going next, however, with +/- 18% Bull/Bear sentiment flow.

POLAR2

Group RR: Rising Sentiment + Rising Price

This group filters the market for stocks which have a combination of rising price and rising Bullish sentiment.

Investors in social media network Twitter ($TWTR) got a much needed reprieve this week from the steady decline the stock has endured since April. The stock price rose 17% this week on extremely Bullish flow: 30% of the message volume expressed optimism towards further price increases.

This group included a number of energy names which have all bounced in unison, perhaps as the result of a short covering rally in the sector. $OAS, $RIG and $CHK all experienced exceptional Bullish message volume which reinforced price increases.

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Group RF: Rising Sentiment + Falling Price

This group detects stocks which are experiencing falling price and increasing Bullish sentiment.

Shares in Exact Sciences Corp. ($EXAS) reminded us that investing is anything but, dropping over 50% on the week. The community responded with an optimistic sentiment flow: 1 out of 5 messages were Bullish suggesting some dip buying was taking place.

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Group FR: Falling Sentiment + Rising Price:

This group finds stocks which have risen in price in the face of falling sentiment.

The Bulls were quietly profiting this week after buying shares of Navistar International ($NAV): the company’s stock price was up over 30% despite 18% Bearish message flow and no Bullish sentiment.

Similarly, shares of Pacific Biosciences ($PACB) rose 32% this week despite increasingly negative sentiment flow. Shares in $PACB have more than doubled since the end of September.

FR2

Group FF: Falling Sentiment + Falling Price

This group screens for stocks which have a combination of falling prices and increasingly Bearish sentiment.

The number two and three slots in this week’s FF group were occupied by fast food companies, with shares in Yum Brands ($YUM) and Shake Shack ($SHAK) falling over 10% backed by a Bearish sentiment picture. Both companies have been in decline since May of this year, with shares in $SHAK falling over 50% since their peak.

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– For the Quants you can get access to data like this using the StockTwits API.

– Make sure you follow the author of this piece MKTSTK and visit their website for more data and analysis.


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