Twitter, Inc TWTR gapped up 20% to start the trading session on Monday and rallied an additional 7% intraday, after a 13G SEC filing revealed Tesla, Inc TSLA CEO, Elon Musk, had acquired a 9.2% stake in the microblogging giant.
Musk purchased 73,486,938 shares of Twitter, worth $2.89 billion as of Friday’s closing price.
Following the news, Wedbush analyst Dan Ives said in a note that he expects Musk to grow his influence over Twitter from a passive stake to an active stake through conversations with the company’s management and board.
On CNBC’s “Halftime Report,” Josh Brown said he believes Twitter’s management should now be engaging with Musk.
“Why wouldn’t you want to hear what he has to say? Do you want famous people to continue to come here? And interesting people to continue to engage? Or do you want them to keep disappearing and going off to Instagram and other platforms, which has been the trend in the last five years?” said Brown.
Despite the news sending Twitter soaring, which has caused the stock to become overextended, the social media giant was able to hold most of its daily gains. Although consolidation will be needed, the stock looks set to trade higher, especially if it can regain one key level.
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The Twitter Stock: When Twitter skyrocketed on Monday, it hit the 200-day simple moving average (SMA) and rejected and wicked down from the area. The 200-day SMA is considered to be a bellwether between a bullish versus bearish market, and bullish traders will want to see the stock regain that 200-day after some consolidation takes place.
- The consolidation could come in the form of an inside bar on Tuesday, or even a double inside bar into Wednesday, which would lean bullish for a continuation higher. Consolidation could also come in the form of a bull flag pattern under the 200-day SMA, which would also allow the stock to cool down some of its indicators.
- Twitter’s relative strength index (RSI) is measuring in at about the 81% level. When a stock’s RSI reaches or exceeds the 70% level, it becomes overbought, which can be a sell signal for technical traders. An inside bar pattern or bull flag formation would allow for the RSI to drop lower.
- Twitter has also become extended from the eight-day and 21-day exponential moving averages (EMAs) and sideways trading would allow for the eight-day EMA to catch up to the share price, which could then help guide the stock higher.
- There is a gap left below on Twitter between $39.85 and $46.86. Gaps on charts are about 90% likely to be filled in the future and if the stock is unable to regain support at the 200-day SMA in short order, filling the gap to print a higher low may be in the cards.
- Twitter has resistance above at $52.42 and $55.45 and support below at $49.12 and $44.40.
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