Social media company Twitter (TWTR) reported earnings just a little more than two weeks ago, and TWTR stock — following a big post-earnings rally — has since settled into a consolidation pattern that favors another move higher.
On the morning of July 29, I laid out my plan on trading Twitter stock once the earnings report was out. Specifically, I discussed price levels above/below where a directional trade could set up the following day.
Twitter ended up beating analyst estimates for both the top and bottom lines, and raised sales guidance for the fiscal year 2014. As a result, TWTR stock rallied around 20% on July 30, blowing right past my upside price target near $47 on an intraday basis.
In other words, I missed the long-side trade that I discussed on the morning of July 29 because TWTR stock opened for trading right around the $47 area.
I missed a trade — it happens. And I’m fine with that, because the alternative would’ve been taking a position before earnings, then using a so-called “praying” strategy in which I hope Twitter says good things about the outlook, and that Wall Street agrees.
Twitter Stock Charts
For perspective, below is the chart of Twitter stock stretching back to its initial public offering in November 2011. Note that after the earnings report, TWTR shares clearly broke past their diagonal resistance line (black) and above their 100-day simple moving average (blue line).
Fast-forward to today, and Twitter stock has had 11 trading days to consolidate its post-earnings breakaway gap rally from July 30. So far, the consolidation is taking shape in a constructive fashion, which leads me to again put TWTR on my closer daily monitors for a next possible trading opportunity.
As much as I missed the rally toward $47, funny enough, albeit not so coincidentally, the $47 area so far has held as resistance, because this resistance area dates back to April. If the July 30 breakaway gap — which is a very optimistic statement on the part of the bulls — is to remain intact, then the recent lows around $42.60 should not be violated by much and a next move higher should soon be in the cards.
Active investors and traders could consider waiting for a possible break of Twitter stock past the $44.70-$45 area, which could get the stock moving back toward the July 30 highs, and possibly beyond — toward $50.
Trading is not an exact science, which is why reference support and resistance areas should be mapped out at all times. Sometimes we miss a trade — that’s just part of the business. Patience for the next opportunity ultimately gets more rewarded more than chasing stocks higher or lower, and TWTR is a good example of that.
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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.