NEW YORK (TheStreet) -- With new drugs getting approved and rejected every day, health care, and biopharmaceuticals in particular, has become one of the most exciting areas for investment. And Twitter (TWTR) - Get Report, it turns out, can be used to predict some of the stock movements in the sector. Monday's market presented two great examples -- Teva Pharmaceutical Industries (TEVA) - Get Report and Biogen (BIIB) - Get Report.
Social Market Analytics, the firm I work for, derives actionable intelligence using a patented filtering process to scan social media sources for relevant information generated by qualified accounts. SMA produces a family of metrics or "S-Factors" which provide traders and investors the full context of social media conversations around securities, commodities and foreign exchange. The primary metric, the "S-Score", measures how positive or negative the conversation about a security is when compared to what has been observed as "normal" conversation. An S-Score of greater than 2 or less than -2 indicates the conversation is more positive or negative than 95% of prior conversations. Historical results show that stock prices tend to move with social media sentiment direction: with high positive S-Score, equity prices move higher, those with low negative S-Scores move lower.
Teva Pharmaceutical Industries surged in pre-market trading yesterday on the news that the company will be acquiring Allergan's (AGN) - Get Report generic drug business. But before this happened, the sentiment on Twitter had already become strongly positive. At 4:00 a.m., when the stock price was $66.00, there was already a significant positive sentiment among observers on Twitter. The sentiment rapidly started shifting towards the positive side in a matter of minutes. By 7:24 a.m., the stock was trading at $72.30. The stock opened at $67.80 when the sentiment was 3.92 and closed at $72.
Another great example from the Healthcare sector was Biogen. The stock started seeing a positive change in its sentiment before market opened. The stock opened higher at $305.34 than its close on Friday after it had plummeted. People started going long on the stock as a result of the news about Biogen being a possible takeover target came out. The sentiment at open had changed considerably as compared to the sentiment 15 minutes prio, suggesting investors are bullish about the stock. By, 9:54 a.m., the stock had gained close to $19 and was trading at $324.74.
In both these cases, Twitter sentiment turned positive in a predictable pattern before the stocks themselves rose in price.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.