Social buzz and sentiment extremes

Not every stock was enjoying the rally that unfolded the day after the Fed’s first rate cut since 2020. And several of them appeared on Thursday’s scan for stocks with the most negative social media buzz, including Progyny (PGNY)—right at the top:

It wasn’t difficult to find out why PGNY, a health care company that specializes in fertility benefits, was experiencing such negativity in the social media universe. Shares sold off sharply in early trading after reports the company had lost a client responsible for 12% of the firm’s first-half revenue.¹ That type of news can generate a great deal of negative chatter.

Overall, 2024 hasn’t been particularly kind to PGNY shares, which are down roughly 55% for the year. The stock gapped lower after its past two earnings announcements, while yesterday’s sell-off dropped the stock as much as 43% intraday, to $13.93—it’s lowest low since its first day of trading nearly five years ago:

While a stock losing nearly half its value in a single day amid highly negative social sentiment seems to present a clearly bearish picture, some traders may have noticed a couple of interesting details about yesterday’s activity. First, the stock rebounded into the upper half of the day’s range fairly soon after hitting its intraday low, which means at least some traders may have thought the initial move may have been overdone.

Second, even though PGNY’s volume topped 12 million shares roughly halfway through the day (nearly 10 times its daily average), the stock didn’t appear on any LiveAction scans for unusual options activity. Stocks that drop more than 40% intraday will often pop up on these scans, especially the ones for elevated put trading.

Many longtime traders track sentiment because they know extreme negativity or positivity can be a contrarian signal. This is far from being universal, but sometimes when things look like they couldn’t get any more bearish or bullish, it’s because they can’t. While it’s impossible to make such calls in real time, it can be worthwhile to keep tabs on sentiment extremes to see if other factors, such as unusual options activity, implied volatility, and short-term price action, suggest a move may be reaching a tipping point.

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¹ Barron’s. Progyny Stock Sinks Over 40% After Losing a Big Client. Why Wall Street Still Likes the Stock. 9/19/24.