Ask your average investor and all of them will admit freely to one thing; they would love to be able to see into the future. These days a growing number are convinced that they actually can do that by monitoring microblog website Twitter.
The extremely popular website, already proven as a great source for not only breaking news but Wall Street insight and major corporate announcements, is beginning to appeal to a growing number of investors who realize that the site holds a virtual treasure trove of info that could possibly lead them to an excellent stock.
What they believe is that by tracking “conversations” about specific companies, industries and the economy in general, they’ll be able to predict where the overall market appears to be headed, or at least a specific stock.
Of course standing in their way is the fact that approximately 400 million “tweets” are being sent daily, including many that contain fake news, misinformation and other negative info. To illustrate just how wrong something can go, when it was recently announced that Twitter was planning to go public (via a tweet, of course) shares of Tweeter Home Entertainment, a bankrupt company, rose 1800%.
To the rescue come new tech companies like MarketPsych, a research firm from Westport, Connecticut that, along with others, is developing sophisticated new analytical tools that will help investors to draw conclusions based on Twitter buzz and make better decisions about their investments.
Social Market Analytics of Chicago has a new algorithm that will take thousands of tweets and scan them for particular words that may indicate sentiment around a particular stock. They look for things like support of the company’s products or resistance to them. This data is then used to give the stock a “score” that investors can use to make their decisions. The company tracks tweets from people who are considered to be market “influencers” and then sends the data via email reports and data feeds that can be integrated with Microsoft Excel. Influencers are people who have a history of making good calls about stocks, including active traders. They believe, as their chief executive Joe Gits says, that “on social media, it isn’t just what’s being said, it’s who’s saying it.”
Natural language processing software is at the core of the tool that Market Prophit uses to track tweets about individual stocks. Most traders and investors use ticker symbols that they call “cash tags” in their tweets, which are then assigned a score based on their “sentiment” as well as creating a real-time graphic that shows whether the overall stock seems to be either bullish or bearish.
On Twitter (as well as many other social websites) you will find that there are dozens of different “macro themes” that include things like optimism, fear and so forth. MarketPsych uses their new software to analyze these macro themes and allow investors to compare short and long-term sentiment to identify turning points in the stock and in the market. They can also use this information to gauge what the market is saying about a particular stock.
A great example of how all of this new technology works was the recent iPhone 5S and 5C launch back in September. As it approached the excitement on social media was incredibly high and experts predicted that Apple would need something truly “game changing” in order to top expectations. When that didn’t happen the stock ended up down 2.2% on the day proving that, in this case at least, keeping an eye on Twitter if you are an investor might not be as crazy as it sounds.