Twitter Inc (NYSE:TWTR) has become the medium for ranting and making threats (then typically backtrack at a later date), but the nastier problem is TWTR stock.
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In the two weeks since reporting its quarterly results, it’s literally and figuratively been all downhill for Twitter and, admittedly, much to this strategist’s chagrin.
I last wrote about TWTR stock on July 14. The article was a follow-up piece as it looked like the right time to stay on message. TWTR shares appeared (finally) ready to confirm a bullish trend change both off and on the price chart. Then came earnings.
Twitter announced a couple items demonstrating the company is making progress and continuing to execute well. Earnings of 12 cents topped Street views of 5 cents and revenues also beat forecasts. But in the immediate aftermath shares plunged by about 14%. And since the initial reaction, TWTR stock has continued to weaken by several percent.
So what went wrong? Twitter’s monthly average user growth seems to be the biggest source of concern with investors. The platform’s count of 328 million users was flat sequentially and missed forecasts.
The weaker-than-expected number wasn’t entirely a surprise. The reality is MAU only missed estimates by 1 million users or a minuscule .003%. Nevertheless, following an uptick and beat in MAU the prior quarter, user growth has been reaffirmed as a problem by investors tired of waiting for a turnaround in Twitter — and now one impacting another about-face on the TWTR stock chart.
TWTR Stock Daily Price Chart
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Click to Enlarge
As illustrated on the provided daily chart, bulls winded up receiving confirmation of an uptrend a couple sessions later as shares broke out to new highs. And then came earnings and with it, investors very bearish reactive U-turn to the report.
In the here and now, additional weakness has resulted in Twitter breaking slightly below its prior channel test and a key low for the quickly broken uptrend. Aside from being disparaging, the failure may have longer-term bearish implications.
On the other hand, shorter-term an oversold stochastics, intact channel support and honestly what seems more like an overreaction by ants-in-their-pants investors, a bounce play in TWTR stock looks more appealing in our opinion for shorter-term traders.
Twitter Long Call Strategy
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Reviewing Twitter’s calls and puts for ideas and TWTR stock changing hands in early Friday trade near $16, the Sept $17 call for up to 40 cents looks interesting.
Risk in owning the call is limited to 2.5% of buying TWTR outright and overall, an attractive proposition.
Another nice feature is the open-ended profit potential of the call. The contract can begin to accrue time value and then ideally, real intrinsic value if shares of Twitter rally above $17 and attempt to take back some of the overdone selloff.
Bottom line though, with this particular contract, time constraints mean not overstaying one’s welcome. As much, taking partial profits or adjusting if conditions begin to firm up is important.
Along the same lines, I’d personally look to improve on the call’s protective value by using a money stop if bulls begin to tweet and retweet their disappointment with TWTR stock.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives 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.