Twilio Inc (NYSE:TWLO) made its official stock market debut over the summer and quickly made money for those who got in early. Twilio stock shot up 195% in its first three months as a public entity, but since hitting that high above $70 back in September, TWLO has been in a downward spiral.
Some are wondering whether now is the time to scoop up this stock at a steal. Me? I think buying TWLO stock right now would be more like catching a falling knife.
Let me explain.
Twilio offers application programming interface services that allow developers to quickly and easily add voice, video, text and picture messaging into their applications. There’s no question that finds itself in a hot sector, and that there is hope for the company based solely on its business model and industry location.
However, technical analysis of Twilio stock tells a completely different story. And as many of you already know, I believe charts hold the truth.
The stock experienced a big down day last Tuesday and ended up closing at its worst level ever. While TWLO was able to bounce the following two days, it was on about half the volume that we had seen amid the selling. That tells me that this stock is being controlled by the bears at the moment. The light volume amid the two-day rally suggests that it was simply a short-term oversold bounce.
From here, the chart is clear up to the 50-day moving average (the blue line in the chart below). However, that’s where TWLO’s latest rally attempt in December failed. It’s also worth noting that the 50-day falls very close to $33.07, which is the low Twilio stock hit the week after its IPO (the black horizontal line).
The area between the 50-day moving average and $33.07 will likely prove to be very difficult resistance for TWLO. Should the current trend continue, which I expect it to, we’ll likely see the stock fail near the 50-day trend and pull back to a new low in the $24 area.
At this point, I do not believe there is any reason to try to play a short-term rally when the longer-term trend is lower. Until Twilio stock is able to break through its current ceiling, I don’t think it’s worth buying here.
Matthew McCall is founder and president of Penn Financial Group, an investment advisory firm. Matt also is Editor of FUTR Stocks and the ETF Bulletin. Earlier this year, Matt and Hilary Kramer teamed up on Breakout Stocks where Matt serves as the Co-Editor. Most recently, Matt and Hilary joined forces again. This time, they are helping individual investors make money trading ETFs. For more on their latest project, visit www.etfedgesummit.com.