TWTR Stock: Waiting for a Confirmation
It looks like traders have found a new affinity for Twitter Inc (NYSE:TWTR) stock. This newfound love for Twitter has created a tailwind that has begun to carry TWTR stock. This resurgence in price has many wondering if this rally in Twitter stock is the beginning of a more substantial run, meaning that a lasting long-term bottom in the stock was just forged. My curiosity is also piqued, which is why Twitter is the focus of this publication.
In order to gain an understanding of the situation that is currently playing out, which may or may not indicate that a potential bottom in the price of Twitter shares has formed, I need to do what I do best, and that is to analyze the price patterns and indicators that are generated on the Twitter stock chart. For anyone who hasn’t had a chance to frequent any of my previous publications, it is worth noting that the method of analysis I use to generate a view on a potential investment is known as technical analysis. I have spent the better part of two decades getting a grasp of this method of analysis because I find great value in the timely information it provides.
Finding a clear-cut indication that will without a doubt suggest that Twitter stock has bottomed may turn out to be a difficult endeavor at the moment, but I will outline key developments and indications I would be looking for in order to confirm that a lasting bottom has been formed.
The following TWTR stock chart illustrates the predominant bearish trend that has prevented the stock price from advancing.
Chart courtesy of StockCharts.com
The price chart above illustrates the price action that has occurred on the TWTR stock chart since inception. Aside from a few brief rallies, the performance has been dismal, and it is not difficult to say that Twitter has not been kind to investors.
This bearish trend that gripped TWTR shares is easily defined using a downtrend line. This downtrend line is created by connecting the peaks on the price chart. Trend lines are simple tools used by technical analysts, but that doesn’t take away from their significance. This trend line captures the quintessential characteristic of a bearish trend, which is a series of lower lows and lower highs. This downtrend line has become a serious level of resistance, and any attempt to overcome it has been met with selling pressure.
In order to even suggest a bottom in Twitter shares has been forged, the stock price must close above this downtrend line. Current resistance sits at the $20.00 mark, and a break above this level would be a tremendous win for the bulls. It would suggest that the bearish trend that plagued investors since the share price peaked in December 2013 has finally concluded, and it would open the door for a bullish trend to develop.
The following Twitter stock chart illustrates the price action that is possibly suggesting that Twitter is attempting to put in a bottom.
Chart courtesy of StockCharts.com
There is a possibility that a double bottom price pattern is being painted on the price chart. A double bottom is a trend reversal pattern that appears at the conclusion of a bearish trend. This pattern is marked by two consecutive bottoms, of approximately equal size, that are separated by a peak. A trend reversal is confirmed when the share price closes above the peak that separates the two bottoms.
I am going to take a leap of faith and assume that the peak in between these two bottoms is $20.00, and I am omitting the surge above this level because it was generated in September of last year when there was speculation that a buyer would step up and buy Twitter outright. This leap of faith is based on the reaction when investors found out that all the potential buyers had stepped away and the share price quickly gapped below $20.00.
$20.00 is proving to be a major sticking point in price on many fronts, and I have little doubt that breaking above it would imply that a higher stock price would likely follow. The only question that remains is: When will such an event occur?
The moving average convergence/divergence (MACD) indicator is in bullish alignment, which is supportive of a break above $20.00. MACD is a trend-following momentum indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. The bullish cross that was just generated in April 2017 serves to suggest that bullish momentum is now governing Twitter shares, and as a result, it creates an environment where the path of least resistance is tilted towards an advancing stock price.
Twitter stock is now in a perfect position to break above the extremely significant level of resistance that stands at $20.00. If Twitter can break above this level, I will confidently be able to say that I strongly believe a lasting bottom in TWTR stock has been formed.
Bottom Line on Twitter Stock
Twitter stock has begun to appreciate in recent weeks. The enthusiasm behind this move needs to be confirmed by breaking above a key level of resistance at $20.00 in order to suggest that a bottom has been formed, and that higher TWTR stock prices will likely follow.