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Predicting stock market changes? 3 Lessons Learnt from the GameStop Saga

How can market players gain an information edge in times of such wildly coordinated online actions by millions of investors? We share their top 3 insights.

21 Apr 2021 – Market Insights

“$GME GO BRRR,” blared a digital ad on New York’s Times Square. That wasn’t a message funded by a company or a brand.

It was a billboard by a community of retail investors on Reddit.

It was a sign — literally and figuratively — of the times; this was going to be a new age of investing.

Since January 2020, GameStop (GME) stock price has been extremely volatile. And such volatility is strongly correlated with the retail investor's confidence toward the stock. The sudden rise and fall has caused several shocks for the stock market and retail investors. The trend continues and extends to many other stocks. How can market players stay on top of such wildly coordinated online actions by millions of investors?

Although GME action gathered confidence around September 2020, the initial idea behind this rally was shared back in September 2019 by DFV, a frequent user in the r/wallstreetbets subreddit. This is a growing community of 8.8 million users where trade and investment ideas are shared. WallStreetBets created massive amplification (a Google Trends report showed that it captured 30% of the online news and social media conversations). Between Oct and January, the insight engine, Wissee, noted the increasing build-up of online influencer activity.

Could any one foresee this recent market flare-up? Were their signs from investor sentiments that we could read?

Using Wissee, we observed that the confidence score spiked in early January, several weeks before the mainstream news channels caught the trend. How could Wissee’s team deliver this early insight? Let us take a look at the 3 important trends that investors today cannot undermine.

Stock prices and Wissee’s Investor Confidence Index are correlated

The rising power of amateur market players, or retail investor, and their online communities

Recently, markets have seen the rise of online apps and social media platforms; that momentum empowered online users to act quickly. These online users are amateur market actors, or retail investors, have taken on work traditionally done by financial advisers, analysts, and educators. They are seeking greater financial education online and increasing their buying power. Both of those factors are driving community action online through the easy access to real-time financial information and investment advice. They are also utilizing trading apps like RobinhoodBetterment and others that offer low fee options to manage their individual portfolios. They enable investors to actively manage their funds from their own devices, a trend that has strengthened during the COVID-19 pandemic.

The emerging impact of the key financial influencers

There’s no doubt that individuals and online communities are becoming savvier about investing. But how do they become so influential? This democratization of investors fuels the growing power of key financial influencers. When they get together, they wield strong influence in the retail investors’ decision-making process. Their sphere of influence can vary from millions (mega and macro-influencers) to thousands (micro-influencers). They meet online to discuss and exchange information in real-time. We see them on Reddit forums (r/investing has 1.8 million users as of date) and following YouTube channels (Roaring Kitty has 521K followers).

The power of convergence which initiates the moment of lift

The sudden and unprecedented market action is caused by what Mark Nepocalls the ‘moment of lift’. In the world of social media, some discussions ‘trend’ for a while. Then, new conversation threads emerge. When influencers with large impact and a sphere of influence emerge to push these discussions further, there is a surge in market sentiment. This multiplicative power of convergence drives the moment of lift, where discussion turns into collective market action.

Now that we know what we know, how do we use this model to help us stay in the game and more importantly win the game? For players in the financial market, an in-depth understanding of what the retail investors and the market forces are talking about is critical. To do that, they need to keep a tab on how such trends change in real-time. It’s hard to track the thousands of online discussions — from blogs to social media threads.

With the power of machine learning and Neuro-linguistic programming (NLP), we now have access to deeper insights into influencer conversations which, as we’ve seen with GameStop. It is quite literally (and figuratively) changing the game.

Will Dogecoin be the next GameStop? Only time will tell, but keep an eye on the Wissee Influence Index to stay ahead of the game.

Wissee has built a proprietary investor confidence score that helps you identify the trending stocks, monitor stocks sentiment, and detect abnormal activities. Experience it here