Twitter, Inc. (TWTR) has come alive after months of bearish action finally reached support at the May 2016 low. It could be different this time around, with the stock completing a double bottom reversal ahead of an uptrend that recoups many points for beaten-down shareholders. Even so, the buying impulse is likely to fall short of the IPO opening print in the mid-40s, telling risk conscious market players to keep one finger on the exit button at all times.
The stock has degenerated from social media darling into perennial laggard since topping out in 2013, losing eyeballs and ad dollars to Facebook, Inc. (FB) and other web behemoths with more potent marketing strategies. CEO Jack Dorsey has taken a well-deserved share of blame for the company’s misfortunes, with a nearly endless string of bad hires and even worse tech decisions incurring the wrath of a vocal and dissatisfied user community.
TWTR Long-term Chart (2013–2017)
The company came public near $46 in November 2013 and took off in a strong uptrend that reached an all-time high at $74.73 in late December. It turned sharply lower in the first quarter of 2014, cutting through the IPO opening print in April before finding support in the low-30s in May. A second half recovery wave came up short, stalling in the mid-50s in October ahead of weakness into year’s end.
A rally into that level in April 2015 attracted equally ferocious selling pressure that completed lower highs within the developing downtrend. The subsequent decline broke support at the 2014 low in July while a weak bounce to new resistance got sold aggressively, giving way to even lower lows into May 2016 when it bottomed out at $13.91.
The stock undercut that low by 1-cent in the second quarter of 2016 and turned higher in a speculative rally fueled by a series of takeover rumors. Shareholders got spooked in October by the lack of progress toward a sale or merger, generating a vertical decline off 50-week EMA resistance, with the impulse providing the fuel for a steady decline that reached the 2016 low in April 2017.
The weekly Stochastics oscillator has carved an unusual pattern that may offer actionable information for market timers. It ground lower in a series of small waves through most of 2016, generating a rare indicator trendline that broke to the upside in April 2017. This buying signal has come to fruition with a quick rally up to resistance at the 50-week EMA and may presage additional upside into the convergence of green and red trendlines centered near $20.
TWTR Short-Term Chart (2015-2017)
The 2015 into 2016 downtrend unfolded in three selling waves that drew the outline of an Elliot 5-wave decline. The recent bounce off the 2016 low raises odds for a double bottom reversal that ends the long bear market while setting the stage for a strong recovery into the 30s. However, the nascent uptrend faces a critical test at $20, defined by the narrow alignment of trendlines and technical elements that include the unfilled October 2016 gaps.
On Balance Volume (OBV) paints a hopeful picture for long-suffering shareholders, peaking in April 2015 and dropping in a major distribution wave that ended in April 2016. It made steady progress into the fourth quarter and held high in multiyear range while the stock dropped to a 10-month low in April 2017. This marks a significant bullish divergence, pointing to broad bottom fishing and value hunting in anticipation of a new uptrend.
The Bottom Line
Twitter has bounced strongly just above the January and May 2016 lows, raising odds for a reversal that ends the long downtrend, ahead of a strong recovery wave into the second half of 2017.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>