Technical Analysis: A Bottom in TWLO Stock Is Under Development

Twilio Stock
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Twilio Stock: A Break Above Resistance Will Set the Wheels in Motion

I have my eyes on another investment in Twilio Inc (NYSE: TWLO) and for good reason. That reason stems from the TWLO stock chart, which is painting a compelling price pattern that will determine if a move towards higher or lower Twilio stock prices is on the horizon.

Using the company’s stock chart to generate a view on an investment is called technical analysis. This method of analysis, which is predicated on using historical data to forecast what the future may bring, is extremely effective and it is why I have been using this method to generate views and investment strategies for almost 20 years.

In order to suggest that higher stock prices are on the horizon, I need to determine if a bottom is being formed. The first indication I look for is the establishment of an important and influential level of price support. This metric I seek is highlighted in the following stock chart.

TWLO stock chart

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Chart courtesy of StockCharts.com

This stock chart illustrates that when this investment first began trading, the price action was characterized by a series of higher highs and higher lows, which is the quintessential characteristic that defines a bullish trend. This bullish trend lasted for three-and-a-half months and TWLO stock managed to appreciate by an impressive 195.79% before the uptrend line that defined this trend was broken to the downside. This broken uptrend line unleashed a spectacular move to the downside.

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This event is marked as a “breakdown” on the stock chart and it defined the point in time when the bullish trend transitioned into a bearish one. The bearish trend was a fierce one, and seven weeks after the shares peaked, Twilio stock was down 57.84%. It wasn’t until May 8 that a low was finally established.

This low, labeled as an important and influential level of price support on the stock chart, marks the exact low that was forged on the day TWLO first started trading. This level just happens to coincide with the low that was crafted in May. Closing below this level would unleash a barrage of selling pressure, and everyone who ever acquired a position in this investment in the open market would be underwater on their holdings.

It is imperative that this level of support hold in order to lay the groundwork for a sustainable move towards higher stock prices. This level of support was tested once in May of this year, upon which a move to test an important level of resistance has begun. The second indication I need to determine if a bottom has been forged is based on this level of price resistance.

The second indication needed to suggest and confirm that a bottom has been formed is highlighted on the following TWLO stock chart.

Twilio price chart

Chart courtesy of StockCharts.com

This stock chart illustrates that while the stock was establishing an important level of price support, it was simultaneously defining and establishing an important and influential level of price resistance.

This trend line, which was created by connecting the peaks on the price chart, sits at roughly $35.00. This level of price resistance, which is marked by the trend line, has thwarted all previous attempts at moving behind it. This level is acting like a line in the sand and in order to even suggest that a bull market is in development, Twilio stock needs to close above it on a sustained basis.

There just so happens to be an indication that was generated in August of this year that is suggesting that a bull market is now in development. This indication is highlighted on the stock chart as a golden cross and it was generated when the faster 50-day moving average, which is highlighted in blue, crossed above the slower 200-day moving average, which is highlighted in red.

This bullish indication is supporting a move towards higher stock prices, and it is effectively creating a tailwind that will reinforce a move towards breaking above the important and influential level of price resistance. Breaking above this level of resistance will serve to suggest that a bottom is in, and therefore a move towards higher stock prices is on the horizon.

Analyst Take: 

In order to suggest that a move towards higher Twilio stock prices is in development, the stock must break above an important and influential level of price resistance. This feat will suggest that the bearish trend that has plagued this investment has finally concluded, which will open the door for a move towards higher stock prices.