Tech & Crypto: the Search for a Bottom

Table of Contents:

  1. Markets at A Glance
  2. Last Week’s Headlines
  3. Ticker Sentiment Trends + 💡 $ARKK Spotlight
  4. Looking Ahead

1. Markets At A Glance:

As earnings season continues to wind down, the stock market finished last week moving in no clear direction; the tech-heavy NASDAQ finished slightly higher by 0.4%, while large caps brought the DOW and S&P 500 slightly lower, ending the week down 1.5% from their all-time high’s set two weeks ago.1 By our Babbl linguistic indicators, inflation still looms large over the market conversation, as last week the Federal Open Markets Committee (FOMC) met and acknowledged the potential for inflation to run “temporarily” above their 2% target due to “transitory supply chain bottlenecks” that will likely fade.2 Price volatility is to be expected as the U.S. economy continues to reopen into the post-COVID-19 Spring, and even though policymakers noted that long-term inflation estimates still remain in check, mixed data makes it hard to say how long this volatility will last. Underwhelming April housing data reported last week and optimistic labor market gains indicate that the jury is still out.

The biggest story of last week — honestly, the biggest story of May — was the cryptocurrency crash brought on by China’s decision to crack down on the mining and trading of virtual currencies. If you read any news last week, you probably noticed the headlines; an unprecedented 1 in 8 articles published last week mentioned the crypto crash. In short, the CPR broadened the scope of their 2017 crypto ban, announcing new restrictions on Bitcoin mining activities, and asserting that Chinese institutions must not accept virtual currencies nor use them as a means of payment or settlement.3 As a direct result of this new regulation (and in the wake of Elon Musk’s comments on BTC last week), Bitcoin has dropped more than 25% in value over the past week, and Ethereum has dropped more than 40%, and the broader cryptocurrency market has lost close to $1 TRILLION dollars of market capitalization in the correction to date.

Despite the crypto market being up in flames, we saw atypical amounts of bullish sentiment in last week’s stock market headlines. Here’s a look at which tickers were talked about most last week:

Atypical bullish sentiment last week. This is the sentiment distribution of the top 25 most-talked-about tickers in last week’s news. Size = relative number of headlines, Color = how often ticker appears in top 25 (over past 6 weeks).

2. Last Week’s Headlines:

Each week we analyze impactful sentiment metrics expressed in the news to gain insight into each stock and cryptocurrency’s outlook. The stock market conversation last week was considerably more optimistic and less pessimistic compared to previous weeks. The average article published last week scored a 0.10 in optimism (compared to last week’s 0.07), and a 0.04 in pessimism (compared to last week’s 0.07). This may be indicative that stock prices are starting to reach more attractive ranges across the board. In terms of time sense expressed (ie. past- and future-tense words used), last week’s conversation was much more neutral than previous weeks. Both the speculation and reaction expressed in the average article were markedly lower; this is likely the result of earnings season dying down and stocks settling into their new price levels.

Looking back over the past few weeks, you might notice that data points in the sentiment plot above have been migrating up and to the right; this may appear peculiar given that stocks have generally been relatively flat and trending downwards. Based on our analysis at Babbl, this trend toward bullish (ie. optimistic + speculative) conversation appears to be indicative of stocks approaching more attractive price points. As growth and tech stocks have moved lower over the past weeks, the number of headlines painting optimistic pictures has increased, with analysts and journalists more frequently using phrases like “10 stocks to buy…” and “…is now the time to invest?”.

Focusing specifically on the top-25 most mentioned tickers appearing in the plot above, we see many of the familiar FAANG faces clustered in the top right quadrant. Notably, we also see some reassuring tickers appearing highly bullish: Spotify ($SPOT) and Pinterest ($PINS) as analysts say their prices are primed for a buy, and Boeing ($BA) after they announced plans to boost production of their 737 Max. Nvidia ($NVDA) appears highly speculative with a neutral mood after the company announced a 1-to-4 stock split last week. Finally, notice Bitcoin ($BTC), Tesla ($TSLA), and Cisco ($CSCO), and Disney ($DIS) all appearing bearish (ie. pessimistic + speculative) in conversation this week.

💡 When it Rains, it Pours: Boarding the $ARKK

As investors’ certainty of the bull market’s strength has surged and plunged, one ship has ridden the wave on both extremes; with Cathie Wood at the helm.

ARK’s Innovation ETF ($ARKK), made up mostly of the types of stocks that have taken a beating as of late, finds itself 44% off its January ATH and in the middle of its 52-week range at $105.84 ($59-$159). Cathie and ARKK have a proven track record of picking solid high-growth stocks, but as confidence waivered in a first-of-its-kind macro environment, growth valuations were squashed in wide swaths.

The Top 5 ARKK holdings and their YTD performance, in order of fund weight:

  • $TSLA: -21%
  • $TDOC: -30%
  • $ROKU: +4%
  • $SQ: -10%
  • $SHOP: +12%

Some investors see the fund’s sinking valuation as a sign of the death of a bubble:

Twitter avatar for @BvddyCorleone

Bvddy @BvddyCorleone

5- I bring this up in light of the twin crashes we are now witnessing in ARKK and Crypto—indeed the two harbingers of speculative excess in markets today. The crash of these vehicles suggests that the speculative energy that has been propping up broader markets may be fading...

Image

May 23rd 2021

4 Retweets27 Likes

While others see this as a solid entry to a rebounding staple:

Twitter avatar for @saxena_puru

Puru Saxena @saxena_puru

Many growth stocks have started building bases.If there is no nasty sell-off on Friday, based on my trend following indicators, $ARKK short-term trend will likely flip to UP.

May 21st 2021

78 Retweets1,185 Likes

Either way, the team at ARKK made some big moves last week. In the midst of the Crypto Crash, the fund bought ~800k shares of Coinbase ($COIN), rocketing the stock to the 10th largest position of the fund. They also picked up another 80k shares of $TSLA, topping off their already massive $2B position in the EV + Energy co. $ARKK showed a marked increase in our sentiment rankings, showing that either analysts are bullish on the future of the fund, or they’re just excited to see someone else is first buying back into the froth.

3. Ticker Sentiment Trends…

Ticker Optimism😀 and Pessimism😒

In terms of mood, here are the most optimistic and most pessimistic tickers discussed in last week’s news. The most optimistic ticker in last week’s news was Snowflake Inc. ($SNOW) after the stock dropped 50% to approach a solid buying level (according to SeekingAlpha); the company will report earnings this week on May 26th. Other optimistic tickers in last week’s news were Pinterest ($PINS), Palantir ($PLTR), and ExxonMobil ($XOM).

Last week’s most pessimistic ticker in conversation was far-and-away Lowe’s ($LOW); despite absolutely killing their revenue estimates on ‘robust home improvement spending’ in last week’s earnings report, the stock fell on Friday as analysts note inflation may bring an end to the home improvement party. Other pessimistic tickers include MicroStrategy ($MSTR), Target ($TGT), and Cisco Systems ($CSCO). The complete visualization of optimistic tickers is shown here:

Complete visualization of the top-10 most optimistic and pessimistic tickers in last week’s news articles, broken down by their relative mood (normalized optimism vs. pessimism expressed) and absolute mood (% of optimism or pessimism expressed outright with respect to each ticker).

Ticker Speculation🤔 and Reaction😮

In terms of time-sense (ie. future- and past-tense words expressed), here are the most speculative and reactive tickers in last week’s news. By the measurement of both relative and absolute time-sense expressed, the most speculative ticker in last week’s news was Nvidia ($NVDA) on news of an upcoming 1-to-4 stock split announced last week. Other highly speculative tickers in last week’s conversation include risk-analysis firm Relx PLC ($RELX), Starbucks ($SBUX), and IBM ($IBM).

Last week’s most reactive (ie. past-focused) ticker was by far Palo Alto Networks ($PANW) after the cybersecurity company posted earnings and revenues to exceeded estimates and guidance. Other highly reactive tickers in last week’s news include the British FTSE 100 Index* ($FTSE), Gamestop ($GME), and Lowe’s ($LOW). The complete visualization of speculative and reactive tickers is shown here:

Complete visualization of the top-10 most reactive and speculative tickers in last week’s news articles broken down into relative time-sense (normalized speculation vs. reaction expressed) and absolute mood (% of speculation or reaction expressed outright with respect to each ticker).

Biggest Movers💫 and Shakers🤝

Finally, let’s break down which tickers experienced the biggest changes in sentiment last week (compared to the previous week). In terms of article volume, the tickers with the biggest increase in headlines were $MGM, $TGT, and $RELX, while the tickers with the biggest decrease were $TSLA, $FB, and $AMZN.

The tickers with the greatest improvements in mood (ie. optimism vs. pessimism) were $PINS, $ARKK, and $SPOT, while the tickers that faired the worst in the news over the week were $MSCI, $DIS, and — you guessed it — $BTC.

Finally, the tickers with the greatest increases in speculative (vs. reactive) language last week were $IBM, $NVDA, and $ARKK, while the tickers with the greatest increases in reactive (vs. speculative) language were $ETH, $COIN, and $PLTR.

4. Looking Ahead

For the past month, the market has decided it’s unwilling to pay the Saas/Tech multiples those companies were sporting on this side of the pandemic. Well-loved companies with solid earnings beats were not spared from sector-wide sell-offs. The redeeming feature of a sell-off, however, is that it has to stop somewhere. We’ll be watching the market closely this week for signs of rebounding investor confidence. For example, if we can find a few growth names sustaining breakouts, this author would be cautiously optimistic that we’ve found a bottom.

🚨Bonus Points🚨

If you find any breakouts in the wild, tweet their chart to us @babbldev and we’ll be sure to RT and update our models accordingly. 😉

Meme of the Week: brought to you by @wallstbets on Instagram

About

Our goal at Babbl is to bring better sentiment analysis to retail investors to help automate some of the legwork around investment research. We analyze finance media to detect "mood" signals such as optimism, speculation, confidence, and credibility about individual stocks, markets, and publishers over time. Every week and month, we summarize these findings into a newsletter for our subscribers. Our goal is to make it easier for retail investors to make confident, well-rounded decisions by quantifying finance news.

This roundup was written by Ramsey Shaffer and Sam Cartford, with help from the Babbl Discord and the MoneyMen group. Please note: all information reported here is for informational and educational purposes. We are amateur investors, not financial advisors. To help us make this better down the road, please consider leaving a comment below or sharing this post with a friend :)

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