Twitter Breaks Up Bullishly And Flies Higher: What's Next?

Twitter, Inc TWTR announced Monday it would pay $809.5 million to settle a class-action lawsuit to a group of investors who filed a claim with the U.S. District Court for the Northern District of California. The investors alleged Twitter had hidden its slowing userbase growth while the company’s executives profited from insider selling.

On Wednesday Twitter’s stock broke up from a falling wedge that had been holding it down since July 23. The stock was propelled upwards by investors taking bullish positions via common shares as there were no notable call contracts purchased by options traders.

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The Twitter Chart: After hitting a Sept. 13 low of $58.45, Twitter reversed course into an uptrend and has since made a high and the $63 level, a higher low at $59.38 and on Wednesday confirmed the pattern with a second higher high. By mid-afternoon, the stock was working on busting through a resistance level at the $64.14 level.

Technical traders may have expected the bullish move because on Sept. 13 Twitter’s relative strength index (RSI) dropped to 31%. When a stock’s RSI nears or exceeds 30%, it's considered to be in oversold territory, which is a sell signal for technical traders. When Twitter’s RSI reached the level on Aug. 19, its share price increased by over 8% during the nine trading days that followed.

Twitter is trading above the eight-day and 21-day exponential moving averages (EMAs) but the eight-day EMA is trending below the 21-day. Continued bullish price action will cause the eight-day to cross back above the 21-day, which would give bulls more confidence for the short term. The stock is trading above the 200-day simple moving average, which indicates overall sentiment is bullish.

• Bulls want to see sustained bullish volume drive Twitter’s stock up over the higher resistance. If the stock can regain the level as support, it has room to trade back up toward the $68 level.
• Bears want to see big bearish volume come in and drop Twitter back down into the falling wedge. If the stock retraces below the upper descending trendline of the pattern, it could retest a lower support at the $58.45 mark.