Twitter, Inc. (TWTR) stock has completed an 11-month head and shoulders topping pattern and looks ready to break down into the mid-teens. That downturn would confirm the third lower high since the company came public in 2013, predicting an eventual test at the deep lows posted in 2016 and 2017. In addition, an unusually large supply of trapped shareholders could make it tougher to mount another sizable recovery effort, possibly signaling an unpleasant trip into the single digits.

The stock has struggled in recent years, failing to transform eyeballs and tweet storms into a growing income stream, unlike bigger brother Facebook, Inc. (FB), which is now mired in controversy and confusion after a series of political and trust misfires. Taken together, these declines reflect growing distaste with the social media stocks and their capacity to build profits into the next decade.

TWTR Long-Term Chart (2013 – 2018)

Long-term technical chart showing the performance of Twitter, Inc. (TWTR) stock
TradingView.com 

The stock came public to much fanfare in November 2013, with the investing public hoping for the next Facebook, which had broken out to an all-time high earlier that year. Twitter stock opened in the mid-$40s, built a small basing pattern in the upper $30s and took off in the strongest rally impulse of its five-year history, hitting an all-time high at $74.73 during the last week of December. It then turned tail, dropping into the IPO opening print just three months later.

The decline broke through the 2013 low in the second quarter of 2014, signaling the start of a brutal downtrend that posted a long series of lower highs and lower lows into the February 2016 low at $13.91. It tested that support level twice into 2017 and bounced strongly, reaching resistance at the 2016 high in the mid-$20s in December. A February 2018 breakout caught fire, posting two strong rally impulses that stalled just above the IPO opening print (blue line) in June.

The monthly stochastics oscillator crossed into a sell cycle in March 2018, well below the June peak, and printed a lower high after the mid-year reversal. It stopped falling just above the oversold level in September but has failed to cross into a buy cycle in the past three months. This exceptionally weak behavior could presage a fresh down leg while the indicator drops into the extreme levels posted in July 2015 and February 2017 (red line).

TWTR Short-Term Chart (2017 – 2018)

Short-term technical chart showing the performance of Twitter, Inc. (TWTR) stock
TradingView.com 

The sell-off into October 2018 unfolded through two waves that found support at the February continuation gap and April low, yielding a bounce that reversed after reaching the March high. This price action formed the potential right shoulder of a head and shoulders pattern, now confirmed with a vertical slide back to the April and October lows. In turn, this establishes a horizontal neckline at $26.50.

A Fibonacci grid stretched across the uptrend that started in 2017 places the neckline at the .618 retracement level. Ominously for bulls, the broad pattern yields a measured move target at just $4.00, well below the 2016 and 2017 lows. Of course, that's just a technical projection, and real-world trading can play out in other ways. Even so, it tells remaining shareholders to hit the sidelines immediately if the stock breaks 11-month support in the mid-$20s.

The on-balance volume (OBV) accumulation-distribution indicator is holding up better than price, testing June's all-time high just two weeks ago. This reveals unusually loyal sponsorship that could support another recovery effort. However, the sword cuts both ways because it also reveals a large supply of potential bagholders who may be forced to exit a burning building through a narrow door, raising the odds for a rapid decline into the teens.

The Bottom Line

Twitter stock has completed an 11-month head and shoulders pattern and could break down in the coming weeks, heading into a test of the 2016 and 2017 lows. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.