Tapping social media to track stocks

For better or worse, the buzz on social media could be your guide to when and how to trade stocks.

Since last summer, Derwent Capital Markets has been using Twitter sentiment to help drive its hedge fund, as its algorithms sort out the ups and downs of people's chatter on the social network.

Now, according to a report on The Next Web, Derwent is ready to share with you. TNW says in a story this morning that the firm is ready to launch in late summer both an app and a browser-based service to help the wider world of investors keep tabs on "global social media sentiment around any stock, commodity or currency in real-time."

We've reached out to London-based Derwent to get further information about the service.

Now, whether you think this is a smart idea is, of course, up to you. Is Twitter sentiment really smarter than your own analysis or more reliable than your own gut feeling?

Consider the example of last Friday's big Facebook IPO. One crowdsourced site, Facebookipodayclosingprice.com, optimistically forecast a closing price of $54, based on 2,251 predictions on Twitter. That turned out to be way off -- the stock closed that day at $38.23 (only 26 people predicted a closing price of $38).

On the other hand, the social media data platform DataSift seemed to do pretty well with the signals it was picking up. According to TechCrunch, "every time the volume of negative chatter on Twitter increased, Facebook's stock price dropped within 20 minutes."

(courtesy:cnet.com)