Exclusive Twitter Debate: 'Trapped Buyers' vs. Takeover Speculation

Anne-Marie Baiynd was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick. Tune in to the daily broadcast live Monday-Friday at 8 a.m. ET here.

Benzinga's #PreMarket Prep talked Twitter Inc TWTR on Monday as the stock moved 9 percent higher. Anne-Marie Baiynd, financial analyst and author of The Trading Book, and T3 Trading Group Chief Strategist Scott Redler differed in their opinions of the stock in the near- or medium-term.

Baiynd said the stock is overvalued, particularly if you are looking on a short or intermediate term basis. She said that there may be some "trapped buyers" who use these rallies to sell their long positions, putting selling pressure at $30 and $35, areas where Baiynd suspects that traders got long.

Redler, on the other hand, said that he bought short-dated Twitter calls when the stock broke below $30, expecting that in between now and September expiration, the stock would be subject to takeover speculation that could send the price up to $33.

Both analysts agreed that the stock was "broken." Baiynd pointed to negative momentum and the fact that the company itself is in the midst of a "shake-up." Baiynd added, "Whenever that happens, as the bounce comes, skittish buyers that are trapped will sell off again."

If Baiynd looks at the technical, a Fibonacci analysis of the chart suggests that the move is "extended," but Baiynd said that there is still room for the stock to move down to $24 or even $22 per share. "That's certainly not out of the question in the long run," she said.

Discussing valuation, Baiynd qualified her analysis. She said that Twitter may not be overvalued compared to where it will be in 10 years if the company figures out its model. However, timeframe matters. Baiynd "always" looks at the timeframe she would be willing to hold a stock before figuring out if it is over or under-valued. For Twitter, inside a 30- to 60-day timeframe, the stock looks like it will be lower.

Year to date, Twitter stock has declined 17.8 percent. The stock performed quite well in the first quarter before surrendering more than 40 percent in gains to turn negative on the year following two dismal earnings reports. When Twitter closed below $30 last week, it was the first time since the stock went public in 2013.