Wednesday, February 18, 2015

News Sentiment Not As Strong As US Earnings Season Would Suggest

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Earnings Picture

US earnings season is drawing to a close it appears over two thirds of companies that have reported so far have beaten expectations. Subsequently all geopolitical risks seem to have been ignored, apart from in passing conversation, and the S&P 500 has hit an all-time high.

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Well, here’s another angle on earnings season. Figure 1 shows sentiment derived from earnings-related articles is only slightly higher than before earnings season on a three-month view - but it’s still only around the neutral mark and not as high as it was last earnings season. There’s also been a massive drop in our 14-day measure of sentiment in the last two weeks.

Figure 1: US Earnings Relative Sentiment

Tuesday, February 17, 2015

Wal-Mart Sentiment Soft Ahead of 4Q Earnings

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Wal Mart Sentiment Soft Earnings

Sentiment toward Wal-Mart, which reports its Q4 earnings before the bell Thursday, has declined over the quarter, while its share price has seen a $10 move higher. That does not mean a negative earnings surprise, but given consensus is for Q4 EPS near the top-end of the company's $1.46-$1.56 guidance range, caution may be appropriate.

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Figure 1: Wal-Mart Price versus Relative Sentiment

Wednesday, January 21, 2015

Building Profitable Systematic Macro Strategies Using News Sentiment

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Trading Bond Futures and Spreads with Sentiment Analytics Data

RavenPack, in partnership with Saeed Amen at The Thalesians, has just published a paper detailing a profitable systematic macro strategy using news analytics. To date, systematic macro strategies using news sentiment are scarce relative to their equity equivalents. The main reason is a sentiment-based macro strategy is difficult to model and, subsequently, there are fewer providers of macro analytics data.

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In the paper, Saeed overcomes the main problem with sentiment-based macro strategies - that sentiment derived from news about sovereign debt or forex instruments is often backward-looking and lacking a leading signal - by aggregating sentiment data for entities and topics related to an economy as opposed to a specific instrument.

Monday, November 24, 2014

China Sentiment Supported Rate Cut, But Recent Gains Argue For Wait-And-See

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China Sentiment Supported Rate Cut, But Recent Gains Argue For Wait-And-See

China’s interest rate cut last Friday surprised many and continues to dominate business headlines Monday. There were weekend rumours around, which appear in print in this article, that the Chinese authorities are considering further easing and cutting banks’ Reserve Requirement Ratio.

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One has to consider the rumours with scepticism. Logically and in due course, if the rate cut doesn’t result in improved lending rates to corporations, one would imagine the authorities would take further action. As for the story itself, not only does it not say when these cuts may happen and it cites an unnamed source in the Peoples Bank of China - so one doesn’t know whether it’s verbal intervention. It seems counterintuitive the Chinese would not wait to see how the economy reacts to the first (surprise!) cut.

Tuesday, November 18, 2014

Eurozone Sentiment Touching Lows for the Year. UK Weak Too.

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Eurozone Sentiment Touching Lows for the Year. UK Weak Too.

The aftermath of the G20 meetings in Australia over the weekend were not just marked by headlines concerning Russia and the Ukraine but also by the UK Prime Minister returning to London saying global economies faced significant macroeconomic headwinds.

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Cameron mentions many problems - the Eurozone, a slowdown in emerging markets, Ebola, Russia/Ukraine and so on. Given time we could analyse the trend in sentiment to all of these matters, but in this post, let’s just take a look at sentiment toward the major economies.

You’ll see from the attached charts* that sentiment would beg to differ with Mr Cameron on a couple of matters. He appears to be correct, however, on the Eurozone, where the 14-day and 30-day RSIs are back around their lowest for the year.

The first point of difference is that the UK is doing well. We show that relative sentiment is far from healthy. Perhaps Cameron’s critics are right and the UK PM is getting his excuses in early?

But things aren’t all perfume and flowers for Japan and the US either.
RavenPack Regional Relative Strength Indices of Sentiment, week ending Nov 16th

Monday, November 3, 2014

RavenPack Weekly Macro Sentiment Indicators

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RavenPack Weekly Macro Sentiment Indicators

Here are last week´s (ending November 2nd 2014) values of RavenPack's Macro Sentiment Indicators (MSI). They are aggregates of RavenPack News Analytics (RPNA) data giving a proxy for the strength of the world's major economies based on news sentiment. The MSIs are used by systematic and discretionary investors as a directional signal.

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Request a copy of the research behind these indicators.

Note: The one-month measure is an indicator of shorter-term macroeconomic sentiment and the three month measure a longer-term indicator. A score of 50 is neutral and the maximum range is 0 (most negative) to 100 (most positive).
RavenPack Global Macro Sentiment Indicators, top 8 regions, Week Ending November 2nd 2014

Click on any of the following regions to see its sentiment chart:
Note: you may use zoom options & range selector slider available on each chart for convenience

Tuesday, October 28, 2014

Sentiment Abnormality Indicators Improve Returns, Lower Drawdowns on Index Trading

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We are often asked how to aggregate RavenPack data at a country level for macro strategies - like trading indices. My latest research tackles this problem and the results are excellent on the S&P 500.



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Specifically, in my testing dating back to September 2007, I was able to produce news-based strategies that had Information Ratios (IRs) of 1.45 versus a buy-and-hold S&P 500 strategy IR of 0.23 and a pure return-driven model IR of 0.73. I was also able to reduce maximum drawdowns in news-based models by over 70% compared to a buy & hold strategy.