After reviewing Google search trends, Bernstein analysts Oswald Clint and Mark Tabrett have made the determination that oil markets are rife with short-termism. The analysts look at Google search results to draw conclusions regarding a number of oil market trends. Is using Google search analysis or considering social media such as Twitter a valid method to drive investment analysis?
Searches for supply related Oil searches demonstrates short-termism
Shortly after oil prices started to fall, fundamental investors began searching for solutions. Google trend analysis reveals queries for oil inventories and rig counts picked up and steadily increased since. While supply concerns were well noted, demand-related searches were tempered by comparison.
Searches regarding where a floor might be put in materialized through “breakeven costs” which spiked in the late 2014 period and have remained volatile.
Bernstein says the fact searches favored supply-related searches over demand is indicative of a bias towards short-termism.
Oil traders might focus on searches for car types, where electric cars have fallen out of favor to gas guzzling vehicles. Further, investors might focus on demand searches in China and India to provide clues as to explain the price of oil. But those searches are generally muted.
Global inventories remain a popular topic of search interest, Bernstein notes an inverted correlation. Inventory moves either way in Google trends have caused large inverse price moves. In the short term, Bernstein anticipates this trend to continue.
Are Search engine and social media analysis valid methods for inclusion in investment analysis?
The validity of using search engines and social media to assist in financial analysis and stock picking has an interesting history. In the case of the Bernstein report, a search of Bloomberg Terminal users might have resulted in a more institutional result.
Other researchers continue to claim online activities can yield significant results. University of California Riverside professor Vagelis Hrisitdis beat the Dow Jones Industrial Average in a short four-month study.
Sentifi is a firm that monitors online voices and ranks them to various degrees. “In our experience, it is fundamental to classify the sources in order to relate social media and other online conversations to financial forecasting,” said Dr. Anders Bally, Sentifi CEO. The company expects to have 100 million online voices ranked and actively monitored by 2018.
Some disagree with the approach. “The first thing that comes to mind when we talk about social media for traders is definitely Twitter. I would say that Twitter may be useful as a stock screener or news search, but when it comes to trade ideas, I don’t think it’s a valuable tool,” said Kate Kurbanova, head of analytics at crowdsourcing firm Cindicator.