TWLO Stock: Anticipating a Bullish Trend Reversal
The ferocious panic selling event that began in the beginning of February has subsided, and for time being, cooler heads have prevailed.
Selloffs such as the one that just occurred can be observed in a number of ways. In some it breads fear, and anxious investors may be inclined to step aside, while other investors feed off these moments, seizing what they perceive as an opportunity to acquire their favorite positions on a dip.
I am in the camp that believes that the current selloff was just a much-needed and overdue correction that was required in order to prevent the bullish trend from overheating. And as a result, I believe that higher prices will once again prevail.
With this bullish outlook governing my thinking, I continue to look for compelling investments with constructive setups. That’s why I am currently focusing on Twilio Inc (NYSE:TWLO) stock. A cloud communications business, Twilo has been frustrating for many investors because it has really done very little in terms of performance in this latest stage of the current bull market in stocks. I have the inclination to believe that this lack of performance is going to change, and these beliefs are centered around the price action and an influential indicator that have been generated on the TWLO stock chart.
The following stock chart illustrates the price action that has piqued my interest in Twilio stock:
Chart courtesy of StockCharts.com
Since December 2016, Twilio stock has been created a technical price pattern known as a “channel.” This pattern is created when the price action is characterized by a stock’s inability to break above a significant level of price resistance and its inability to break below a significant level of price support. In essence, these levels of support and resistance cause the price action to oscillate between these two levels, creating the channel.
The two parallel trend lines on the TWLO stock chart define the pattern, as well as the respective levels of price support, which resides at $25.00, and price resistance, which resides at $35.00. These two trend lines have contained the Twilio stock price. Using this info is quite simple: in essence, the stock price will oscillate within this channel for as long as time permits until either resistance or support is broken, and that event will dictate what direction the stock will head in next.
I have the inclination to believe that that resistance, which currently resides at $35.00, will be broken, implying that this pattern is in fact a trend reversal. Such a feat would suggest that a bearish trend towards lower prices has finally concluded and that a new bull market is in development.
My inclination for such a development is based on an influential momentum indicator, which is highlighted on the following stock chart:
Chart courtesy of StockCharts.com
This TWLO stock chart highlights the moving average convergence/divergence (MACD) indicator.
MACD is a simple, yet effective indicator that distinguishes whether bullish or bearish momentum is influencing the price action in a stock. This is pertinent information because bullish momentum suggests a stock is geared toward higher prices, while bearish momentum suggests that a stock is geared towards lower prices. As a result, a stock cannot sustain a move in either direction without the applicable momentum supporting it.
A bullish MACD cross was just generated in February, and this indication is suggesting that the path of least resistance is currently geared toward higher TWLO stock prices.
The timing of this indication could not have been better, because resistance is now moments away from being tested. What makes this indication special at the moment is that a break above resistance will coincide with the MACD indicator crossing above the zero line, finally suggesting that Twilio stock is bullish once again. This would reinforce the notion that the channel is indeed a trend reversal pattern, and therefore a new bull market is in development.
I continue to believe that the recent weakness in the market is just a healthy correction in a bull market. And with this in mind, I believe that the channel developing on the Twilio stock chart is a trend reversal pattern which is nearing completion. Breaking above resistance would suggest that a new bull market in TWLO stock is in development.