Global Markets Continue to Recover. Despite US-China Tension
The global stock indices ended higher despite US-China tension, Job loss claims and many. But the investor confidence was boosted by the partial lifting of restrictions, gradual reopening of local & global economy and a steady decline in daily new COVID- 19 deaths and infections.
The major US Indices ended positively with an average of around 3%. Financial and industrials sectors outperformed. The European equity indices show a sharp weekly gain of an average of about 5% specifically for France and Germany thanks to a proposed Euro 750 billion recovery fund by the European Commission.
The Japan, Australia, Korea, and India equity indices from the APAC region outperformed US markets with the lifting of restrictions and the reopening of domestic economies. China imposed a new security law against Hong Kong restrict the momentum in the market and keeps in marginal gain.
The market expected to rally on positive sentiment and data such as the gradual reopening of domestic and international global activities in the coming weeks. The below table illustrates the weekly changes for major global indices. However, the outcome of critical economic data, including the ISM PMI on Monday, Service PMI and the job rate may reverse the market expectations.
The Markets are mostly drive-by emotions which creates cyclical movement in the market. The better understanding of the cyclical price patterns can generate a better alpha.
There are several tools such as technical analysis, macroeconomic indicators, and fundamental analysis techniques to identify the trends in the past prices and forecast the future cost based on the historical data.
However, these methods are not much more useful due to the lack of current day to day events. Adding news-based sentiment into the existing traditional techniques and ML/Deep Learning tools improve the forecasting power of investment model and improve the models.
News Sentiment Trend:
The news sentiment data can approach several ways to make better use of it. I have used daily sentiment data for this analysis which scaled between the range of 1 to 10. The score above five considered as positive, and the score below five regarded as the negative sentiment.
By averaging the past seven days of daily sentiment score can identify the sentiment trend. But during the worst periods, even a small amount of negative news of followed by a significant impact like COVID-19 like crisis will reduce the panic situation and helps to move the market into true positive and vice versa.
I am using this sentiment trend as a leading indicator to predict the future direction of each market. I strongly recommend you use this indicator as an additional overlay for your models instead of solely depends on the sentiment trend.
The below outputs showing the sentiment for both APAC and US indices where despite US-China Tension trends remains bullish or neutral for next week, whereas the Europe Indices are clearly bearish.
Buy Sell Signals
The above buy/sell signals are generated based on InfoTrie’s proprietary Investment/ Trading models. The models developed with a combination of technical, fundamental, quantitative techniques and primarily the InfoTrie’s news based sentiment score as an additional overlay.
The news sentiment score provides a significant improvement, significant “alpha” compared to the traditional investment/trading models. For more details on the analysis, accessing complete Tearsheets or white paper for the models, Subscription details for News Sentiment data and other consulting works, please contact us with the information provided below.