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Divining the stock market's next move--on Twitter!

My first reaction to using Twitter to divine the market's next move was, You've got to be kidding? My second thought was, What if there is something to this?

Well, Barry Ritholtz, money manager and brains behind the Big Picture blog takes a closer--but still skeptical--look.

Investors staked the Derwent Absolute Return Fund with some $39 milion and its investing model relies on following posts on Twitter for "tracking emotionally significant words to anticipate the market's next jag up or down," says Ritholz. He notes that a recent study concluded it was a viable approach. Maybe.

However, before I jump into this with both feet, I do have some reservations. The sample set of a few short months of Twitter vs the Dow is way small -- the research measured the public mood by searching Twitter posts from February to December 2008 for synonyms of and language related to six moods: calm, alert, sure, vital, kind and happy.
That period in 2008 incorporating the collapse of Bear Stearns and the September market collapse was not exactly typical. Indeed, the monkeys were unusually agitated during this time. This model will need to prove itself during periods of normal volatility and sentiment.

I remain more than a bit skeptical, but it's worth keeping an eye on.

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About the author

Chris Farrell is the economics editor of Marketplace Money.

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