Twitter (NYSE:TWTR) stock so far has had a bad fall season. It has corrected 37% since its September highs. This was exacerbated by a terrible reaction to its earnings last month. But there is a magic number — 50% — that could be the doorway to its past highs from 2013.
First, let’s consider the earnings report. Management delivered a mediocre result where they guided cautiously into the future. They even blamed technical reasons for some of their woes. This shook investor confidence and offered no hope for an immediate turnaround or resolution to the issues.
Then TWTR made things worse by announcing that they would ban political ads from their platform. This will result in lost revenues when their competitors pick up the revenues they are forfeiting. So the selling has not yet abated, not even when the indices made new highs last week.
Since the drop in earnings, Twitter stock has been mired under $30 per share. But therein lies an opportunity to build a base. This consolidation period will give investors time to digest the problems and create conviction at these lower levels that they need to start rebuilding the price range. This action is also important because it hovers just over the bottoms suffered last year.
The zone around $26 per share has been pivotal for almost two years. This was the level from which TWTR stock rallied 80% to $48 per share in June of 2018. Since then, the $26 support zone was tested hard in April, October, and December of that same year. The bulls can rely on this as it has been proven support on this most recent test.
Why 50 Is the Magic Number for TWTR Stock
While I am not a fan of buy-and-hope, in this case there is good reason to take a chance on Twitter stock. This is a company with a great platform and the commitment to right the ship. They also have a technical basis to support the stock while they do it. TWTR bulls can now rebuild and re-attack the zone where they failed in June of last year and September of this year.
So why 50? It is the lid for the 50% Fibonacci retracement level of the correction from the Twitter stock all-time high of 2013. TWTR stock suffers tremendous selling pressure every time it approaches it. These are usually difficult zones for recovering stocks to overcome. They will require multiple bullish efforts to breach. But once they succeed, they overshoot higher and then the all-time high would be within reach. It is also important to note that TWTR had temporarily broken out of the descending trend line of lower highs that started in 2013.
When to Buy Twitter Stock
While there is never a perfect time to buy stocks, the goal is to own them near a trough to benefit from the upside moves. Twitter stock just corrected 37% in three months. And it is hovering above proven support, so it is as good a time as any to assume that the easy froth has been shed, thereby limiting the downside from here. Twitter stock is falling into long-term support. This is the trough it needs to recover past glory even from as far back as 2013.
It is also important to set a stop-loss level that fits the investor’s goal. For traders, it would make more sense to exit the TWTR trade before it turns into an investment. Long-term investors could sit through more setbacks holding out for the longer term rewards. It is also important to note because the whole market is at all-time highs so there is easy system-wide froth to shed. If markets correct then this would also cause Twitter stock to lose more footing.
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. Join his live chat room for free here.
