I haven’t had any interest in even dabbling on the long side of the social media stocks for the better part of the past two months, but on Tuesday, Twitter (TWTR) stock made me sit up in my chair.
Tuesday was a generally wild day for stocks. While the market opened higher on the day, it quickly reversed lower on news that Ukraine was using troops to fight Russian insurgents. But just as some stop levels were triggered and the bears began to growl even louder, we got a sharp bounce that rallied most indices, sectors and groups right into the close. The bullish reversal day was led by utilities and energy stocks, but the various beaten-down tech groups (including Twitter stock) and even biotechnology stocks also saw promising bullish reversals.
The price action of TWTR stock in particular was something to behold.
A pair of headlines led Twitter stock higher. For one, TWTR agreed to purchase Gnip, a provider of real-time and historical data for many social sharing platforms, including Twitter and Tumblr. Additionally, TWTR announced that it had hired former Google (GOOG) executive Daniel Graf to be its new vice president of consumer products. Graf was an executive in Google’s much-vaunted mapping unit.
The final tally? Twitter stock surged more than 11% in one of its strongest rallies since TWTR went public last November.
Prior to Tuesday’s rally, TWTR had declined for eight weeks straight. Coming into Tuesday, shares sat just about 35% lower year-to-date. As a result, Twitter stock had also retested its November 2013 all-time lows, and from a technical perspective, it was already getting ready for a meaningful oversold bounce.
Funny things happen when bullish news flow matches up with oversold readings. The bounce in Twitter stock is a textbook example.
Twitter Stock Charts
Because TWTR stock only has a few months of trading history, we need to work with the 8- and 21-day simple moving averages, which had acted as resistance since early February. Tuesday’s rally took Twitter stock above its 8-day MA (blue) and bumped the stock right into the 21-day (yellow), which currently also coincides with the February resistance line (black). Barring any sudden bearish reversal again, TWTR here looks good to shower active investors and traders with some follow-through buying off of Tuesday’s oversold bounce.
Twitter is scheduled to announce earnings on April 29, so for now, I’m just looking for some quick follow-through buying in the stock. Otherwise, I plan to be well out of TWTR before earnings come around.
On the upside, Twitter stock could have potential up to the $51 area, which is where the 50-day MA comes in, though a move toward $48 might suffice.
On the downside, if TWTR were to quickly give up more than half of Tuesday’s rally, then the stock is best left alone again until after earnings in late April.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.