Shares of social media company Twitter Inc (NYSE:TWTR) bounced sharply off their intraday lows on Wednesday following what many analysts called a weak earnings report.
I often say that the reaction to the news speaks louder than the news itself and with Wednesday’s intraday turnaround, TWTR stock defended good near-term support and continues to push up against a hugely important line of resistance through a technical lens.
If and when Twitter can get back above there, upside could materially increase.
For its latest quarter, Twitter reported a GAAP loss of $131.7 million, which was better than the $175.5 million loss in the same period one year ago. TWTR also managed to grow its top line by nearly 60%.
Analysts, however, once again focused on the less-than-stellar user growth and user engagement metrics. The company saw about 3 million new users in the latest quarter — a meager bump. While the co-founder and CEO Jack Dorsey made an improved impression on conference call, a host of investors still struggle with the somewhat “unprofessional” (for lack of a better word) handling of investor communication.
Personally, I still see TWTR as a company that has tremendous growth potential if we consider the paramount importance it serves in the world of news. The amount of information being posted on the Twitter platform daily is massive — and the sooner the company can offer tools to better pull out this data for analytics, the better it will be for the stock price.
TWTR Stock Charts
If we look at the chart of TWTR stock that stretches back to the 2013 initial public offering, we see that the July/August plunge below the black horizontal line around the $30 area was a critical time for the stock. Many weak-handed investors sold their holdings into the plunge, which then allowed TWTR stock to build a better bottom. Since the August lows, the stock has formed a series of higher lows and is now coiling up below the black horizontal (i.e., former support is now resistance, until overcome).
On the closer-up daily chart, note that TWTR stock has found resistance around the $31 area on a daily closing basis since early October, an area that also coincides with the blue 100-day moving average. At its intraday lows on Wednesday, Twitter bounced right off the yellow 50-day MA, which may have been the necessary retest it needed to now make this moving average an area of support.
Less risk-averse investors and traders could already look to initiate a long position at current levels while more risk-averse investors may want to wait for the $31 area to clear on a daily closing basis for what then could lead to a rally into the mid to high $30s and back toward the red 200-day MA.
For options investors, I would like to point out the post-earnings implied volatility collapse of the options on TWTR stock,. So, buying calls or call spreads looks more attractive again.
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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.
