The S&P 500 is up 58 percent from its lowest point last March, the worst of the economic recession seems to be behind us, and even perennial stock market bear Jim Grant is calling for a barn-burner of a recovery, yet predictions of the next stock-market crash are already here. And you can find them on Twitter. Individual traders love to talk stocks on Twitter so much that they have given rise to a whole offshoot service, StockTwits. In fact, some argue that Twitter is becoming a pump-and-dump playground. But it is really no different than the Internet stock boards of old, which mixed honest financial discussion with attempts to manipulate the market with misinformation.
Either way, traders are flocking to Twitter because if there is one area where real-time information is really valuable, it is in trading stocks. The question is, who do you trust and who should you listen to? There are countless stocktwits who are now being joined by more professional prognosticators. One is BAM Investor, which markets its financial model to hedge funds. BAM stands for Behavioral Analysis Of Markets. It uses fractal theory (and the Fibonacci sequence!) to predict emotional mood swings in the market.
About five days ago it predicted that the current stock market rally would crash by 50 percent. It also thinks that Crude Oil is heading down to $56/barrel. But it is bullish on natural gas, predicting a 400% “melt-up”.
Why should anyone listen to these trading tweets? BAM Investor claims that its financial model predicted the crash of crude oil from $147 to $36, the rise in corn and wheat futures from their 2007 lows, and the 400 percent rally in shares of Ford from February to August, 2009.
But as with any financial advice, investors should beware. BAM Investor is simply using Twitter to market its financial model, which you can subscribe to if you are a serious investor. The true test of a financial model is the consistency of its predictions and its accuracy over time. In other words, can you trust it? Is it right more often than it is wrong? It’s putting its predictions out there for anyone to follow and judge for themselves.
If its predictions start making people money, you can expect its number of followers to grow, but that is also a function of press and marketing. What we really need is a service that keeps track of all of these public financial predictions and rates their accuracy so that the smart money can be separated from the twits.
How do we truly know if stocktwits is predicting meltdowns or creating them?
Maybe Natural Gas will go up because of the hype around this company etc
Wow I have no life. I’m the first person to comment on this story…on a Sunday morning
Individual investors have little impact on the true movement of equities or commodities. Most of the real inflows come from hedge/mutual funds that ran to cash when Lehman collapsed and then the mortgage/commercial real estate scare happened again in May. Now a different mentality is taking over, and that is the fear of missing the rally – how do you work psychology and fund allocation percentages into these analyses?
StockTwits is great for following some users, and they are right until they are wrong. That sounds cliche, but those who change bias often, trade frequently, and keep getting it right are the ones to follow.
Stay away from the permabears and permabulls, since they are both too vested and emotional to follow with cash. Personally, I think http://www.stoc...om/u/stockvader is pretty good and has been picking the direction of the S&P futures accurately for the last few weeks. Also, they are one of the few to post daily P&L. I am not the owner of that account, but see who they are following and pick your leaders from that list if you are looking for forex or options trades.
EDIT: March, not May.
Natural Gas is a commodity, not a company.
No one should invest based on stock twits. Fundamentals, especially cash flow statements, for funds, companies, etc. should rule the day if you are investing for long term growth.
oh, brother. actually none of those things mean anything either. randomly pick a bunch of companies – guaranteed they perform at least as well as the ones you “expertly” choose via extensive analysis.
dont feel bad, im here too
My comments about the stock-market crash are quoted on our blogs and also a number of other sites. But to my way of thinking borrowing more can only lead to debt and more debt and less people working means less productivity.
So we need stability and also need to borrow less and be better at financial management than we are and this will not lead us into bankruptcy. So less borrowing and better management is my way. G
I feel the writer got it right here. BAM is yet another company which may get some calls right and some calls wrong. Who are we to judge without further knowledge of the company. Look at the # of investors (albeit young) that follow Cramer. Point made. It is up to the individual investor whether the they follow or not.
PS And the thought that *tweets* could push up the price of nat gas is so ludicrous it boggles the mind. Ask government sachs, they’ll tell ya.
Yeah yeah yeah already know whats coming. The same thing happened during the Great Depression. Though I think Obama’s stimulus may have solved it or at least delayed it. Wrote a little something on this 6 months ago at http://www.2009depression.com
J
Interesting article. this does sound a lot like the message boards of yesteryear.
smart investors should be weary of stock twits. anyone without a reputation can be twitting.
http://www.traderbots.com/
omg leo, i can’t believe you troll your site here. c’mon now.
Will this be a self-fulfilling prophecy if they have a lot of followers and everyone gets scared? This could also happen if their story gets picked by a large powerful tech blog (oops!).
My bet there is soon a #facebook stock!
If we really cared about getting people back to work, we’d shorten the work week.
Years of productivity gains mean fewer people employed. Seems simple enough.
The more certain the predictions, the less valuable they are, because those predictions would be directly reflected in a shares value.
Right now it’s a gamble of who to believe and who not to believe. The risk involved is why there’s money to be earned (and lost). If one would have a perfect way of predicting the market, why on earth would they share it with anybody.
This is all about speculation, and I think we all know what that has been doing to the US lately. Let’s all focus on innovating, or at least at investing in promising innovation earlier than others.
We understand the skepticism but we’re simply trying to help people avoid losing more of their hard-earned money.
I do invest my money in the very same forecasts and ideas we pass along to paying clients in fact, I have friends and family that follow the model as well.
Keep in mind that we’re sharing the predictions of our model and NOT the model (code) itself. If we can help people why wouldn’t we?
Once you’ve been around awhile you come to learn that it’s not all about the money. It’s easy enough to make money in the markets as long as you’re not greedy– so why not help others.
This is going to be an interesting experiment but I think we’ll change a few minds when it’s over.
well if they are sure about there own analysis then they wouldn’t be trying to make money via providing analysis but by investing as i doubt there so called analysis providing service could give better returns.
And this is why real traders like me laugh at articles like this.
FYI-no serious trader is going to rely on twitter….trust me on that one.
I completely agree with you. stocktwits is just not reliable and should not be taken into account for “predicting” the future of the market.
expect it doesn’t sound like this really has much of anything to do with stock twits. this is really about a company advertising its market model through twitter.
I am hearing “It uses fractal theory”. For those interested there is a Facebook group about fractals and finance at this address : http://www.face...gid=53108760302 .
There is a reason 90% of mutual funds don’t beat the market index: markets can not be reduced to algorithms…even if it is the Fibonacci sequence. Behavioral finance is definitely a growing field, but only in its reliance on qualitative observation rather than reducing psychological/sociological behavior into a dynamic quantitative formula.
Anyone who has taken Finance 101 has heard of the EMH – Efficient Market Hypothesis. There is no way of exposing a profitable opportunity as long as the rest of the market has access to the same information. Of course, thats not the type of customer BAM is looking for.
agreed. and actually, NO mutual funds outperform the market index consistently over the long-term.
fractals || fibonacci = snakeoil
I’m hoping to change your mind about that. We’ll soon find out. Good luck in your investing whether you choose to follow us or not.
in the baminvestor.com’s blog you can see articles as old as march 2007, but the domain name was registered on 16-0ctober-2008.
The “articles” you see on the blog are portions of the original weekly reports my large hedge fund clients received in real-time.
I’ve been using the BAM model to provide predictions since 2005 under “BAM Report” and we simply posted those calls to the new BAM Investor blog so that individual investors would have an opportunity to view our track record during the past few years.
Nothing sinister going on here, our motivation is in helping individual investors by “leveling the playing field” with respect to market timing predictions.
Hopefully we’ll be able to help the individual investor over the next few weeks.
The pressure is on and there’s no place to hide…just the way we like it!
it’s only a prediction if they provide a date. are they talking next week? next year? 30 years out? otherwise, it’s just an eventual fact.
I find it odd that they present 4 cases were their model was accurate but don’t present the hundreds of bad reading their model has made.
hey, you’ve got some very talented devs on board doing stuff like crunchbase – why not build your own tool to rate the financial market forecasters like this? people would pay MONEY for the tool, imho, if it works…
useless article.
Analyzing the performance of market and stock predictions by a person, group or company is exactly what KaChing.com allows. Users show their entire portfolios and historical performances to the world letting people see their previous success. It’s a pretty cool way to let people’s market intelligence be put to the test.
The greatest investor of our era (Buffett) put it succinctly when he said, “Beware of geeks bearing formulas.” Don’t believe this BAM Stocks stuff unless you’re a trader, not an investor.
half way through October and stock markets are on their highs as I talk and a 600 point Dow rally since the begining of October. So your predicion is not working out too well so far. Interesting read though.