Twitter's Chart Says More Upside Is Still Possible
Twitter (NYSE: TWTR) shares have been riding high since the wash-out bottom in May.
After completely floundering from late-2013 to May of this year, Twitter shares have been on the mend and may still have some room to rise. Unfortunately for the longs, unless a major hurdle is cleared near $50, the fun may not last for much longer.
What The Bulls Are Seeing
The bulls are seeing a beautiful rise of nearly 50 percent since Twitter bottomed along with the rest of the social media sector in April and May. Momentum in the short-term is clearly on the side of the bulls in the case of Twitter.
After gapping up sharply in late July, the stock drifted lower to fill some of that gap, stopping its decline at the early-July short-term peak. Even the most conservative bulls are thinking that Twitter shares will at least run up to the $50 area to fulfill the “abc” upside correction formation that could be playing out. That would be a 10 percent upside trade from current levels.
The more optimistic segment of the bullish crowd sees Twitter blowing right through $50 and working its way gradually up to the post-IPO highs in the $70s.
What The Bears Are Seeing
The bears contend that Twitter is merely retracing some of the nasty 2013-2014 decline that chopped the stock's price more than in half.
As long as Twitter does not conquer the $49.37 level, they may very well be correct. If they are correct, Twitter would then have in its future a date with the teens (the $10-$20 range).
So, Will Twitter Fly High Or Fall To The Floor?
To believe that Twitter is going to rip through $50 and work its way back to the all-time highs is to believe that the broader market, technology and the social media sectors are going to remain strong for the foreseeable future. All three of those may very well occur, but nothing is guaranteed.
On the other hand, to believe Twitter is destined to fail near $50 and tumble down to the teens only requires that the company fails to execute, the social media group turns sour once again and/or that the market turns from a bull to a bear market in a hurry.
Based on the action in other social media names like Facebook and LinkedIn, it's a bit of a stretch to think that the group is in any major trouble right now. In terms of the general market, there appears to be room to the upside to the recent highs before a move back to the downside may take the S&P back down to the recent lows. The market may be range bound for a while.
Finally, could Twitter just fail to execute and tumble precipitously despite a decent market and a relatively healthy sector? That's possible, but not necessarily a likelihood.
How To Trade Twitter From Here?
Technicians say Twitter can be bought near this week's lows, with a stop in place just below that level with the idea that shares will rise up to the $50 resistance area ($49.37, to be exact). Any move below this week's lows is likely a signal of tough times to come for the bulls, at least in the short term.
In terms of placing bearish bets, the technicians say to wait for a test of the $49.37 level to occur and to sell there. Stops on that trade should be in place on any close above $50. The downside target would be $38.59 in the short term and down below $20 in the long term.
Disclosure: The author has a short Facebook position.
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