This report will be analysing Square’s stock from the week commencing 21st June 2021 through to 8th July 2021. This will be done using StockGeist.ai, a platform that determines the sentiment towards a stock in real-time through market sentiment indicators, by applying natural language processing to the latest news updates and social media posts. All times given are in GMT+0.
Company Overview of Square
Square Inc. (NYSE: SQ) was founded in 2009 and is headquartered in San Francisco, California. It provides hardware and software payments technology for both business and consumer markets. Square’s key products include point of sale terminals such as the Square Reader, Terminal and Stand, as well as the person-to-person money transfer service Cash App, which is its largest revenue source. It faces competition from PayPal, Mastercard and Visa and over the past year has grown significantly faster than its rivals.
Historical Analysis: 2020 and Early 2021
Historical Analysis: 2020 and Early 2021
Performance in 2020: Following a convoluted stock performance from the previous year, Square stock had a strong start to 2020. The share price saw consistent growth through to mid-February, totalling around 39%. With quarantine arrangements announced, a market sell-off resulted in the share price falling from around $82 to $34 between 2nd March to 18th March, as the markets reacted to the declining use of Seller’s, Square’s subsidiary, point of sale products. The markets resurged on 3rd April. Another significant drop occurred and lasted throughout September, following a broad sell from tech-sector investors. The strong recovery out of this dip lasted until mid-October, with a bearish trend seeing the company through to November. Square’s stock recovered and reached a new high of $243 per share in the penultimate week of trading, delivering a 252% increase since the start of the year.
Performance in 2021: From the start of 2021 to mid-February, there was a 24% rise (from $221.54 to $275.63) in the share price. Aside from wider market optimism, its surge during January – in particular – may be viably attributed to Bitcoin soaring above $40,000, with the company profiting from Bitcoin-based transactions on Cash App, as well as the existence of the cryptocurrency on its balance sheet. This was improved in early February, with Tesla’s announcement of their January spending on $1.5bn in Bitcoin driving up its demand and price.
However, this surge in value was followed by a downturn between 19th February and 8th March which returned the share price back to its levels at the tail-end of January. Considering the timing of this reversal, it can largely be attributed to a post-earnings sell-off with soaring revenues not satiating the appetites of investors. Brief technical analysis shows that the stock was notably overvalued during its surge in February, with SQ’s relative strength index (RSI) reaching up to 74, suggesting an overbought condition.
The remainder of March saw a relatively minor rise in the share price, followed by a restorative fall before the month was rounded out by the beginning of a surge that echoed performance seen in February. This saw the stock through a 30.2% appreciation (from $211.94 to $276.04) between 31st March and 14th April. Possible causes of this spike in value may include the banking charter approved for Square Financial Services, or Square Inc.’s acquisition of entertainment platform Tidal, raising hopes about the company enhancing its presence in the events industry.
However, beyond mid-April, the share price fell by 30.4% at almost the same speed it had risen, reaching close to its lowest this year on 19th May. The start of the plummet coincides with the stock nearing overbought status, with its RSI closing in on the traditional threshold value of 70 points. The end of this pullback saw a transition into a more stable bullish period, whereby the share price gradually rose by 22.9% between 19th May and 22nd June. One potential catalyst for this correction may be the gradual easing of lockdown restrictions, allowing the company to benefit from increased usage of its Seller ecosystem in brick and mortar store locations. This is in combination with Square’s investment in eco-friendly Bitcoin mining, in order to assuage concerns brought about by Elon Musk’s refusal to accept the cryptocurrency due to the involvement of fossil fuels in its extraction.
Recent Analysis: 6th-8th July 2021
Square stock had a good start to the period outlined above, opening 0.23 points above the last close prior to the Fourth of July Weekend. This upward movement maintained its momentum for a few hours up until 14:15, where a more bearish trend was observed. Despite this, it never broke the $242 support level, with the value of the stock able to recover, closing at $248 (a 2.9% overall increase). The stock’s RSI value soared to new heights of above 80, indicating a dangerous level of overbuying during early trading, which led to the opening price on the 7th highly exceeding the close on the 6th. It is possible that this was caused by the announcement of Square opening merchant payment processing solutions in France, broadening its European focus. This surge was purged in a sell-off that affected the majority of key growth stocks, resulting in the share price falling 2.2% over the course of market hours. Poor performance for the stock persisted through to the end of the period between the 6th and 8th July, with its high volatility proving a curse for short term investors who faced a further 1.3% downturn for the day.
Accuracy Test
Methodology
Using StockGeist’s sentiment data displayed above, different thresholds were identified to determine whether each hour-long period has a ‘large’ amount of positive or negative messages, by comparing each to the largest of the two other categories. A percentage was then calculated to determine how often the value of the stock would fluctuate under the noted threshold. The average hourly price change for that threshold was also calculated, by subtracting the opening price from the closing price. For example, when there were 50% fewer (0.5x) negative informative messages than negative or neutral messages (the larger of the two), the share price would decrease by 0.47% on average.
Results and Reflections
The accuracy test indicates the existence of a correlation between the relative number of positive/negative messages and the value of the stock. Informative messages in particular show a stronger correlation; for example, a threshold of 1.5x (50% more) informative positive messages gave an average hourly price increase of no less than 1.44%, with 100% accuracy for this period of trading. Despite this, emotional messages and their sentiment data clearly displayed considerable correlation with the average fluctuation of share price, perhaps displaying the heightened role of social media in the stock market and the growing popularity of recreational trading. While the informative positive messages may not have been entirely accurate in determining increases in Square’s share price (see the 1.1x threshold), it is important to remember that this data works best in conjunction with the additional information provided by StockGeist, such as fundamental metrics, the word cloud and stock rankings (with Square in 9th place).
Outlook
At the moment, SQ Inc’s stock price constantly fluctuates, in part caused by its Bitcoin-heavy balance sheet, as well as incoherent easing of quarantine measures altering demand for Seller’s point-of-sale products. Square’s market cap already exceeds $100bn and many expect this to continue climbing, with room to expand its promising banking ecosystem throughout the entirety of the EU and further ashore. While this is all uncertain, this analysis has indicated StockGeist as a useful trader sentiment tool in understanding the market sentiment in real-time, along with which direction the stock is likely to take.
Try the tool for yourself in real time to make use of the various stock sentiment features on offer for that competitive edge over other traders. You can also incorporate our data into your very own project using our incorporate our stock news sentiment API.
