Twitter Inc (NYSE:TWTR) got at least a temporary boost in Thursday’s after-hours trading after the company announced that CEO Dick Costolo is stepping down effective July 1. Investors have been critical of Costolo for some time as user growth numbers and engagement failed to live up to expectations.
For active investors and traders of TWTR, the change in management provides opportunity, as it might finally get Twitter stock out of its unusually tight trading range — one that it has been stuck in since late April.
To put Dick Costolo’s term as CEO of Twitter into context, he took a company with little to no revenue and turned it into a company churning out more than a billion dollars in sales — not to mention, he took TWTR public.
However, now co-founder Jack Dorsey is taking over as interim CEO, and while some investors would be happy to see Dorsey on the job full-time, a great many analysts are calling for some outside reinforcements — someone who can more clearly communicate the company’s growth plans.
For my part, as a heavy Twitter user on a daily basis and close follower of the company, communication really is the key (it’s not the growth; TWTR is expanding nicely).
Twitter became a publicly traded company in November 2013, and since then did not make the transition out of the “startup mentality” of over-promising. It’s something that Twitter had to learn as large institutional investors prefer the under-promise-and-over-deliver dynamics as opposed to the other way around.
Will they shape up? That remains to be seen. For now, let’s look at the charts.
Twitter Stock Charts
As a result of the big post-earnings selloff in late April, TWTR has been trading near the lower end of its public-era range for the past few weeks. The big-picture resistance zone is far from current levels and marked with the two blue bubbles on the chart, in the low $50s. Active investors and traders for the time being should focus on Twitter stock being able to break out of its ultra-tight multiweek trading range.
Zooming in on the daily chart, we see the big post-earnings selloff dropped Twitter stock out of what through a technical lens was a rising wedge pattern. The question now is whether the management change announced late Thursday was enough to break TWTR out of its very tight range.
The way such tight ranges typically get resolved is either through a breakdown fakeout move that threatens to really break the stock down but quickly leads to a sharp recovery and thus puts in a good bottom. Or, some meaningful news breaks and leads the stock to gap up higher, then leads to a clean break out of the range that brings about enough momentum to get the stock moving for weeks.
Active investors and traders should now focus on Friday’s real price reaction to Thursday’s news. A further breakdown in the stock should only be bought into upon a bullish reversal (i.e., seller exhaustion), while a daily close above the $37.50 area may get the stock enough momentum to march back toward the $42 area through a multiweek/month lens.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
