Twitter Inc has been fighting negative headlines about slowing user growth and executive turnover for close to a year. That took a toll on it stock, which is down close to 30 percent year to date.
But price action on Wednesday suggests that the worst may be behind after shares plotted an upside breakout. Does that make Twitter stock a “buy”? Or should investors wait for further signs of a turnaround?
Twitter Inc Stock Downtrend is “Technically” Over
A look at the daily price chart of Twitter indicates the stock has been in a strong down trend since hitting a high of $51 in April of last year. What followed was a textbook example of bear market, with every rally seeing sellers enter, only to push prices lower.
However, the start of May saw TWTR try to form some sort of a bottom. Bulls resisted multiple attempts to break down below $14. With a strong price floor in place, the stock rebounded late last month to chart a higher pivot.
The Dow Theory states that an uptrend is said to have started on a close above a higher pivot high. That’s exactly what happened in yesterday’s trading session. And to lend further credence to this hypothesis was the over 50 million in volume, which was more than double the average shares traded.
With the stock signalling the start of an uptrend, investors can look to go long, with a stop loss just below $14.50. However, traders need to be mindful that the longer term trend (as depicted by the weekly charts) is still down. As such, the stop loss needs to be trailed higher with every rise in price to lock in profits.
Can the Twitter Inc Rally Outlast the Microsoft Momentum?
The recent surge in Twitter shares was largely on the back of Microsoft announcing a deal to buy LinkedIn. The news sparked hopes that Twitter was next in line to being acquired by another tech giant.
“So now that MSFT bought LNKD…which I personally think is a very good move…who is next? Who is the next social media darling that is going to get gobbled up by a bigger company sitting on cash? What company’s stock is relatively cheap and could use a cash infusion? I believe that Twitter is prime takeover material,” Steven Dudash of IHT Wealth Management, said on CNBC.
Recode Senior Editor Kurt Wagner was even more bullish. “(The buyout) feels almost inevitable, especially given that Twitter’s stock is down nearly 60 percent from where it was a year ago,” he wrote on Monday.
Twitter Inc rallying in the past few days is a clear signal that investors would rather see CEO Jack Dorsey handover the reigns to someone else. Whether that happens, only time will tell.
Updated at 12:30 PM ET: Twitter stock is weak on Thursday. A down day wasn’t unexpected after the almost vertical rise. But what should encourage buyers is that even amid a strong bout of profit taking, bulls are refusing to relent.
At one point, TWTR was trading over 2 percent lower. But the stock seems to have found support at around $15.40, and has smartly bounced back. Of course, the script would change if shares were to break below the lows of the session.
Updated on 17/06/2016 at 6:00 AM ET: In a further boost to Twitter bulls, shares are trading up almost 1 percent in Friday pre-market trading, after erasing most of yesterday’s losses, to close the regular session marginally in the red.