Twilio Inc (TWLO) Stock Bears Are Poised to Pounce

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Are you looking for validation before buying Twilio Inc (NYSE:TWLO)? If so, you won’t find it here and certainly won’t find what you’re looking for on the TWLO stock chart. Let me explain.

TWLO Stock: Twilio Inc (TWLO) Stock Bears Are Poised to Pounce

It’s no secret to regular readers. I’m not a fan of TWLO stock, though neither am I an obsessed bear. If I was, I’d be in good company.

The fact is Twilio shares still maintain a hefty short interest of over 31%. Further, many of those shorts are also much more likely to have been rewarded with their positions than the majority of bullish investors.

Yes, Twilio may have a technology edge today. Okay, I get that … well kinda sorta, as I am an admitted Luddite.

Moreover, what I can appreciate is commoditization and competition in the space and Twilio’s inability to turn a profit. It’s also easy to recognize a business environment conducive to shrinking margins, TWLO stock’s all-around pricey financial metrics and below-views guidance last quarter, adding up to a very risky investment, but much less so for bears.

So while some Twilio investors might maintain optimism the company can buck the odds, could find an even less likely suitor in Amazon.com, Inc. (NASDAQ:AMZN) or simply ride a short squeeze situation unrelated to fundamentals; I can’t help but think TWLO remains a better position for bears.

And after a modest reprieve for bulls on the price chart the last several weeks, it’s our contention that TWLO stock is setting up quite nicely for bears acknowledging the trend is still their friend.

TWLO Stock Daily Chart

Source: Charts by TradingView

Since last writing about TWLO stock, not much has changed regarding its prospects technically on the price chart. For a volatile name, there has been some modest price relief for bulls, with Twilio managing to eke out a rally of 8%. However, despite the gain or maybe more so now than prior, the bears are being offered a lower risk, counter-trend style entry.

Shares of TWLO are now situated in a lower high position while established a “good enough for government work” fill of the early May bearish price gap. Coupled with an overbought stochastics condition, a still intact series of lower highs and given Twilio’s short-comings off the price chart, I’m still inclined to be bearish.

TWLO Stock Long Put Strategy

Given the overall bearish view on TWLO stock and the current lower-risk or defined, counter-trend opportunity on the price chart, an outright long put purchase in conjunction with a stop-loss in lieu of shorting shares looks reasonable.

Specifically, the Aug $29 put is priced for $1.10 with TWLO stock at $31.06. It’s a bit expensive and doesn’t offer a lot of time on the calendar, but with earnings set for early next month and options liquidity currently lacking, this contract offers a decent blend of risk versus reward for the situation.

Optimistically in a bearish sort of way, with the recent low near $23, any trend reassertion could prove huge profit-wise for this short delta position. That of course would be great and could yield a return upwards of 500%!

And if conditions fail to cooperate technically in Twilio?

Back to the TWLO stock chart, I’d recommend setting a technical-based stop loss of less than $2 and/or money stop of 50%. This type of strategy promises a way to potentially cut down risk. Bottom-line though, and in case risk management on the fly doesn’t go as planned, losses are confined to less than 6% of shorting TWLO stock.

Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/twilio-inc-twlo-stock-bears/.

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