Twitter Stock: Should You Buy the Latest M&A-Fueled Rally?

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Shares of social media company Twitter Inc (NYSE:TWTR) rallied close to 6% on Tuesday on the back of the latest takeover rumors. This time, the rumors (depending on who you heard it from) involved Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook Inc.

beatthebell_185x185While a deal still seems unlikely, at this point traders are happy to chase higher (or lower) just about any news in Twitter stock until something sticks.

Still, this provides active investors and traders an opportunity to jump on potential follow-through buying in the next couple of weeks.

When news broke on June 11 that Twitter CEO Dick Costolo was to step down as of end of June, an initial pop in TWTR stock was quickly sold. After Dick Costolo and the to-be interim CEO and founder Jack Dorsey appeared on TV the following day, investors further punished Twitter stock due to what felt like a lack of strategy from the company. (Jack Dorsey also sported a look that didn’t resemble that of a serious corporate CEO, and while I am not one to judge a book by its cover, investors weren’t happy with the posture he struck.)

Twitter Stock Charts

Looking at TWTR shares from a technical perspective, traders have witnessed more swings than a playground since the initial public offering in November 2013.

While Twitter didn’t post bad earnings numbers, the user growth and engagement metrics over time just didn’t live up to investor expectations, and this led to a big drop after the April earnings report.

No big trend has lasted more than a few months, which makes it all the more important that traders and active investors pick their spots. The area around the $35 mark (black horizontal), has offered up good support and could now again offer an opportunity for a better bounce.

Note in the weekly chart below that after the April smackdown, Twitter stock continued to slip lower into mid-June, while momentum — as represented by the Relative Strength Index (RSI) — rose and made a series of higher lows. Through a purely technical lens, this is a bullish setup from a multiweek/multimonth perspective.

twitter stock twtr chart weekly
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Moving over to the daily chart, we see that Tuesday’s rally pushed the stock above its 21-day simple moving average (yellow line) for the first time since late April, and also ever so slightly out of the slow-jam that represented the past two months of trading.

twitter stock twtr chart daily
Click to Enlarge

The setup for active investors here is straightforward: Buy at $35.75 or higher to bet on more follow-through buying after Tuesday’s rally. From a risk management perspective, however, you should trade this in small sizes, using a first upside profit target near $38. Any meaningful bearish reversal of Tuesday’s rally should stop you out of the trade.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/twitter-stock-twtr-rally-fb/.

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