Since the initial peak after its IPO in 2013, shares of Twitter have been trending lower, well-defined by a series of lower highs. Over the last few months, however, shares were able to stabilize and put in their first lower high since the lows last Spring. This has now given Twitter the appearance of more of a large sideways consolidation, rather than the downtrend that we just pointed out.

Here is a daily candlestick chart of $TWTR. What stands out to me here is how after the gap higher in shares early last month, prices have remained up here near the downtrend line from December 2013, rather than correcting to the downside from this resistance level. To me, this is always the more healthy way to consolidate gains:

I’ve been arguing that the longer shares remain up here near this downtrend line, the higher the likelihood that we break out. I think this would be a very bullish development if prices resolve themselves to the upside above the upper of these two converging trendlines.

We want to be aggressive buyers of that breakout if and when it comes. I find it hard to be long Twitter if we remain below this downtrend line. I’m in the camp that a breakout happens soon and we want to be all over that. I would expect some acknowledgement of overhead supply near 56 based on the highs from October, but ultimately I think we take those out and put in new 52-week highs sooner rather than later.

Now look at the chart relative to the S&P500. This is a ratio chart comparing TWTR to SPY. Notice the similar downtrend line from the highs in late 2013. I love to see breakouts in price that are accompanied by breakouts in relative strength. To me, these are some of the more powerful bullish resolutions:

Finally, risk management-wise, if shares of $TWTR never take out the highs from last month, then fine, we’ll look elsewhere. But something tells me this one is coming soon and we want to be paying attention.