A surprise earnings confessional, one big-time head fake on the price chart and a small pause in the trading action put Twitter (NYSE:TWTR) stock in position for buying.
If you’re like me and you thought Twitter stock’s best days and usability for anyone other than POTUS were behind it, think again.
Earlier this week, the social media platform delivered a fairly convincing rebuttal to its Q4 release, which featured bearish overtures both off and on the price chart.
In a nutshell, prior growth and expense worries were upended Tuesday, along with a few bears. Twitter stock rocketed higher by 15.64% on stronger-than-forecast revenue growth of 18%, as well as a surprise sequential and year-over-year increase in Twitter’s average monetizable daily active user base.
TWTR’s report wasn’t perfect. The company did fall short of Street profit views of 15 cents versus actual earnings of just 9 cents a share. The miss can likely be chalked up to last quarter’s warning from management of higher expenses around the corner. Still, profits did improve by a penny year-over-year. And based on TWTR stock’s squiggly price line, the big picture is also showing a marked improvement for bulls.
Twitter Stock Price Chart
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Unlike humans, charts don’t lie. Nevertheless, occasionally price action can get it wrong and mislead investors. I know all about that firsthand. At the end of February, I maintained a bearish position on Twitter stock as part of a pairs trade with Zillow (NASDAQ:Z).
As illustrated on the provided daily chart, TWTR had been well on its way to fully forming the right shoulder in a head and shoulders formation following a bearish earnings-driven reaction. Lower prices and even a challenge of 2017’s all-time-lows appeared all but given. I was wrong, and yes … Facebook (NASDAQ:FB) would have proved the better pairing as well.
This week’s bullish reaction in Twitter stock reaffirmed, in a very big way, what had been a marginally bullish pattern failure. Prior to earnings, shares had briefly moved above the high of the right shoulder by early April and invalidated the short on a technical basis.
Now, TWTR is setting up as a simple pullback candidate. Shares have put together a bit of backing and filling and they may have found a bottom if Thursday’s low of $38.19 continues to hold. The recommendation is to put Twitter on the radar for purchase if shares can rally above $39.77 within the next couple sessions.
This entry is above Tuesday’s closing print and puts TWTR back through the 62% resistance level. The strategy is an attempt to go long on continued momentum rather than buying on weakness and worrying if the popular wisdom of all price gaps getting filled receives some additional ammo.
If Twitter stock complies, I’d suggest an initial profit target of $4, or $43.77, which is the middle of price congestion formed off last year’s relative high. For a stop-loss, exiting below the pullback pattern makes sense for minimizing exposure and allowing for acceptable risk in relation to the reward.
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 and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
