On the face of it, Twitter (NYSE:TWTR) stock looked like a winner coming into the earnings — up 20% for the year. But TWTR was still lagging similar companies like Snap (NYSE:SNAP) and Facebook (NASDAQ:FB) which were up 110% and 39% respectively for the same period.
Although it had its moments, TWTR was barely in line with the Invesco QQQ Trust (NASDAQ:QQQ). But therein lies the opportunity today. There could be a catch up trade brewing if the earnings price action complies.
The TWTR bulls left many opportunities where they could have broken through the $36 wall. This would have triggered a bullish pattern to target $42 where there is a nine-month-old open gap.
This morning Twitter reported its earnings and Wall Street loved what they saw. They beat expectations — but perhaps they learned what metrics to report. They are no longer chasing the user counts blindly but rather they are concentrating on the 134 million monetizable daily active users. Voodoo or not, investors like it. TWTR is up 16% on the day as of this writing.
So maybe this spike will hold and carry follow through to finally break through the prior fail level at $36. Once that happens, the bulls can reuse the level as support to regain prior glory even higher.
Technically, TWTR stock has the setup for it. There is support through $32 then through $30 per share. And we don’t need to revisit the absolute bottom which was the December and October tests of 2018. Current market sentiment is much better now and only a disastrous message from management would warrant it. Today’s report is not that.
Fundamentally, Twitter stock is not dirt cheap. It sells at a 22 P/E which is more expensive than Apple (NASDAQ:AAPL) and inline with Facebook. Yet, it is not as promising as either of them so the premium is not entirely clear here.
In light of the sensitivity that the FB privacy debacle brought to the sector, TWTR has yet to go through the P&L pain that is necessary to appease the public perception that Twitter content is real and that their data is private. This is a problem of perception but the effects of would be definitely real.
Trading TWTR
So is it worth chasing the TWTR stock up? The answer is yes, if we get the right price action in the next few weeks. Long term, the stock is tracing out what looks like it could be a giant cup and handle pattern which shares the same neckline as earlier. Above $36 per share would invite momentum buyers to chase $48 or more. This sounds extravagant but it happened already in June.
We can take this concept one step further and consider that the same would happen above $48 as itself is the brim of an even bigger cup and handle pattern that would target $57 per share. But first, there are shorter-term levels of resistance that need to break and that starts with this rally here.
Critics of the market point out that the rally is long in the tooth and that we’ve come so far so fast. The fact is that last year we fell even further and on mere fear not fact. These rallies like the one Twitter stock today are based on actual results and they deserve the reward they get.
The bottom line, TWTR management beat earnings expectations and the stock is spiking on the headline. There is a chance for a mega breakout even from here.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
