Twitter blurs lines between professional and retail investors

Hedge fund Derwent Capital Markets has introduced a fund that invests according to a trading model based on Twitter posts to gauge the mood of the stock market. Since we lack such genius algorithms, we instead spent a day tracking share focused tweets and then applied securities lending data to assess any linkage between retail “noise” on Twitter and professional investor sentiment. In short, US names almost exclusively make up the list, which was dominated by retailers and consumer services stocks – a trend we flagged in recent analysis assessing professional investor sentiment following the turmoil in August. We look at investor sentiment towards; Marriott International Inc.(NYSE:MAR), Royal Caribbean Cruises Ltd (NYSE:RCL), Cracker Barrel Old Country Store Inc (NASDAQ:CBRL) and Abercrombie and Fitch Co. (NYSE:ANF).

The list of 35 stocks below was compiled by searching for negative and positive sentiment keywords such as “bearish”, “bullish”, “falling”, “buy” and “sell” and by searching for tickers using the ‘$’ prefix on September 13. We were not able to ascertain which of these companies trended the most on Twitter so we have ranked them according to our data – by the percentage of stock out on loan. Consumer Services companies dominated the list accounting for 17% of these stocks, with retailers accounting for 15%.

Consumer Services

The Data Explorers Long Short Ratio for the U.S. Consumer Services sector has fallen from its annual high of 8 in March to a current level of 7, meaning that the number of longs outnumber shorts by only 7 times, even as market sentiment towards the sector has turned increasingly negative. By comparison, the average for all US equities is 10.

With the share price of Marriott International Inc. having fallen to new annual lows this week, it is not surprising that it was one of the most mentioned stocks on Twitter. Short interest increased from annual lows in the second quarter to 4.5% of total shares and has held steady ever since, with no recent increase in demand to borrow the shares despite the flurry of tweets. Institutional investors who lend their shares have reduced their holdings since the start of the year by a third.

Staying with the travel theme, Royal Caribbean Cruises Ltd. has also seen its shares drop to new annual lows which instigated a flurry of tweets. Securities lending data shows that both the long and short sides of the market have been growing bearish in this name since June. Short interest has jumped from 3% to 4.5% and institutional investors have reduced their holdings from annual highs by 15%.

Cracker Barrel Old Country Store Inc. was the most shorted consumer focused stock singled out by the tweeting community. Institutional investors support this sentiment having reduced their total holdings by 18% over the past quarter, although this is a relatively small cap’ company. Short interest stands at 8% of total shares outstanding on loan, representing a quarter of the lendable supply, but in contrast to the tweets, this stock has been subject to short covering over the past quarter.

Retailers

The U.S. Retailers Long Short ratio has fallen by a third since March, with longs outnumbering shorts by only 6 times. Tweets have been circulating on Abercrombie & Fitch, Foot Locker, Aarons Inc., Staples Inc. and Autozone. All have seen an increase in short interest over the past quarter with the exception of Autozone.
Short interest in Autozone has halved to 2% of total shares outstanding after reaching annual highs in April and the share price has been trending upwards over the year reaching new highs. Do these tweets signal something new?

Abercrombie and Fitch Co. was heavily shorted last year and short interest has doubled in the past month to 4% of total shares, but institutional investors have continued to increase their holdings to 28% of the company.
There are a number of Twitter aggregators and we used http://www.tweetdeck.com/for this research in order to use a mainstream platform. Others may want the more investor focused, StockTwits to drill down to investor focused tweets – www.stocktwits.com. The lines separating news, social media and investment decisions based on fundamentals looks set to become increasingly blurred. We will come back to this theme in due course.