Hope Springs Eternal Ahead of the First Fed Meeting of 2016
The US stock market decided to keep things interesting this week: starting off trading with a nearly 5% slide only to grind back to unchanged by the end of trading. You can check out the action for yourself using the price and sentiment charts in this post. The blue line represents the stock’s price return over the week: it starts at 1.0 and represents the change in price over the week. The Green and Red bars show the net sentiment flow, which counts the total number of Bullish messages minus the number of Bearish messages.
The price action was much the same for the tech sector, with the Nasdaq 100 managing to claw its way to a small rally on the week. However, its interesting to compare the sentiment flow in the $QQQ against that of $SPY, which experienced a notable divergence as prices made simultaneous lows on Wednesday. You can see it in $AAPL as well, a distinct spike in Bullish sentiment flow mid-day Wednesday. In the $SPY we see the exact opposite, with Bearish sentiment flow actually reaching a peak at the same time the community was getting Bullish on tech.
Next week all eyes are trained on the next meeting from the $FED on Wednesday. This week’s price action suggests traders are betting on the FOMC backing away from their proposed rate trajectory. The market has a tendency to play out its worst fears going into a big event, and interest rate decisions are some of the scariest, especially when interest rates could actually change. Volatility usually spikes into interest rate decisions and this year expect FOMC meetings to take on even more significance than normal.
As one might expect, there were a lot of strong opinions expressed on StockTwits as to whether the future path of prices is up or down, and our Sentiment Stock Screener picked up a big list of stocks to watch. For each stock symbol, the screener counts the percentage of Bullish and Bearish tagged messages on StockTwits. Then it filters for stocks which have experienced a large amount of Bullish or Bearish message volume. These stocks have tended to remain “in-play” for the week ahead.
Group RR: Rising Sentiment + Rising Price
This group filters the market for stocks which have a combination of rising price and rising Bullish sentiment.
The price of shares in biopharmaceutical company Chimerix ($CMRX) rallied 25% week on week on a wave of strongly Bullish sentiment flow. When all the world was falling down on Wednesday, a happy few investors flocked to $CMRX; Bullish sentiment hit a peak level shortly after the overall markets made lows. Just last December the stock price dropped by 75% in one fell swoop as the company announced disappointing Phase 3 drug trial results.
Exchange traded volatility products have been prominent members of the screener in recent weeks. This week saw two make it in, $XIV and $TVIX. I’ve kind of been a broken record about it in the past, but investors and traders who use these products need to understand that despite their names, these products do not trade the $VIX itself, they trade VIX futures.
Like many futures, the VIX market has a curve of maturities you can trade. Since exchange traded volatility products are continuously rolling from contract to contract (to maintain constant exposure to volatility), the curvature of the futures prices can make $XIV’s performance deviate greatly from what intuition would suggest.
This week offers a great example. Week on week, the $VIX declined about 17%, which might suggest that inverse volatility products should have done well this week… But as you can see from the chart above, $XIV barely makes it back to breakeven for the week.
Group RF: Rising Sentiment + Falling Price
This group detects stocks which are experiencing falling price and increasing Bullish sentiment.
Seagate Technologies ($STX) had one of the most lopsided sentiment flows for the week, with 43% positive messages against 2% on the downside. This despite a 10% decline this week; the stock price has declined by 60% since Jan 2015. Seagate has a long history, developing the first 5.25 inch floppy in 1980; it had a 5mb capacity!
SolarCity ($SCTY) was back in the screener this week, dropping 9% on Bullish net sentiment flow. Sentiment hit max bullishness on Wednesday as the share price gyrated wildly. The stock’s price briefly traded below $28 on Wednesday morning, only to touch $34 later that afternoon. Price and sentiment gave way a bit on Thursday, reaching max Bearish flow later that day. Prices began to settle as Bullish flow returned to close the week. The stock price has given back about 40% since the start of the month, so this symbol will be one to watch moving forward to see whether this is an inflection point rather than a chance to load the boat short.
Group FR: Falling Sentiment + Rising Price:
This group finds stocks which have risen in price in the face of falling sentiment
Golar LNG ($GLNG), an operator of a fleet of Liquid Natural Gas (LNG) carriers, has been on a wild ride as of late. As one might imagine, the decline in the price of energy has not been kind to it: in June 2015 $GLNG’s share price was above $50 / share and this Friday it closed at $17.99. Things have been worse, however, the stock was trading below $10 / share this Wednesday. The price exploded on Friday and was met with a burst of negative sentiment from the StockTwits community. The severity of the rally suggests a short covering rally is involved.
Group FF: Falling Sentiment + Falling Price
This group screens for stocks which have a combination of falling prices and increasingly Bearish sentiment.
$IBM fell on Tuesday and Wednesday, but failed to rally back to unchanged with the rest of the market towards the close of trading on the week. Negative sentiment reached a maximum in one burst on Wednesday, coinciding with the maximum Bearish flow in $SPY as well. $IBM is down over 10% year to date. That continues a slide started in late 2014, when the stock price was over $190 / share.
American Express ($AXP) held up well early on this week, managing to stay unchanged by the end of Wednesday as other stocks were crashing. Then its fortunes changed abruptly Thursday evening as negative sentiment flow appeared on $AXP’s message stream. The Bearishness continued the next morning as prices dropped through the floor, with negative sentiment reaching a peak as markets neared the close of trading for the day.
Group POLAR: Sentiment Divergence
This group screens for stocks which have a large number of Bullish and Bearish messages occurring at the same time.
This group continues to be thinly populated this week with only FedEx ($FDX), which had completely polarized sentiment flow. Bullish and Bearish sentiment were evenly split as the stock price gyrated but finished the week 1% higher. The stock has experienced a rough start to the year, falling around 15% YTD.
– For the Quants you can get access to data like this using the StockTwits API.
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