Buy Twitter Stock Under $16, Sell Over $19, Then Repeat

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Twitter Inc (NYSE:TWTR) is a crazy stock. The bears say it’s an unprofitable business, its platform is abusive and TWTR stock is a long-term loser. The bulls say Twitter stock is a buyout target and innovative media company with big potential to surge higher.

twtr stock twitter incSo who’s right?

Honestly, I don’t know. And I don’t care. All I know is that in 2016, Twitter stock has been very volatile and rewarded those who bought on deep dips and quickly sold out of the rallies.

In this sluggish market, you could do worse than simply buying TWTR stock when it falls under $16 and setting a standing sell order to get out at $19. That’s a quick 20% profit or more.

The trick is to recognize what makes Twitter take a tumble into the bottom of its trading range, and what makes it pop. So long as you have the discipline to buy and sell without getting wrapped up in the narrative, you should be able to grab regular profits in this volatile tech player.

Nothing in the market is guaranteed, of course. But the consistency we’ve seen in TWTR this year means that there’s a good chance of this trade repeating itself.

Here’s what to look for, and how to do it.

What Makes Twitter Stock Fall?

Twitter stock has bounced between about $15 and $25 for the last year. And when you look at the big moves down, there’s not much of a mystery as to why the social media company has run into trouble.

In April, Twitter earnings were abysmal. Shares fell by double-digits in short order after next to zero user growth, a miss on its top line and weak guidance.

The same happened again in July. Another round of ugly user growth and stagnant revenue resulted in a quick leg down once more for TWTR stock.

Look, Twitter is not Facebook Inc (NASDAQ:FB), with massive scale and an efficient way of making money. The bears who have kicked around Twitter for its lack of growth have the numbers on their side. And each time those numbers show the company is stuck in a rut, it weighs heavily on shares.

As we approach another earnings report, this is very important to remember. Because I expect another bleak report that results in another big drop.

But that, of course, isn’t the end of the story. Because each time Twitter stock falls, it gets right back up.

Here’s why TWTR stock has fought back consistently.

What Makes Twitter Stock Rise?

While dips in Twitter stock have been severe at times, the reversals also have been impressive. Most recently, we saw TWTR surge from the $17s up to a very brief peak of about $25!

It didn’t last more than a day or two, of course. But those who snatched those profits are grinning ear to ear.

That’s the trick about trading Twitter — to recognize that the rallies, when they come, will be short lived. So when do the rallies come?

A recent Bloomberg Gadfly analysis has summarized very clearly how these moves come from buyout rumors, pure and simple. Consider:

  • In January, Twitter stock jumped 14% in a single day on buyout chatter.
  • In February, TWTR jumped almost 12% on supposed private equity interest.
  • In June, it jumped 9% after Microsoft Corporation (NASDAQ:MSFT) bought LinkedIn Corporation (NYSE:LNKD), sparking theories other social media buyouts would be coming soon.
  • In August, Twitter stock popped 9% on renewed rumors that it would be taken private.
  • Most recently, talk about a Walt Disney Co (NYSE:DIS) buyout prompted a 21% run.

You get the picture. Other players have been involved in other rumors, including Salesforce.com, Inc. (NYSE:CRM) and Verizon Communications Inc.(NYSE:VZ). But obviously, thus far every rumor has come to naught.

Will the next buyout rumor be a dud? Probably. But that won’t stop naive speculators from piling in and squeezing out the shorts.

That is what you’re looking for as a Twitter stock investor.

I don’t expect the number to ever change for this troubled company. It is unprofitable, its users are going nowhere and there’s not a good path forward. However, the continued see-saw of shares on buyout rumors is a pattern that disciplined investors can take advantage of.

Let’s not moralize about the long-term value of Twitter, or the veracity of buyout rumors.

Simply buy under $16 after ugly revenue or user data, wait for a Twitter buyout rumor to prompt a pop, then take the money and run.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/buy-twitter-stock-buyout-rumor/.

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