Studying news momentum and narratives
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.
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.
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:
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.
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%)
- Elon Musk beat the short sellers and Tesla gained new types of investors along the way, Credit Suisse says — cnbc.com
- Tesla-Heavy $4.6 Billion Actively Managed ETF Has Record Inflows — bloomberg.com
- Tesla Shares Climb Back Above $1,000 on Musk’s Break-Even Email — bloomberg.com
June 30th, TSLA $1079.81 (+7.34%)
- Tesla (TSLA) pushes to new all-time high as Q2 is looking better than expected — electrec.co
- Tesla Overtakes Exxon’s Market Value in Symbolic Energy Shift — bloomberg.com
- Tesla Stock Tops $1,000, Hits Record High on Leaked Email. It Could Join the S&P 500 Soon. — barrons.com
July 1st, TSLA $1119.63 (+3.69%)
- Tesla Is Now the Most Valuable Car Company on Earth — barrons.com
- Tesla becomes most valuable automaker in latest stock rally — reuters.com
- Elon Musk congratulates Tesla employees ahead of Q2 deliveries report-cnbc.com
July 2nd, TSLA $1208.66 (+7.95%)
- Tesla shares soar 9% premarket on stronger-than-expected Q2 deliveries-marketwatch.com
- Tesla shares soar after reporting big beat on second-quarter deliveries — cnbc.com
- Tesla Shines During the Pandemic as Other Automakers Struggle — nytimes.com
July 6th, TSLA $1371.58 (+13.48%) — after July 4th long weekend
- Tesla will have $100 billion in revenue annually by 2025, JMP says — cnbc.com
- Tesla’s stock soars to 4th-straight record as Wall Street’s biggest bear raises price target — marketwatch.com
- Tesla mocks shortsellers with sale of red satin shorts — reuters.com
July 7th, TSLA $1389.86 (+1.33%)
- Tesla Bull Case Raised Above $2,000 a Share at Morgan Stanley — bloomberg.com
- How Tesla Delivered Despite Lockdowns — forbes.com
- Tesla doubters chase surging stock price — foxbusiness.com
July 8th, TSLA $1365.88 (-1.73%)
- Tesla China Sold 14954 Model 3 Vehicles in June, Up 35% on the Month — nytimes.com
- Tesla Gaining Ground Pushes China’s EV Bubble Closer to Bursting — bloomberg.com
- Tesla stock surge ‘completely detached from reality’: Expert — finance.yahoo.com
July 9th, TSLA $1394.28 (+2.08%)
- Musk Says Tesla Is ‘Very Close’ to Developing Fully Autonomous Vehicles — bloomberg.com
- Tesla “very close” to level 5 autonomous driving technology, Musk says — foxbusiness.com
- Tesla ‘very close’ to level 5 autonomous driving technology, Musk says — reuters.com
July 10th, TSLA $1544.65 (+10.78%)
- Tesla’s ‘Battery Day’ event is scheduled for September 22nd — engadget.com
- Elon Musk Soars Past Warren Buffett on Billionaires Ranking — bloomberg.com
- Tesla Short Interest Set to Hit $20 Billion — bloomberg.com
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.
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.
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”.
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.
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!