Twitter Inc: These 3 Charts Show Where TWTR Stock Could Go Next
TWTR Stock: Potential Bottom?
Twitter Inc (NYSE:TWTR) stock has been the equivalent of dead money since June 3, 2015. If you were unfortunate enough to own shares at that time, your current loss stands at -55%. That is without a doubt a hard to pill to swallow.
When I ask people why they still hold a losing position, their answers are usually the same—it stems from peoples’ inabilities to trigger losses. They would rather wait until shares rebound or hit breakeven in hopes of getting out. That’s not exactly the best exit strategy.
There is a lesson to be learned from this, though. Market signals had warned investors that TWTR stock shares were in for a rough ride. If you had followed a disciplined trading approach and set objective rules, you could have avoided much of the pain associated with such losses.
The following chart illustrates the death cross that forewarned of a coming slide in TWTR stock:
Chart courtesy of www.StockCharts.com
On June 3, 2015, TWTR stock confirmed a death cross. A death cross is a bearish signal that is produced when a faster moving average (MA) crosses below a slower MA (for example, the 50-day MA crosses below the 200-day MA). Traders use this signal to confirm the beginnings of a bear market. Following this signal, shares proceeded to fall from $37.00 to a low of $13.90 for a 62% loss.
This signal on its own doesn’t constitute a good trading strategy, but it does serve as a tool to determine the direction of the trade. Once the death cross was confirmed, traders should either be neutral or short. There is no reason to be long on TWTR stock based on this signal.
The following chart illustrates the broken trend that confirmed the bearish premise:
Chart courtesy of www.StockCharts.com
The uptrend line acted as support for TWTR stock. When the share price shattered the support line, there was little left to remain in the bull camp and no reason to remain long. It is worth it to note that when shares break above or below a flatter sloping trend line, the share price performance is greater than the breaking of a steep sloping trend line.
The trend break coincided with the death cross, spelling double trouble for long investors.
The following chart illustrates the current developments that could change traders’ view on TWTR stock:
Chart courtesy of www.StockCharts.com
The chart above has two distinctive features that may provide some solace for the bulls.
Firstly, the downtrend line that pressured shares lower in April 2015 has been broken to the upside. Before you get too excited, note that the share price has yet to make a higher high. The resulting trend is still to the downside, but this is just one notch for the bullish camp.
The second feature is the possible pattern that is emerging. TWTR stock is setting up a possible double bottom formation. The double bottom would signal a trend reversal. In order to confirm the pattern, TWTR stock would need to close above the peak between the bottoms in question. A close above $20.00 would be tremendous news for the bulls, as it would suggest a bottom is in place and higher share prices are to be expected.
The Bottom Line on TWTR Stock
TWTR stock has not been a good investment for any long-biased strategy. There were ample warnings to step aside. The current signals are pointing to either further losses or a sideways trading range.
I am on the lookout for a closing price above $20.00. If TWTR stock manages to close above that level, it would be reason to cover any remaining short positions and go long. So, $20.00 is the line in the sand—a close above it would finally signal better times ahead for Twitter.
(Note: This analysis of Twitter stock is meant to serve as an example of the kind of analysis traders can perform to determine how to trade a popular stock and should not be construed as a buy or trade recommendation for TWTR stock.)
