Are you looking to bet on fresh market leadership? Then it’s time to turn a deaf ear to Wall Street’s pessimists, pronounce a bear as D.O.A. and stand ready to buy Twilio (NYSE:TWLO) stock. Let me explain.
One day doesn’t make a trend. We’ve all heard that before if we’ve been around the market long enough. But following Friday’s one-off, surly bid courtesy of eased trade war tensions, dovish Fed remarks and strong jobs data, there is good reason to see the broader market’s recently minted bearish persona in a different light. It’s time to see the bear as officially D.O.A. and put cloud communications specialist and growth play Twilio stock on the radar for buying.
According to the market watchers at Investor’s Business Daily, and folks that have been walking the block around Wall Street for longer than most of us, Friday’s strong reaction was actually a “follow-through day.” It’s historically a very bullish event and the type that lends strong support for investors to forget Apple (NASDAQ:AAPL) and buy fresh leadership, such as shares of TWLO, when looking to gain a bullish toehold.
A ‘FTD’ occurs within a handful of days after a new low within a market correction or when a bear market has been countered by a sizable bullish reaction that can’t be dismissed as merely a dead cat bounce. And on the heels of Friday’s hefty bid in the Nasdaq Composite and S&P 500, which vaulted those indices up 4.6% and 3.35%, respectively, on overall heavier and above-average volume, it’s time to be more optimistic about the market’s prospects and follow the money in Twilio stock.
Twilio Stock Weekly Chart
Sometimes seeing is believing or it should be believed, at least in the case of Twilio. As the weekly price chart of TWLO shows, shares have done more than an admirable job of maintaining technical leadership since the major indices peaked in early October and into late December’s official decry the bear market has arrived.
Now and with a forceful FTD counter move in place and possible new bull market underway, Twilio stock is nearing a breakout to fresh all-time highs from a base-on-base pattern within its existing uptrend. That means the time is right to put TWLO on the radar for purchase.
Buying Twilio Stock
For investors agreeable with what’s been discussed, buying Twilio stock above $100.47 as it breaks out of its bullish congestion pattern, if accompanied by above-average volume, is one classic approach with an increased chance for success given the turn-for-the-better in the broader market.
As Twilio is notoriously volatile, a typical 7% to 8% stop-loss, in this strategist’s view, makes for an easy mark from bearish operators. That’s evident enough over the past three days as TWLO stock has jumped nearly 25% from Thursday’s low to Monday’s high. In saying that, a smaller position size and giving TWLO 15% to 20% of exposure looks much more approachable.
For bullish investors that prefer a defined-risk strategy, rather than buy Twilio stock upon a breakout, the April $110 / $125 bull call spread is one favored way to gain upside exposure.
Disclosure: 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.