Studying news momentum and narratives

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Photo by Nick Jones on Unsplash

Hello again.

In this post, we want to focus on News momentum and narratives: How narratives form in preparation for a big move. We will see with examples how those narratives are sustained until they fade out or stabilize to a new equilibrium. This idea has been described in Narrative Economics book by Robert Shiller, where he tries to set a foundation on narrative economics and show how stories go viral and can drive major economic events.

In our case though, we’ll attempt to study how news momentum and narratives in daily news can drive stock prices up or down in a short period of time.

This post is a continuation of our series of posts about Investing + Deep Learning. Feel free to have a look in our previous post about Uncertainty, news and volatility.

For our case stydy, we’ll focus on electric car companies’ stocks. They have been wild lately in terms of volatility. Tesla, NIO and now a new player in the game receiving some traction from investors, Nikola.

Let’s focus on Tesla in this post and see what kind of news or events might have affected TSLA volatility during the last 1 month (June 15th — July 15th).

Let’s get started with a few charts for context and follow the TSLA narrative.

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TSLA price for last 1month
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TSLA percentage change for last 1 month — QQQ movement for comparison

TSLA moved more than +50% between June 15th and July 15th. Impressive. That means it increased its market cap by 50% in 1 month. To be more precise though, TSLA was flat around~$1000 between June 15th and June 29th, but then suddenly it skyrocketed to > $1500 in the following 2 weeks. Obviously, something must have happened, some narrative began to form that lasted for 2 weeks.

Let’s have a look at how we classified news headlines during that period for Tesla:

News coverage for TSLA for last month, classified in categories
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News sentiment classification for TSLA for last month

Sentiment was mostly positive. We can see a spike on June 25th on negative articles, it appears this was mostly due to some bad news coverage about Tesla autopilot confusing Burger King for stop sign, about Tesla ranking last in JD power quality survey and about reports that Tesla fired some employees.

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Some negative sentiment news coverage for TSLA on June 25th
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Some negative sentiment news coverage for TSLA on June 25th (continued)
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Some negative sentiment news coverage for TSLA on June 25th (continued)

But all those news were history, starting June 29th when Tesla’s rally started. We can see how positive sentiment started forming slowly starting June 29th, and then how stock news started appearing praising Tesla’s rise keeping the momentum and the positive narrative. What happened and what kind of news drove this surge?

Let’s take a closer look and try to pick the most important ones (we’ll limit to 3 per day).

The TSLA 10 day journey — revisited in News headlines

June 29th, TSLA $1009.35 (+5.17%)

June 30th, TSLA $1079.81 (+7.34%)

July 1st, TSLA $1119.63 (+3.69%)

July 2nd, TSLA $1208.66 (+7.95%)

July 6th, TSLA $1371.58 (+13.48%) — after July 4th long weekend

July 7th, TSLA $1389.86 (+1.33%)

July 8th, TSLA $1365.88 (-1.73%)

July 9th, TSLA $1394.28 (+2.08%)

July 10th, TSLA $1544.65 (+10.78%)

For the record, TSLA briefly reached ~$1800 on July 13th at 9:46am ET just to get back to ~$1500 gradually after 6 hours. In below chart we can see how stock price moved on that day: Orange dots are articles published during that day related to Tesla.

TSLA on July 13th

Tesla, as we can see in below graph, has been very volatile during market hours as well, which means that moves didn’t just happen pre-market or after market hours.

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Market Hours movements for TSLA for last month (June 15th — July 15th). Blue line is the latest market session. Thick purple line is the average. Faded out lines belong further to the past.

It was a wild 10 day period, and we saw how momentum was built until it stabilized to a new level around $1500 (for the moment at least). News coverage was a key part to build the momentum and drive this. After a specific point, Tesla was named the most valuable automaker in the world and promised level 5 autonomous driving, while mocking short-shellers!

If we go back to the News Sentiment classification chart, we can see another spike of negative sentiment news headlines on July 14th, after the TSLA stock rally. This was related to “German court bans Tesla ads claiming its cars are capable of autonomous driving”.

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Negative sentiment news on July 14th for TSLA

Will this be enough to put a temporary hold to Tesla’s fully autonomous driving narrative? We’ll have to wait and see.

And that concludes our short 10-day replay of Tesla history! It’s always fun to go back in time and re-live history day to day!

That being said, let’s see how our stock price forecasting performed during that period for TSLA. We started slowly catching the uptrend on July 3rd, and we got pretty accurate on July 6th and onwards. Not bad for such a volatile period.

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Predicto forecasts for TSLA on July 3rd (left) and July 6th (right)

We use an ensemble of statistical and Deep Learning models to generate forecasts daily with focus on top Nasdaq companies. Our forecasts are based on complex technical indicators, options data and news analytics. We’ll have a detailed post about our forecasting approach and signals soon.

For more details, you can have a look at https://predic.to/.

Thank you for reading and stay tuned for our next post!

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Web https://predic.to — Twitter @ThePredicto — GitHub ThePredicto

Fully Autonomous AI for Short-Term Stock Trading based on News and Options Data. Powered by explainable Deep Learning models. https://predic.to

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