Download Sentiment Analysis and Earnings

Sentiment Analysis and Earnings
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What is Sentiment Analysis
1. What Does Market Sentiment Mean?
The feeling or tone of a market (i.e. crowd psychology). It is shown
by the activity and price movement of securities.
(http://www.investopedia.com/terms/m/marketsentiment.asp )
2. How do you measure sentiment?
3. How do you use the information?
How Do You Measure Sentiment?
1. Put/Call Ratios
2. VIX
3. General Market Conditions
4. World Events
5. Common Sense
Put / Call Ratios
1. CBOE posts put/call ratios at the end of every week of trading
(http://www.cboe.com/data/PutCallRatio.aspx ).
2. The posted number is reflective of the number of long puts ordered
for every long call ordered (not every order is filled).
3. A number less than 1.0 reflects fewer put orders than call orders
and a number above 1.0 reflects more put orders than call orders.
4. A ratio of .85 is considered neutral sentiment because more people
understand and use long calls and it is expected that there will be
more orders for them.
Put / Call Ratios
1. This period of time was relatively
neutral on directional sentiment.
2. The sentiment on these days was
quite bearish.
3. Sentiment on these days leaned
bullish.
4. As with many indicators in the
market this is only one indicator,
and needs to be put into context of
“the Big Picture”.
Company Sentiment
Notice the number of long call orders are significantly
higher than the long put orders at the same strike price.
This represents short or near term bullish sentiment.
Company Sentiment
Notice the number of long call orders are higher than
the long put orders at the same strike price. This
represents medium term bullish sentiment.
Company Sentiment
Notice the number of long put orders are higher than
the long call orders at the same strike price. This
represents long term bearish sentiment.
The VIX
The VIX
General Market Conditions
When you are looking at technical indicators such as the 5/20 day EMA
or the RSI or MACD to see if a stock is moving bearish or bullish, look at
the same indicators on the indexes. Don’t ever forget that even though
the DOW Jones Industrial Average only measures the 30 largest
companies in the US, 85% of all publically traded companies follow its
lead. If the DOW gives bearish technicals the company you are trading
has an 85% chance of following. So if you are trading a stock in the
opposite direction of the general market make sure you have very good
reason to do so.
World Events
War; hurricanes; political contests – all of these things can have an
effect on what the markets will do. While you don’t have to be a news
junkie, you do have to pay attention to what is going on around you and
place your positions accordingly. News events will often times only
effect a stock’s short term movement, but bigger global events like wars
and tsunamis can put major pressure on the stock market.
Earnings
We only know three things about any company we trade:
1. We don’t know anything at all about what direction the
price of the stock will go.
2. We do know when the next earnings event is.
3. We know that earnings events are the most likely thing
to change the direction of a stock.
A Typical Earnings Report
1. Report on Total Sales
2. Report on Profit
3. Earnings Per Share
4. Revenue Per Share
5. Guidance Statement (Outlook)
Analysts and Analysts Expectations
What Does Analyst Expectation Mean?
A report issued by an individual analyst, investment bank or financial
services company indicating how a particular company's stock will
perform in the coming quarter. Analysts provide guidance as to how
they expect a company to perform. This is typically a range of values
that a particular variable is expected to fall between. If a stock performs
better than what analysts expected, it is considered to have "beat
expectations" or delivered stronger-than-expected results.
A Typical Earnings Report