Twilio Bearish Engulfing Could Signal Consolidation Ahead

Twilio Inc. (TWLO) shares fell nearly 5% on Wednesday morning even though the cloud communications company reported better-than-expected first quarter financial results. Revenue rose 80.6%, beating consensus estimates by $9.65 million, and non-GAAP earnings per share reached five cents per share, beating consensus estimates by four cents per share. The company also issued higher-than-expected revenue and earnings guidance for FY2019.

Analysts reacted favorably to the strong performance. KeyBanc and Piper Jaffray raised their price targets to $150, while Deutsche Bank and JMP Securities both raised their price targets to $160. The analysts cited the strong 60% year-over-year organic revenue growth, robust guidance for FY2019 and a compelling growth opportunity as "APIs Go Ubiquitous" across the broader enterprise market.

The stock's move lower could be a "sell-the-news" reaction to the financial results, as well as a realization that the company's in-quarter beats are starting to contract.

From a technical standpoint, the stock briefly broke out to fresh highs earlier this week before moving sharply lower following the first quarter financial results. The bearish engulfing could signal more consolidation over the coming periods as traders take profit. The relative strength index (RSI) moved to neutral levels of 54.42, but the moving average convergence divergence (MACD) could see a bearish crossover.

Traders should watch for a breakdown from the pivot point at $131.01 toward S1 support and the 50-day moving average at $125.37 over the coming sessions. If the stock breaks down from these levels, traders could see a move to S2 support at $112.09. If the stock rebounds back into its price channel, traders could see a move to R2 resistance at $149.93 or upper trendline resistance at around $156.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.