Twitter, Inc. (TWTR) shares fell nearly 10% in Thursday's session, dropping to a five-week low after the company met fourth quarter earnings expectations but reported a 5% quarterly decline in monthly active users (MAUs). The company then announced that it would discontinue providing MAU figures during earnings presentations, reminiscent of Apple Inc.'s (AAPL) ill-advised decision to stop reporting iPhone sales.
The social media giant has done a better job monetizing eyeballs in recent quarters, but user base contraction has kept potential investors on the sidelines, worried that profits will soon shrink as well. In addition, robots and fake accounts still run rampant, raising doubts about the authenticity of reported numbers. Given this distrust, providing less information to Wall Street seems counterproductive and more likely to encourage selling pressure than attract new buyers.
TWTR Long-Term Chart (2013 – 2019)
The company came public in the mid-$40s in November 2013 and took off in an immediate uptrend, underpinned by shareholders hoping that lightning would strike twice after the successful Facebook, Inc. (FB) roll-out in May 2012. However, the rally for Twitter stock topped out just seven weeks later, posting an all-time high at $74.73 ahead of a downturn that hit new lows in April 2014.
Selling pressure eased in the upper $20s in May 2014, setting the stage for a strong bounce that continued into the third quarter, lifting the stock into the mid-$50s. Range-bound action yielded an April 2015 breakout attempt, but aggressive sellers emerged, reviving the multi-year downtrend in a steady decline that broke 2014 support in July. Bears continued to press short sales into the second quarter of 2016, dumping price to an all-time low at $13.73.
The stock tested that level twice in 2017 and turned sharply higher, completing a major reversal while entering an uptrend that gathered steam into the second quarter of 2018. The rally reversed after tagging the opening print of the 2012 IPO, giving way to a steep decline that found support at the April 2018 low. The stock has been range bound since that time, caught between support in the upper $20s and resistance in the mid-$30s.
The monthly stochastics oscillator crossed into a buy cycle in November 2018 and has held that bullish orientation for the past three months. However, the shallow trajectory matches mixed price action, indicating greater apathy than buying or selling power. Even so, the indicator predicts relative strength that is likely to persist into the second quarter, denying easy profits to over-aggressive bears.
TWTR Short-Term Chart (2017 – 2019)
Price action in 2018 completed a broad head and shoulders pattern with a neckline at $26.50. The bounce off that level failed to negate the bearish set-up because it didn't mount the right shoulder above $36. The current downturn now risks forming a second right shoulder, which is equally bearish to the classic pattern. A Fibonacci grid places the neckline at the .618 retracement level of the 2017 into 2018 uptrend, with a breakdown targeting the all-time low in the mid-teens.
Fortunately for bulls, the on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in June 2018 and tested that level in January 2019. This placement indicates that it will take plenty of selling power in the coming weeks to break mid-year lows, suggesting that the stock will remain range bound into the foreseeable future rather than dropping quickly through support in the upper $20s.
The Bottom Line
There isn't much to love with Twitter shares on the long or short sides, telling informed market players to look elsewhere for exposure. That will change with a rally into the low $40s or a sell-off into the head and shoulders neckline, supported by aggressive distribution. While bears hold a minor advantage due to the classic topping pattern, the monthly stochastics buy cycle lowers the odds for a rapid breakdown.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.