Twitter Inc. (TWTR) is nearing a critical test at 2018 resistance in the mid-40s after gaining nearly 50% so far in 2019. A breakout would post the highest high since 2015 while mounting stubborn resistance at the opening print of its ill-fated 2013 initial public offering. In turn, that would allow long-suffering shareholders to set their sights on the all-time high in the 70s, posted just six weeks after the social media giant came public.
The company has done a better job expanding and monetizing the daily active user (DAU) base in 2019, with engagement now growing for three quarters in a row after a long period of contraction. As boutique firm Aegis Capital pointed out in a recent report “as engagement improves, ad budgets shift towards the platform” generating a positive feedback loop that may pick up steam into 2020 despite recent calls for an economic downturn.
Still, Twitter need to avoid controversies that have attracted unwelcome political attention at big cousins Facebook Inc. (FB) and Alphabet Inc. (GOOGL). The company now faces a firestorm of criticism after Bloomberg found that employees were training Chinese officials on how to “amplify” political messaging. In reaction, they’ve removed hundreds of accounts linked to the Chinese government but the public outrage continues.
TWTR Long-Term Chart (2013 - 2019)
The stock turned sharply higher a few weeks after coming public in the mid-40s November 2013, posting an all-time high at 74.73 in late December. It relinquished 100% of those gains in the first half of 2014 and broke short-term support in the upper 30s, generating a final selling wave into 29.51. It pulled back to that level in 2015 after posting two lower highs and broke down, dropping into the mid-teens in the first quarter of 2016.
Two tests at that support level completed a 2017 triple bottom reversal, generating an uptrend that posted impressive returns into the June 2018 high at 47.79, just two points above the IPO opening print. The stock sold off a month later, failing the breakout in a volatile decline that ended at the 200-week EMA in the mid-20s in October. Committed buyers returned in December, yielding a multi-wave uptick that’s now reached within five points of the 2018 peak.
A Fibonacci grid stretched across the multiyear downtrend places the 2018 high at the 50% retracement level, which has narrowly aligned with the IPO opening print (black line). A shorter-term grid across the 2018 decline places the July 2019 high at the .786 retracement, with price action into August building a base that could support a final rally thrust into the 100% retracement near 48.
TWTR Short-Term Chart (2018 - 2019)
The on balance volume (OBV) accumulation-distribution indicator entered a persistent accumulation phase after the 2016 low, posting new highs in 2018 and 2019, signaling broad-based institutional and retail sponsorship that should add a major tailwind after a breakout above the 2018 peak. However, the .618 retracement of the multiyear downtrend is situated just above that level in the low 50s, marking a secondary barrier that could slow or stall upside progress.
2019 price action has now filled the July 2018 gap while reaching the .786 rally retracement level, a common set-up for a sell signal, but the stock has held near that harmonic barrier for the last four weeks. Even so, a final downturn could fill the July 2018 gap between 38 and 39 while testing 50-day EMA support, potentially offering a lower risk trade entry than chasing the upside into tough resistance at 48 and 51.
The Bottom Line
Twitter has blossomed into a market leader in 2019 and could trade much higher in coming months.
Disclosure: the author held no positions in aforementioned securities at the time of publication.