Companies generally like reaching milestones, but as investors in Alibaba (BABA) are finding out, reaching new all time lows in stock price is one of the exceptions. It’s not just the stock price which is falling, interest from US-based investors is waning as well. The following graph plots Alibaba’s share price against weekly search volume from the United States for it’s stock symbol BABA. Both are at all time lows:
We have seen in the past that search volume can be important in analyzing both the level of prices and their volatility. The next chart plots the relationship between search volume and volatility for BABA:Momentum is a powerful force in finance, and it moves in both directions. This is especially the case in companies that rely heavily on network effects like most internet companies (see our piece on shorting Facebook). When steadily declining price combines with declining fundamentals it can lead to a reversal in the effect of momentum: the same force that propelled valuations upward can now drive them down.
A reliance on network effects is a fundamental characteristic of many tech firms. Oftentimes we find it valuable to identify falling trends using search data, but we can also identify expanding phenomena as well. When momentum fades in one corner of the tech universe, it leaks into another part in a sort of financial preservation of momentum. Right now we are tracking the Financial Technology, or FinTech space very closely, as data indicates it is in the beginning of an uptrend:
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