If past performance is a predictor, Twitter Inc TWTR's stock is going to fall 20 percent, according to Frank Cappelleri, a senior equity trader at Instinet.
What Happened
Twitter's stock surpassed its 50-day moving average in early May, and strong momentum has now pushed the stock 35 percent above its 50-day moving average, Cappelleri said during a recent CNBC "Trading Nation" segment. Twitter shares are now trading at their third-highest premium to the 50-day moving average in the stock's history.
The last time Twitter's stock traded at such a high premium was in early February when it was trading 45 percent above the moving average, Cappelleri said. A period of consolidation followed that continued through most of March and culminated in nearly 25-percent decline through April 4.
Nevertheless, long-term investors may want to consider taking advantage of any dips, the trader said.
"There's no reason to chase Twitter here, but I would be comfortable buying weakness going forward."
A Fundamental Perspective
Chantico Global CEO Gina Sanchez named reasons for Twitter investors to be concerned during the "Trading Nation" segment. Twitter's stock multiple stands at over 80x P/E, which is "probably the biggest knock we have against it, Sanchez said. The social media company continues to burn cash at a rate of "five times current revenue," she said.
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