Sunday, February 11, 2018

Has the Time Finally Come for TWTR?

In the midst of last week's market turmoil, Twitter, Inc. (NYSE: TWTR) posted a five-cents per share earnings beat, but also posted a $45.94 million beat on revenue.  Those numbers were enough to drive a return to year-over-year revenue growth following a long history of declines.  Even more to the market's delight, Twitter posted a 7% year-over-year increase in owned and operated advertising revenue.  In the ensuing conference call, CEO Jack Dorsey gave a rosy preview of 2018, saying, "We're investing to make 2018 a year of growth and expect our expenses to more closely align with revenue after a year of significant margin improvement."

The market was most appreciative, drawing a significant break-away gap on Thursday in spite of a 1000+ point drop in the overall market.  Twitter continued to show strength on Friday with a very strong bullish candle that didn't penetrate the lows of the previous day's move.

Now, before we go too far in the discussion, Twitter is not, for me, an investment stock.  While the chart shows a very good potential for upside growth, it does lack the number one component I require in any stock held for investments, and that is a quarterly dividend.  Therefore, I'm looking at Twitter solely as a trade vehicle for short term capital appreciation, and would not be interested in holding Twitter as a longer term investment.

With that said, let's take a look first at the Weekly Chart.  This sets the overall canvas upon which our daily analysis will be drawn.

TWTR Weekly Chart
 What we've placed on this chart are the major support and resistance areas that are likely to impact any large-scale move.  Notice that last week's price action broke across the 200-day moving average (that continues to trend downward) but also broke above a major pivot line that has held since July 2015.There's a good possibility this line will be tested several times over the coming weeks, so factor that into any entry and stop plans.

There's a second resistance line looming around $35, and that, coincidentally enough, marked the high of our gap day.  Price hit that resistance and retreated back to the $30.50 range on that day, although it did recover back to $31.51 the next day.  What we need to take from this, though, is that there are sellers looming around $35 and they will have to be shaken out of the market a bit before Twitter can further advance.  Expect some horizontal movement at that level.

The major resistance zone, though, sits between $50 and $52.50.  That level formed a double top on the weekly chart between July 2014 and April 2015, and the stock retreated from there to its all-time lows.  We have due cause to respect this resistance level.  For me, assuming I'm still long the stock if it reaches that point, I'll exit there and wait.  It may become a good short opportunity at that point.  If nothing else, we can always reenter if it shows a breakthrough across that resistance line on strong volume.

What's encouraging about the weekly chart, though, is the 28-month base formed over the 2 1/3 years prior to Thursday's breakout.  The P&F price target from the breakout of that base would put us at $52.  Not by coincidence does that coincide with the major resistance zone discussed previously.

Okay, with that foundation, let's turn to the daily chart.

TWTR Daily Chart
Most of what appears on this chart is positive, and speaks to a decent move to the upside.  Consider the following:
  • Strong breakaway gap after good earnings and forward guidance.  It's even stronger considering that the overall market dropped over 1000 points that same day.
  • The breakaway gap also broke out of a strong rising channel that began developing in September 2017.
  • Volume from the start of this move two weeks ago shows very strong bullish tendencies, more than doubling the 50-day moving average of volume across the entire period.
  • On Balance Volume has been rising steadily since July 2017, showing money gradually moving into the stock.  
  • The MACD shows a bullish crossover at the start of the move, and then a nice bullish bump in conjunction with the breakaway gap.
  • Relative Strength broke out of a rising resistance line.
  • The JDK RS Ratio and JDK RS Momentum lines are both rising rapidly.
There aren't many negatives to speak of:
  • The RSI(9) is at a level that has proven to be extremely resistant on the last four moves.
  • The candle on the breakaway gap day was decidedly bearish, closing within 10% of the low.  In fairness, though, that did come on a major down day in the market, and Friday's candle was decidedly bullish.
  • The breakaway candle bounced off major resistance found on the weekly chart.
So, where does this leave us?  Well, given the glowing forward guidance from Twitter on Thursday, we've got at least a quarter for this stock to run without negative news weighing on it.  If TWTR can break through the resistance at $35, then it has a very good shot at running to $52. That's precisely how we're going to play it.  I don't intend an entry until TWTR breaks the resistance line above Thursday's candle.  We'll take 1/2 profits at $48.35 (the 78.6% Fibonacci level of the entire range,) establish a trailing stop set to the prior day's low, and allow the remaining half to run until we get stopped out.  The key, though, is to be patient and let it break that $35 level with volume. Do keep in mind that we expect that line to be tested once or twice as a support line, so don't set your initial stop too high. 

Happy Trading.

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