Let’s Define The Key Levels In Twitter

Shares of $TWTR got killed in the second quarter and have come down near a key downtrend line from late 2013. There are people who come out and make a lot of noise about sources and rumors they are hearing about a buyout, but as usual, listening to noise like that can get expensive quickly.

We trade stocks, not companies. So we want to analyze the supply and demand for the stock and try to ignore the news surrounding it as much as we possibly can. Remember usually those that are spreading rumors get paid to make noise, not money in the market. Today we are focusing on supply and demand dynamics for $TWTR stock.

Here’s how I see it: When shares broke down in April, there were a lot of people trying to bottom fish all over the place. I figured since it was trending down below a 200 day moving average that was rolling over, it was dead money at best and decided that the opportunity cost was too great to bother with.

The rumor spreaders really got going earlier this month and the stock popped for a hot second. But supply and demand, which is what controls the direction of stocks, overcame all of that (as usual) and made it perfectly clear to us that supply exceeded demand.

Going forward, here we are at a key downtrend line going back to the lows in November of 2013. Outside of the brief breakdown and quick recovery last Summer, this has been the important level of support which held last July and again in December. After today’s gap lower, prices are right there once again.

2015-07-29_10-21-59 twtr

The problem I see is that even if prices hold this level, we are now below all of that support since last December (shaded in gray). This range we had been in since early June resolved to the down side. That can’t be good. I would expect that if we get any rallies from here it should still run into trouble as that former support is most likely going to turn into resistance.

Let’s take it one step further. Let’s just say that prices do hold this downtrend line. Let’s just say hypothetically that it then recovers and quickly gets back above all of that former support that we said should turn into resistance (near $35). Then at that point, prices still have to breakout above the upper end of that two month range mentioned above. Again, even after that, we have a downward sloping 200 day moving average above head which just points to a downtrend or lack of trend at best.

Knowing all of this, is $TWTR the stock you want to own? Can it overcome all of these resistance levels and rip towards $100? Of course, anything can happen. Will the rumor spreaders be right one day and someone comes in to buy them out? Sure, it’s possible. But when you take the weight-of-the-evidence and see all of these barriers that go against any bullish thesis, is this really where you want to be?

It’s not for me. I would continue to stay away as we’ve been suggesting since April. When S&Ps are a tiny percentage away from an all-time high, is a stock making new 52-week lows really the one you want to own? That just doesn’t make much sense to me.

What do you guys think?

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Posted to U.S. Averages and Interest … on Jul 29, 2015 — 12:07 PM
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