• A plea to buy by Needham goes unanswered in Twilio (TWLO)
• TWLO stock divided by “next big thing” aspirations and spend-to-grow strategy
• This wait-and-see approach makes sense versus buying TWLO today

Investors are busy returning Monday’s dearly-held stock merchandise led by sharper declines in technology shares in Tuesday’s session. And in the case of cloud-based communications giant Twilio (NYSE:TWLO), an outsized TWLO stock loss of 4.75% is revealing stronger indications of damaged goods.

The large-cap, tech-heavy Nasdaq Composite is off 1.63% and in the process of unwinding the entirety of yesterday’s staunch gains. A mostly quiet second session of headline drivers has investors bearishly reevaluating additional European Union sanctions against Russia. Then you can in Covid-19’s BA.2 subvariant and inflation among other macro factors too.

Given the session’s gloomier nature, Twilio’s larger loss may seem hardly a surprise. Higher-multiple growth stocks have been the proverbial red-haired, stepchildren of Wall Street for more than a year. And similar pressure in Snowflake (NYSE:SNOW), Rivian (NASDAQ:RIVN), Block (NYSE:SQ) and many others attest to the trade’s durability.

But TWLO stock’s decline is also shunning Needham’s buy reiteration and $350 price target reflecting a 111% premium to Tuesday’s share price of about $166. So, what gives or rather who doesn’t want a double and more?

Let’s review some of what bulls and bears in TWLO are saying and doing off and on the price chart. And how that should impact an investment in Twilio going forward.

TWLO

Twilio

$164.29

The Boy(s) Who Cried Bull in TWLO Stock

One reason why Needham’s buy reiteration has gone unnoticed could be investor fatigue. This morning’s note is the third plea to buy shares since late October. The only change today is the brokerage maintained its $350 price target versus back-to-back, flat-footed price target reductions from $400 and $460 per share.

Also, the analyst community at large has been on wrong side of TWLO’s bear market of the past year. A total of 25 buy recommendations, just one hold, zero sells and average upside price target situated nearly 100% above the current market price have been mostly unwavering in their commitment. And in the process, many Twilio shareholders have gotten burned.

A fixation on Twilio’s domination in the communications platform-as-a-service (CPAAS) market which is expected to grow at a double-digit pace for the next few years and willingness of Wall Street to buy into TWLO’s spend-for-growth now, profits later strategy is largely to blame for the past year’s fruitless forecasts.

Respectfully, investors and analysts alike are prone to periods of looking foolish. And TWLO’s Street community may ultimately have the last laugh. Still and nearly six years as a publicly-traded company and 14 as an incorporated business, at a minimum, it may be time stop with teasing comparisons of TWLO stock becoming the next Nvidia (NASDAQ:NVDA).

TWLO Stock Hammer or Knife?

Source: Charts by TradingView

Twilio shares are in position to bottom and begin the process of forming a bull market cycle. But unlike some higher-growth plays like SQ stock which have confirmed a critical monthly chart low, those prospects remain conjecture.

Signaling a reversal in share price of course isn’t the same as guaranteeing a lasting bottom or any sort of bullish follow-through. But it typical improves the odds for a successful outcome. And today, TWLO stock has established an attractive-looking oversold and still well-supported hammer.

Several factors collective tease the next big bottom for TWLO stock. The pattern’s placement is outside the lower Bollinger band, and shares have successfully tested lifetime trend support. A Fibonacci-based two-step extension and 76% retracement level are also in play.

But the hammer remains unqualified. April has failed to signal a buy confirmation. Moreover, even after a bear market which cut as deep as 73%, a premature purchase of shares could feel like a knife if Twilio falls the roughly 25% necessary to take out the hammer low.

Smartly Buying the Next Big Bottom in Twilio

If Twilio investors are eyeing the prospects for a punishing bear market to complete, given the steep volatility embedded in TWLO stock’s monthly chart, it pays to wait.

At the end of the day, the amount required for pattern trade confirmation and knowledge a larger rally in the next few weeks can’t develop without it, far outweigh the potential negative consequences of pulling the trigger early.

Should the March hammer be confirmed prior to a pattern failure, I suspect a rally to an area from $250 to $300 based on the bear market’s 38% and 50% retracement levels. And channel resistance is plausible by later this year. The midpoint works out to roughly twice the embedded hammer risk, but that can be improved upon.

Reasonably, more active money management with an initial stop-loss below $150 should help control unwanted exposure and improve TWLO’s risk-to-reward profile. And for investors that want an added layer of protection, a Sep $190/$220 bull call spread in conjunction with active position management tied to the Twilio price chart is a favored trade combination.

On the date of publication, Chris Tyler does not hold (either directly or indirectly) any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.