Social media company Twitter (TWTR) is on tap to report its second-quarter earnings after the closing bell today. Twitter stock remains subdued on a year-to-date basis, and through a technical lens, it has been trading in a tight range in recent weeks, which could resolve in either direction after earnings.
So, let’s look at TWTR’s stock chart and map out some levels to focus on once earnings are out.
The analyst consensus is for Twitter to post a loss of 1 cent per share for the second quarter, which actually would represent an improvement over the 9-cent loss in the year-ago period. Revenues are expected to come in around $283.07 million, or more than double the revenue of $139.29 from the same quarter a year ago.
One of the key metrics for social media stocks that analysts tend to focus on is user growth. Even though Twitter has shown good revenue growth, there are concerns that TWTR can’t continue to grow users at the pace it has done so in the past. In Q1, Twitter user growth stood at 25%, which was down from 30% one year earlier.
Because the monetization story has much to do with user growth and engagement, if Twitter can’t grow its user base quickly enough, then it’s entire business model might be in jeopardy — or at least, that’s what more cautious analysts are saying.
TWTR Stock Charts
Looking at the chart of TWTR stock, it’s important to remember that it has only been trading as a public company since last November, or about nine months. During that time, after an initial surge in Twitter stock into a late 2013 top, it has really only done one thing — and that’s moving lower.
In recent months, the stock has begun to respect its 50- and 100-day simple moving averages (yellow and blue lines, respectively). The former is now support while the latter acts as resistance. More precisely, the 50-day also coincides with the June support line and currently comes in around $36.60. A meaningful break below there on good volume after earnings could get the stock to retest its May lows in the high $20s.
Alternatively, if TWTR stock can rally and get past both its 100-day moving average and the diagonal resistance line from the December 2013 highs, then a breakaway gap type of play to the upside could quickly come to fruition. In this case, the stock has a next upside target around $43 (i.e., the early July highs), and above there could climb toward $47.
The trick to this type of post-earnings trade for active investors and traders is to give the stock at least 30 to 60 minutes of time once trading starts on Wednesday morning so an initial reaction can take place. Sometimes an initial reaction is quickly reversed, and to not to get faked-out by such a move, traders would be wise to give Twitter stock a little time to settle in.
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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.