The S&P 500 was down almost 3%, The Dow Jones Industrial Average fell more than 500 points. But this doesn't necessarily mean that everyone lost money. Investors were heavily tweeting their opinions and the Twitter (TWTR) sentiment predicted the winners and losers for the day.
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" that 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-Scores, equity prices move higher, those with low negative S-Scores move lower.
There was strong positive sentiment, on Tech Data Corp (TECD), Mentor Graphics Corp (MENT) and Accuray Incorporated (ARAY) in the pre-market at 8.55 a.m. Friday. Twitter sentiment suggested investors go long on these stocks in the midst of all the negativity. If one would have bought all of these stocks at their open price and closed the position at the close price, the returns would have been 4.59% on Tech Data, 1.87% on Mentor Graphics and 9.30% on Accuray. That is an average return of over 5% on just these stocks.
Apart from predicting the stocks to go long, Twitter sentiment also provided a list of stocks on which to go short and make money. The Fresh Market, Inc. (TFM), Nordson Corp. (NDSN), United States Steel (X), The Gap (GPS) and Stage Stores Inc. (SSI) -- all these stocks had a significantly negative sentiment in the pre-market on Friday. The open to close returns were as low as -17.48%, suggesting that one could have made this return by going short on the stock, as indicated by sentiment. The average return by going short on these negative sentiment stocks would have been over 8.5%. The total long and short return for the entire duration on Friday for these stocks was 7.34%.
The lows that the market saw were hard to predict by anyone. But if you look at individual stocks, the sentiment turned out to be a good predictor, even during times of rocky movement in the market.