Technical Analysis: Has Twitter Stock Finally Bottomed?

Twitter Stock
Credit:iStock.com/guirong hao

TWTR Stock: The Construction of a Trend Reversal

Twitter Inc (NYSE:TWTR) stock is up 13.68% following a better-than-expected earnings report. This report was disseminated before the market opened on October 26, and it was filled with great news. The company reported numbers that beat on both the top and bottom lines, actives users grew, and to top it off, the company announced that it expects to turn a profit in the fourth quarter.

In retrospect, it’s no wonder why TWTR stock is up as much as it is, but it still raises the question, could this earnings report be the catalyst that finally sets Twitter stock free from its bearish shackles and on its way towards a sustained run towards higher stock prices?

As a technical analyst who uses stock charts to generate views on potential investments, I feel I can shed some light on this question.

I have been looking for a bottom to develop in Twitter stock for quite some time, and in my world of stock chart analysis, I am watching a particular price point, which I believe the stock needs to attain in order to suggest that an ever-elusive bottom has finally arrived. I must admit that it has been a frustrating ordeal because there have been countless false starts which were suggesting that higher stock prices were in play, but these suggestions quickly got quashed.

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The price point I am currently watching resides at $20.00 and its significance is illustrated on the following Twitter stock chart.

Twitter stock chart

Chart courtesy of StockCharts.com

This chart illustrates a potential double-bottom technical price pattern that is currently in development.

Double-bottom patterns consist of consecutive lows that are separated by a peak in-between. When the stock price closes above the peak, it completes the pattern, which will indicate that a trend reversal has occurred. Marking the point where the trend moves towards lower prices has been finally eradicated, and a new bullish trend is now in development.

In order to confirm that the double-bottom is complete, I am looking for TWTR stock to sustain a close above $20.00. I have omitted the move from September 2016 because it was created when there was chatter that Twitter was seeking a proposed sale and a number of suitors were allegedly interested. Nothing ever came of this potential buyout, and the stock price quickly traded lower.

$20.00 is the line in the sand and a confirmed close above it would complete the double-bottom pattern. There have been numerous attempts to break it, and every time Twitter closed above $20.00, it was unable to sustain this level the following day.

Currently, Twitter is trading just above this important level of price resistance, and in order to confirm that a bottom is being formed, it must sustain this level. Fortunately, there is growing evidence supporting the notion that a bottom is being formed, which increases the odds that TWTR stock can sustain a move above $20.00.

This growing evidence is illustrated on the following Twitter stock chart, illustrates the price action since inception.

Twitter price chart

Chart courtesy of StockCharts.com

Aside from the first three months of trading, the trend has been dominated by lower highs and lower lows, which is the quintessential characteristic that defines a bearish trend.

This bearish trend is best captured using a downtrend line, which was created by connecting the sequence of lower highs. This downtrend line acts as a level of price resistance that has prevented this investment from staging a bullish advance towards higher stock prices.

Over the last few months, TWTR stock has slowly slipped out of the downtrend. What’s more, the breakout highlighted on the chart implies that the bearish trend line has finally met its match and a door has swung wide open, allowing the opportunity for a bullish trend to develop.

This opportunity is now at hand, a sustained close above $20.00 will imply that a larger move towards higher stock prices is in progress.

Analyst’s Take:

A better-than-expected earnings report has sent Twitter stock surging to test a very important and influential level of price resistance, which resides at $20.00. A confirmed close above this level will complete a double-bottom pattern, indicating that a trend reversal is in play. This, in turn, implies that higher TWTR stock prices are on the horizon.