The month of October ended last Saturday October 31, 2009. As many people analyze the performance of securities for the month, I’d like to look at sentiment and change in sentiment for the technology sector.
Sentiment is a measure of how people feel a stock will perform and is captured by a voting mechanism that indicates a strong buy, buy, neutral, sell, and strong sell. The value of sentiment is based on the ‘Wisdom of Crowds’ where the many will in most cases make better decisions than the individual. Higher sentiment stocks are considered higher quality stocks, while lower sentiment stocks are considered lower quality stocks.
Voting Mechanism for Capturing Sentiment
While overall sentiment is effective in defining the quality of a stock, change in sentiment provides a timing mechanism to understand underlying changes in a security potentially ahead of a price move. For example, a large increase in sentiment should be seen as positive even though the underlying stock has a low absolute sentiment.
For this analysis, we will use sentiment generated by the web application, Piqqem. Piqqem captures, processes, and displays sentiment results by allowing its users to vote on the price direction of a stock and then applies its own propriety factors to calculate sentiment for a security. In their model, 0 is the lowest and 4 is the highest sentiment.
October Sentiment for Technology
The above chart shows Apple’s current sentiment leading the group as of 10/31/09 at a stellar 3.11 with Microsoft’s sentiment at 2.27 and bringing up the rear. Google, Intel, Cisco, Amazon and HP all came in with respectable sentiment results above 2.5. But how did sentiment change for this group?
Q3 Change in Sentiment – Google, Amazon, and Apple are the Winners
The change in October sentiment for these seven securities shows a strong upward bias for Google, Amazon, and Apple, a neutral bias for Cisco and Intel, and a downward bias for HP and Microsoft. The sentiment moves for Google, Amazon, and Apple were tied to exceeding earnings expectations with Google and Apple’s sentiment moving ahead of their earnings release, while Amazon’s sentiment moved after their earnings release. Changes in sentiment can be an early warning system for the underlying security.
Overall this group slightly under performed for the quarter. Sentiment for the S&P 500 was up 3%, while this technology group gained on average 1% in sentiment.
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