Twitter, Inc. (TWTR) shares rose nearly 5% in early trading on Tuesday morning after it emerged that the company would replace Monsanto Company (MON) in the S&P 500 Index after Monsanto's transaction with Bayer AG (BAYRY) is completed on June 7. At the same time, Variety reported that Twitter broke up its live video business and consolidated those responsibilities to its content partnerships team in a reorganization that could streamline its operations.
Cascend Securities raised its price target on Twitter from $40 to $45 per share following the news, which represents a nearly 20% premium to Monday's close. The analyst cited direct measurements of new Twitter app downloads that show organic growth through May as a primary catalyst for the upgrade, while noting that the company sees itself as a sophisticated video and content delivery platform and that it simplifies user engagement and ad sales. (See also: Will Twitter Head Higher as Part of S&P 500?)
From a technical standpoint, the stock broke out from its prior reaction highs earlier this week to three-year highs on Tuesday. The relative strength index (RSI) moved further into overbought territory with a reading of 83.32, but the moving average convergence divergence (MACD) continues to experience a bullish uptrend. These indicators suggest that the stock could see some near-term profit taking, but the long-term trend remains upward.
Traders should watch for some consolidation below upper trendline resistance at around $40.00 before retrying for a breakout from these levels to new reaction highs. If the stock breaks down from R2 support at $38.46, traders could see a move lower to retest trendline support levels near R1 support at $36.58. A breakdown from these levels could lead the stock down to the pivot point at $33.09, but that scenario appears less likely to occur. (For more, see: Twitter's Stock Seen Rising 14%.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.