Quantifying the Contrarians: $TWTR’s Earnings Postmortem

Twitter’s stock price has been on a wild ride this year. In-fact, it recently hit new all-time lows. But what’s really fascinating about Twitter and its price per share is the relationship it’s having with social media data. Let us explain.

As the stock market becomes increasingly competitive and market data becomes commoditized, more traders and investors are realizing the need to include novel sources of information to generate an edge.

On Tuesday July 28th 2015, one of the most valuable sources of information wasn’t a traditional news outlet or high speed connection to an exchange, but the StockTwits $TWTR stream.

In the following chart, we plot the price of Twitter stock in blue, while the green and red bars represent the current level of bullish and bearish sentiment, respectively. The sentiment is calculated by counting the total number of bullish messages minus bearish messages for each minute:

one_minute_take_two
Shortly after 4:03pm Eastern time, the market got its first taste of Twitter’s earnings as the headline numbers hit the newsfeeds. There was an immediate reaction in TWTR’s share price. Between 4:03pm and 4:05pm TWTR rallied over $3 to $40 per share on a burst of buying volume.

At the same time, $TWTR sentiment began to take a nose dive. Negative sentiment made a low as the stock price reached its peak. As the chart indicates, the StockTwits community was not fooled by the initial pop in the stock after the headline earnings number. Rather, users choose to fade the stock and were handsomely rewarded with a quick trade if their actions were consistent with their words.

After TWTR sold off into the 35’s, sentiment underwent a flip-flop and the community began to become net bullish on the stock price. User’s chose to “catch a falling knife” as the stock traded to a low of $32 later into the evening.

The investors and traders that make up the StockTwits community showed a very contrarian way of thinking during this quarter’s earnings report for social media stock TWTR. As we delve further into the data, it will be interesting to see if a contrarian mindset is the norm, or whether users choose to go with the flow on balance. One thing is for certain, on Tuesday evening, the fade was the trade.


– 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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