Losing Its Main Villain Could Spell Trouble for Twitter Stock

Typically, losing your best customer is not good for business. So I had mixed feelings about Twitter (NYSE:TWTR) banning former president Donald Trump. Personally, I’ve engaged in discussions about this with colleagues. On one hand, an argument exists that Trump went too far in exciting his base. On the other hand, any publicity is good publicity; it’s the cynical truth about Twitter stock.

Twitter (TWTR) app being shown on a phone screen held in a person's hand.
Source: Worawee Meepian / Shutterstock.com

Well, TWTR has absolutely gone bonkers. On a year-to-date basis, Twitter stock is up 32%. Since mid-January, shares have soared 59%.

While “bonkers” may be reaching into the hyperbolic realm, the context is that TWTR isn’t a young, unknown commodity anymore. So to get this kind of response I’d say is fantastic, no matter how you wish to phrase it.

And it also seems that cleaning house on unpopular opinions may be profitable. For instance, Disney’s (NYSE:DIS) Lucasfilm fired “The Mandalorian” star Gina Carano for offensive social media posts. Actually, Lucasfilm went a step further, calling her posts “abhorrent.”

I’m not going to get into an analysis of what Carano stated – it’s out there for anyone to look for themselves. But in my general assessment, I found the juxtaposition she was making tying stigmatization of Republicans to inarguably one of the worst atrocities in human history as awfully tasteless.

However, if our goal as human beings is to educate others through compassion and mercy (this is what makes America truly great, isn’t it?) then I believe we do a disservice by always resorting to the most extreme punishment.

And this relates to Twitter stock because at some point, penalizing people for “wrongthink” not only is a moral slippery slope but also probably bad for business in the long run. Losing Carano for good really puts a damper on what has been my favorite show, and the only reason I subscribed to Disney+.

Similarly, Trump’s permanent removal from Twitter poses long-term challenges. Essentially, the platform loses its “villain” and any interest in engaging in a lively debate.

Is Twitter Stock Signaling a Correction?

I don’t like the Kansas City Chiefs. By logical deduction, I don’t like Patrick Mahomes. I was hoping that either the Cleveland Browns or the Buffalo Bills (I’m not a big Pittsburgh Steelers fan, sorry) would knock out the Chiefs. Of course, that didn’t happen and so I was left hoping that the Tampa Bay Buccaneers would take home the victory.

Many sports fans called the Super Bowl boring. I thought it was the greatest thing ever. That’s the beauty of competition and the clashing of opposing views. Conflict drives meaning and purpose. Have you ever watched a film without conflict? Even the silly, campy Friday the 13th series had a conflict: Can camp-goers survive the murderous rage of Jason Vorhees?

But imagine if Friday the 13th was about an honest-to-goodness goalkeeper who got lost on his way to practice and asked some passersby camp counselors for directions. The end. What? It’s not even worth watching. This is the same risk with Twitter stock and the underlying company’s expulsion of wrongthink.

Listen, I get that Twitter has the right to do what it wants to do. Its house, its rules. So if it wants to eliminate certain political voices from its platform, it can. But another angle, the business angle, President Trump won 74.2 million popular votes, the most by a sitting president.

That’s a lot of people to disenfranchise, and many of them are salt-of-the-earth types that simply have a difference of opinion.

Interestingly, Twitter stock has charted a very unusual technical pattern. If I had to describe it, I’d say it’s a broadening wedge pattern gone wild.

Twitter stock's broadening price action
Click to Enlarge
Source: Chart by Josh Enomoto

My interpretation is likely not 100% correct. However, the general idea is that bulls and bears don’t know where to take Twitter stock; hence the wild gyrations between peaks and valleys.

Perhaps (and this is just me speculating here) TWTR is rising because it’s doing the popular thing, but there’s a chance that it could simultaneously be doing the unprofitable thing.

TWTR Seems Very Frothy

I believe the prudent action is to avoid Twitter stock, which has gained so much in such a short time. With the levels of emotion and fanfare in the market, my gut tells me that TWTR will correct.

For those who are long Twitter, I’m not suggesting that you sell all your holdings. However, there’s no shame in taking some profits.

Basically, you have two headwinds. First, the silencing of voices on social media (and regular media) is a feel-good story in the near term but poses financial risks in the longer term. Second, arguably most technical indicators are screaming sell.

Take it from me: “diamond hands” are largely a myth. It’s an ebb and flow. You’ve got to take profits from time to time or you’re going to get steamrolled.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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