Fear in the New Year: Social Sentiment Takes a Dive
When the Federal Reserve ($FED) raised the short term interest rate in December of last year, markets breathed a collective sigh of relief as the world did not immediately explode. In the days following, lift-off stocks experienced some wild gyrations but the broader indices like the S&P 500 finished the year only slightly below where they began.
As this week’s price action laid bare, the sideways movement into the close of 2015 belied a deep feeling of anxiety amongst many market participants towards the future paths of interest rates and the global economy. The probability that the Fed will engage in an extended period of rate hikes has risen dramatically. However, the world faces a number of obstacles which could delay or even reverse the Fed’s trajectory.
These include the possibility of continued slowdowns in emerging market juggernauts like China and Brazil as well as the risk of an acceleration in the slow burning monetary crisis that has consumed the Eurozone for the better part of a decade. Finally, the price of oil has collapsed and the dollar has exploded in value, adding a destabilizing influence to world trade. These fears were realized in a tangible form this week as investors dumped stocks across the board. Tech stocks were especially hard hit, with the Nasdaq 100 ($QQQ) dropping over 7%:
This week’s Stock Sentiment Screener captured a lot of big name stocks experiencing huge swings in price and sentiment. The presence of a stock in the screener means it has a tendency to remain in-play for the week ahead. For those who may be encountering it for the first time, the screener reduces the complexity of the stock market by revealing the underlying hidden dimension of bullish or bearish sentiment. The screener filters the whole market into five categories which contain notable combinations of price and sentiment.
Group RR: Rising Sentiment + Rising Price
This group filters the market for stocks which have a combination of rising price and rising Bullish sentiment.
Anytime volatility creeps into the stock market there is a corresponding explosion in the community’s interest in Volatility exchange traded products like $TVIX, the price of which rose around 50% this week on a wave of strongly bullish sentiment.
It was also notable that in a week where most stocks were getting killed the tide was slowly turning on retailer J C Penney ($JCP), which experienced a burst of positive sentiment on rising price action.
Group RF: Rising Sentiment + Falling Price
This group detects stocks which are experiencing falling price and increasing Bullish sentiment.
The community of investors and traders on StockTwits continued to express a bullish bias on $TWTR despite the weakness in price. The stock fell another 5% overall on the week after starting on a slight positive note:
Similarly, hopes continued to remain high for FitBit ($FIT) with an imbalance of Bullish sentiment flow in contrast to the 27% decline in the share price.
Group FR: Falling Sentiment + Rising Price:
This group finds stocks which have risen in price in the face of falling sentiment.
$BIS rose 24% on the week which makes sense given it is a leveraged short ETF for the Nasdaq Biotech sector. Leveraged ETFs (LETFs) experience a decay over time and it would seem the community is attempting to capture some of the premium by betting on the Bearish side: 15% of message flow was negative.
Group FF: Falling Sentiment + Falling Price
This group screens for stocks which have a combination of falling prices and increasingly Bearish sentiment’
Shares in Chipotle Mexican Grill continued to slide this week, driven down 14% on a tsunami of negative sentiment:
Sentiment became extremely Bearish Thursday morning, reaching a peak intensity right on the open of trading for the day.
Group POLAR: Sentiment Divergence
This group screens for stocks which have a large number of Bullish and Bearish messages occurring at the same time.
Sentiment flow was broadly balanced in Amazon’s message stream ($AMZN) as the stock’s share price fell 10%:
Its interesting that both FedEx ($FDX) and UPS ($UPS) are side by side in Group POLAR this week. The stocks both experienced declines, but sentiment flow was equally divided between Bulls and Bears, suggesting increasing uncertainty about the prospects of both companies given the possible risks to global trade caused by economic and forex instability.
– For the Quants you can get access to data like this using the StockTwits API.
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