Twitter Inc stock has had a forgetful 2016. But according to Tomi Kilgore, MarketWatch senior editor and charting enthusiast, the “bullish divergence” between price and a host of technical indicators suggest that shares are ripe for a bounce back.
Twitter Inc closed Tuesday at $14.03, down 2.6 percent for the session.
Twitter Inc Plots Promising Chart Pattern
Bullish divergences are defined as technical scenarios in which the underlying stock’s price is moving lower, while a momentum indicator (RSI, Stochastic, RoC) is trending higher. “Bullish divergences are often the best signals of an impending sharp rally,” according to the Market Technicians Association.
A look at the daily price chart of Twitter reveals that while shares hit a new low yesterday, the Relative Strength Index (RSI), which compares the magnitude of gains over a specific time period, was tracking higher.
Similar was the case with another popular momentum oscillator, the Stochastic, which made higher lows at the very time Twitter bears were hammering the stock.
So does this present a “buy” opportunity for traders? Kilgore seems to think so. “The last time a “Class A” bullish divergence occurred was in February…the subsequent rally lasted just 3 weeks but produced a 35 percent gain,” he wrote in MarketWatch.
Twitter Inc Perched at Key Support Zone
As discussed earlier in these columns, the start of the year saw Twitter form a short term bottom around the $14 zone. Though shares subsequently rallied, the failure to hold on to those gains has reignited fears of further down side in the stock.
Regardless of the appearance of bullish divergence, the way things currently stand, $14 has become a make or break level for Twitter. If shares convincing close below that area, traders can expect much lower levels in the stock.
Analysts on Wall Street also agree that fundamentals don’t look good, and more pain might be in store. James Cakmak of Monness Crespi Hardt cut his target price by 18 percent, saying the average analysts’ earnings estimate is still too high given the absence of any immediate catalysts.
“TWTR has been frustrating to cover, not only because of its declining share value, but more so because of its vast potential that’s eroding by the day,” Cakmak wrote to clients.
Twitter Inc shares have now tumbled close to 40 percent year to date, compared to a 1 percent rise in the S&P 500 Index.