Visualizing Sentiment and Price During Earnings Season: A Weekly Roundup

As earnings season begins to rev into high gear, let’s take a look at a new visualization which captures the complex interrelationship between price, sentiment flow, and earnings events in one weekly chart.

The visualization begins by plotting the weekly returns to the $SPY ETF on the left axis against its sentiment flow index (SFI) on the right axis. This index is unlike the method used in previous graphs, which simply counted the Bullish and Bearish message flow and subtracted the two. The old method was useful for looking at individual symbols in isolation, but made it impossible to compare results between stocks: e.g. some symbols have thousands of messages and some less than one hundred.

The SFI is different: it is normalized between +/- 1.0, where either extreme represents the maximum sentiment flow in either direction, Bullish or Bearish, for the stock during the week. E.g. +1.0 means the maximum Bullish message flow. This makes it possible to visually compare the sentiment flow in different symbols on an “apples to apples” basis.

Following this method, I made a combined plot showing the price-sentiment evolution for a group of symbols which reported earnings this week: $NFLX, $INTC, $JNJ, $JPM, $BAC, and $GE:

earnings_roundup

This graph does a good job highlighting the general relationships between price and sentiment during earnings season. Note the characteristic bursts of sentiment flow after each earnings release hits the newswires. This is especially apparent in the reaction to Netflix’s earnings report: immediately following the headline number there are simultaneous surges in both negative sentiment flow and the number of sell-orders. Later on the flow switches into reverse, propelling the stock price higher in after hours trading. The next morning the Bears return, driving the price into the floor.

Hopefully these charts will provide a unique view of earnings season to supplement the normal weekly Stock Sentiment Screener:

Group RR: Rising Sentiment + Rising Price

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

Biotech company XenoPort ($XNPT) leads Group RR, gaining 33% on the week. The stock is riding a wave of Bullish sentiment: over 1 out of 4 messages expressed a positive outlook. Even so the price has seen better days: it reached all time highs in 2008 before the credit crisis and has been in steady decline since. This is its first appearance in the screener and so could be worth keeping an eye on.

Radius Health ($RDUS) was back on the radar this week; the stock is a serial offender, appearing numerous occasions in the screener. Last week it was in Group RF after falling 24% against a tide of Bullish sentiment. This week the Bulls were rewarded for their faith and pressed on the gas: 29% of message flow expressed Bullish sentiment. The 19% week-on-week increase belies a white knuckle ride: $RDUS opened the week around $55, hit a low of $45 in the middle of the week only to finish the week just shy of $69.

RR

Group RF: Rising Sentiment + Falling Price

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

Cempera Inc ($CEMP) leads up this group of stocks, falling 34% in the face of increasingly Bullish message flow. The biotech firm specializes in antibiotics and saw its price decline 27% on Friday alone after reporting the results of a late stage drug for the treatment of Community Acquired Pneumonia. Fortunes have changed quickly in the stock in general: $CEMP was trading above 40 just in August 2015. It closed the week just above $19 / share.

The pain continued for investors in the crafts-focused e-commerce site $ETSY, plumbing new depths after dropping 21% on the week. Hope springs eternal, however, sentiment flow remained doggedly positive with 1 out of 3 messages on the Bullish side. That isn’t to say the Bears are quiet: 14% of message flow expressed negative sentiment on the future of the company.

$TVIX was back in the screener this week, falling 15% as volatility continued to compress. The VIX finished the week just above 15, a level it last saw in August right before the volatility spike.

RF

Group FR: Falling Sentiment + Rising Price:

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

Shares in Trip Advisor ($TRIP) soared 22% on the week after Priceline ($PCLN) agreed to integrate a big slug of its hotel inventory into $TRIP’s booking platform. The community wasn’t buying it: sentiment turned negative with 14% of message volume expressing Bearish sentiment. This pop in share price brings the stock back to a slightly positive retirm on the year. FYI: The company reports earnings November 5th.

As Sandisk ($SNDK) heads into its earnings report next week on October 21st, rumors are swirling that it is a prime takeover target. The price has experienced a rapid rebound as of late, shares were trading below $50 as recently as September 30th; the stock closed the week just shy of $70 / share. The community is taking issue with the rise, however, with 1 out of 5 messages expressing a Bearish outlook.

FR

Group FF: Falling Sentiment + Falling Price

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

Conns Inc ($CONN) has been a pain trade of late: its share price has fallen around 50% since July. The company’s business model is appliance retailing, and like many purveyors of durable goods it has relied on a financing operation to lubricate sales. This has opened it up to default risk from its consumers. Shares are depressed of late after reports of increasing delinquency rates and slowing sales. The community largely agrees with the price declines and foresees more in the future, 1 out of 3 messages were Bearish this week.

Sentiment continued to slide in Pacific Bioscience ($PACB), with a big Bearish imbalance in message flow: 35% of messages expressed a pessimistic outlook for the stock. Last week the stock was in Group FR. The stock has doubled since late September and the community has been betting on a correction for two weeks now.

FF

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 was sharply divided in Netflix ($NFLX) as it released its earnings this week. The price may have fallen 13% week on week, but the community is unsure as to the future course of trading. This uncertainty prompted a massive message flow: over 6000 messages referenced $NFLX this week. Bulls were perfectly balanced against the Bears at +/- 15%.

POLAR

– 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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