Staring into the Abyss with the StockTwits Sentiment Screener
US Markets are dancing to a distinctively Chinese rhythm. The latest spike in volatility has been driven by the renewed decline in Chinese equities, with US and European markets pulled down in the wake. Sentiment has turned extremely negative. This is true for both the broader indices and individual stocks, which is a new development that has coincided with the latest increase in volatility. I’ve been watching the sentiment flow in $SPY turn increasingly negative over the last few months, but this week was particularly bearish:
The price action produced a unique result for the Stock Sentiment Screener, with no stocks falling into the POLAR group, which screens for stocks which have a large number of Bullish and Bearish messages occurring at the same time. This intensity of sentiment flow mirrors that of historic volatility spikes which occurred in October 2014 and again last August 2015.
For each stock symbol, the screener counts the percentage of Bullish and Bearish tagged messages on StockTwits. Then it filters for stocks which have experienced a large amount of Bullish or Bearish message volume. These stocks have tended to remain “in-play” for the week ahead.
Group FF: Falling Sentiment + Falling Price
This group screens for stocks which have a combination of falling prices and increasingly Bearish sentiment.
Sentiment turned exceptionally Bearish in shares of video streaming service NetFlix ($NFLX), with 1 in 5 messages expressing a negative view on the stock. The stock initially started the week on an up-note, which was contrarian to the community’s sentiment flow. Then the price experienced a breakdown in unison with the rest of the market on Wednesday. Sentiment hit a peak negativity on Tuesday, with some slight Bullish activity creeping back towards the close of trading for the week.
In a similar vein, shares in Amazon ($AMZN) sold off on Wednesday, preceded by negative sentiment flow on Monday and Tuesday. The lows on Wednesday coincided with a huge spike in Bullish messages, which initially was rewarded with a slight bounce on Thursday. The bounce wasn’t to last, with a renewed move down in sentiment and price into the end of the week.
Group FR: Falling Sentiment + Rising Price:
This group finds stocks which have risen in price in the face of falling sentiment.
Chipotle Mexican Grill ($CMG) snapped back 15% this week despite a negatively biased sentiment picture. This represents an improvement on last week, however, and it will be interesting to see whether this represents a turning point for the stock price.
Group RF: Rising Sentiment + Falling Price
This group detects stocks which are experiencing falling price and increasing Bullish sentiment.
The community started the week betting that shares in Under Armor ($UA) might be nearing an inflection point. The stock has experienced a decline of over 30% since September 2015. Prices initially rebounded only to fall back towards the lows of the week on Friday. 1 out of 5 messages expressed Bullish opinion on the week.
Shares in Walt Disney Co ($DIS) closed trading on Friday at $93.90, around 25% lower than last November when it was in the $120’s. Sentiment flow turned positive this week as the community bet on a turnaround: 23% of message volume expressed Bullish sentiment. Nevertheless the stock ended the trading week down about 5%.
Group RR: Rising Sentiment + Rising Price
This group filters the market for stocks which have a combination of rising price and rising Bullish sentiment.
Volatility continued to spike as the $VIX rose above 27. Since investors can’t trade the $VIX directly, they usually flock to exchange traded volatility products like $TVIX to express their opinion. Sentiment flow finished the week at a maximum, suggesting people are insuring themselves against further volatility next week.
Shares in biotech company Intrexon ($XON) had extremely lopsided sentiment flow, with 21% of messages expressing a Bullish sentiment vs only 3% on the Bear side. The stock rallied around 6% week on week, provided a rare safe-haven despite the overall market turbulence.
– For the Quants you can get access to data like this using the StockTwits API.
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