Interesting Read: Sentiment and Market Predictions vs. Reality

An article exploring why bull market predictions are so often wrong was recently posted to Medium. The article begins by showing how popular Reddit headlines which evoke optimist sentiment in the Bitcoin market often correlate to the opposite — The drastic fall of Bitcoin’s price and market cap.

Ironically, bullish headlines littered the front cover of Reddit all through Bitcoin’s collapse. The concept of bloggers being wrong about market outlooks is nothing new, but I would definitely recommend reading this article, as it explains some of the disconnect between news headlines and actual stock market behavior. It’s also pretty useful, as the logic used by the author could just as easily be used to explain why Bear Market predictions are wrong — it’s the same concepts of extrapolation bias and probability neglect.
This is interesting to me, knowing that earlier in the year, I considered using online sentiment as a viable method for generating market projections. I also see this and think about all the noise in stock market data, and wonder how much of this noise comes from naive investors following bullish/bearish headlines like the ones above. With all of this in mind, I wonder how hedge funds like Periscope Capital Inc. rely so heavily on sentiment analysis when creating their portfolios.
Another interesting note is on the Eureka Hedge Fund Index, which is starting to dip after rising steadily for the past seven years:

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