Twitter Stock at 3-Month High After Strong Quarter

Twitter, Inc. (TWTR) is trading higher by more than 8% in Thursday's pre-market, despite missing fourth quarter 2019 profit expectations and providing modest in-line guidance. Revenues rose 10.8% year over year to $1.01 billion, beating consensus expectations by 2%. Most importantly, monetizable daily active users (mDAU) of 152 million marked a healthy increase from 126 million last year and 145 million in the third quarter of 2019, underpinning a 12% year-over-year increase in advertising revenues.

The stock dropped like a rock after a bearish third quarter report in October, gapping down more than eight points in a 20.8% one-day decline. It has struggled to recover since that time and was trading just three points higher than the gap open ahead of this morning's confessional, which has lifted the stock into the upper half of the big hole. Technically speaking, this is a relatively neutral zone, telling informed market players to watch buying power closely after the opening bell.

A wave of downgrades followed the third quarter report, and it's hard to tell if fourth quarter metrics will induce analysts to reverse gears and recommend buying the social media giant. Several firms have also expressed concern that Twitter isn't accepting political advertising during the 2020 election cycle, missing out on substantial income. From a trading standpoint, a positive change of heart needs to come quickly or price action could quickly enter another period of underperformance.

TWTR Long-Term Chart (2013 – 2020)

Long-term chart showing the share price performance of Twitter, Inc. (TWTR)

The company came public in a widely anticipated November 2013 initial public offering (IPO) and settled into a trading range in the $40s, ahead of a strong rally into year end. It posted an all-time high at $74.73 at that time and reversed, carving a topping pattern that broke to the downside in February 2014. The decline cut through the IPO opening print a month later, adding to a decline that found support in the upper $20s in June.

A recovery effort posted a lower high in October, setting the stage for renewed selling pressure that broke the 2014 trading floor in the second half of 2015. The downtrend escalated into the second quarter of 2016, finally ending when the stock posted an all-time low at $13.73 in May. It tested that support level 11 months later and turned higher, completing a double bottom reversal that attracted healthy buying interest.

The rally reached resistance at the IPO opening print in June 2018, with that level narrowly aligning with the 50% sell-off retracement level. It gapped down on high volume one month later, reinforcing resistance in the mid-$40s that repealed a second rally attempt in September 2019. The 50-month exponential moving average (EMA) has acted as support during this range-bound action, highlighting the need for bulls to hold the mid- to upper $20s.

The monthly stochastics oscillator entered the overbought zone in September 2019 and crossed into a sell cycle, reaching the oversold zone in December. It has just lifted into a new buy cycle, predicting relative strength that should persist into the second half of 2020. Even so, huge supply within the October gap could take time to overcome, suggesting slow improvement rather than a quick assault on last year's high. 

TWTR Short-Term Chart (2018 – 2019)

Short-term chart showing the share price performance of Twitter, Inc. (TWTR)

The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high in September 2019 and entered a distribution phase that ended in late October. Buying power since that time has been impressive, lifting OBV back into the prior high. This pattern confirms extensive bottom fishing as well as institutional support that should underpin gains in coming months.

Summing up, the October gap stands out like a sore thumb on this daily view, with strong resistance up to $39. The stock is now trading about 2.5 points under that ceiling despite the impressive bounce, highlighting layers of resistance that will require a big batch of sidelined capital. While fourth quarter 2019 results were impressive, Twitter might not attract enough new investment for an easy ride back to the highs.

The Bottom Line

Twitter stock has rallied to a three-month high after a strong quarterly report but still must overcome substantial overhead supply.

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

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