TWLO Stock: Confluence of Indicators
I have been intrigued by Twilio Inc (NYSE:TWLO) since it first went public in June of last year. This cloud-based communications company provides consumers pay-as-you-go applications. The combination of cloud computing and e-commerce should provide a powerful tailwind as both these sectors have been performing extremely well in this current market environment. This hasn’t exactly translated into any gains for Twilio stock, because after a successful IPO, shares quickly surged higher only to see that performance completely erased. There are now indications on the TWLO stock chart that are suggesting a bottom is being formed, and if this is the case, then higher prices are likely to follow.
To clarify, my views on Twilio shares were generated using technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future prices. I have been using this method for nearly two decades, and it has brought great discipline and success to my trading strategies.
The following price chart illustrates the price action that is suggesting a bottom is being formed on the Twilio stock chart.
Chart courtesy of StockCharts.com
On June 23, 2016, TWLO stock opened to trade publicly on the NYSE at the price of $23.99, and in the months ahead, the shares performed extremely well. The performance was characterized by bullish price action that consisted of higher highs and higher lows. This performance is easily captured using a simple uptrend line.
The uptrend line was created by connecting the troughs on the price chart. Using the uptrend line as a tool is as easy as it was to create. When shares are trading above the uptrend line, higher prices can be expected. When they’re trading below the trend line, it serves to suggest that a larger correction is set to ensue.
On September 28, 2016, Twilio shares hit a high of $70.96. In the three months following the IPO, TWLO shares were up an incredible 195.79%. it seemed as though this was a taste of things to come. Unfortunately the share price went on to break below the uptrend line. Breaking below this trend line served to indicate that lower prices were set to prevail. The break below the trend line is highlighted on the price chart above as a “breakdown.”
This break below the trend line did exactly as it suggested, and lower prices did prevail. By January 1, all the gains that were made in the previous months leading up to the peak were completely erased, as Twilio shares went full circle.
TWLO shares finally found price support just above $25.00, the level where it first began trading. This price level is highlighted as support on the price chart above. If a bullish rally is going to commence, it is going to happen from this level. Breaking below this level of price support would suggest that TWLO stock is set to drop below the price it began trading at, and that would carry tremendous bearish implications, suggesting that much lower prices were set to prevail.
The following TWLO stock chart illustrates the constructive developments that are occurring above price support.
Chart courtesy of StockCharts.com
There have been numerous developments on the Twilio stock chart that suggest a bottom is now forming.
The first indication is from the ascending channel that has formed. This technical price pattern is created by using two parallel downward-sloping trend lines. The upper trend line represents resistance, while the lower trend line represents support. This pattern has the makeup of a consolidation pattern, which upon completion would suggest that an advancing impulse wave is set to develop.
This impulse wave would propel the share price higher. In order to complete this consolidation wave, the stock must exit the pattern in an upwards direction. Twilio stock is currently testing resistance outlined by the ascending channel, and this level coincides with the 50-day moving average.
The 50-day moving average is an indicator that is used to distinguish between stocks that are technically healthy from the ones that are not. Trading above the moving average is bullish, while trading below it is bearish; it is just that simple. Breaking out of the ascending channel would coincide with a bullish break above the 50-day moving average. This feat would suggest that a bottom in TWLO stock has been formed.
Such an outcome is currently being reinforced by the relative strength indicator (RSI), located in the lower panel. The RSI is an oscillator that is used to measure overbought and oversold conditions. A measure below 30 indicates that a stock is oversold, while a measure above 70 indicates that a stock is overbought. Traders also use this indicator to time their entry and exit points. When the RSI oscillator crosses below 30, it is deemed oversold, and a bullish signal is generated when the signal crosses back above 30, indicating that a rally commenced.
A bullish RSI signal was generated in early April while price support was being tested, and the TWLO stock price has since appreciated. The indicator is not in an overbought state, which suggests that Twilio shares can continue their advance. An advance from current levels would suggest that a bottom has been formed and higher prices can be expected to follow.
Bottom Line on Twilio Stock
There is a confluence of indicators that is suggesting a bottom is being formed on the Twilio stock chart. A break above key levels of resistance would suggest that this bottom has formed and higher TWLO stock price can be expected to follow.