Twitter Stock Could Test March Low

Twitter, Inc. (TWTR) stock has rallied more than 50% since the March low but has now reached a resistance level that could trigger a reversal and multi-week decline. The recovery wave has, so far at least, failed to end the string of lower highs in place since the stock topped out at $45.85 in September 2019, giving the long-term chart a decidedly bearish appearance that could presage an uncomfortable trip back to $20.00.

CEO Jack Dorsey stirred controversy last week, placing a "fact-check" filter on tweets from President Donald Trump. The commander-in-chief responded immediately, threatening to lift liability protections given to ideally neutral social media platforms that have grown increasingly politicized in recent years. Despite the CEO's apparently good intentions, it looks like he's brought a knife to a gunfight that he can't win in the long run.

Bottom fishers have been buying Twitter stock since March, lifting accumulation readings back to resistance at the February high. Indicators reversed at that barrier after the presidential threat, suggesting that many traders and investors are now cashing in their chips and heading back to the sidelines. However, it is hard to tell if this short-term bearish activity marks the start of long-term distribution or just a pause until the catfight disappears from the financial headlines.

TWTR Long-Term Chart (2013 – 2020)

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

The company came public at $45.10 in November 2013 and entered a brief but strong uptrend one month later, lifting to an all-time high at $74.73 in December. It sold off into the second quarter of 2014, cutting through the IPO opening print before finding support in the upper $20s, and lifted back above that inflection point during the summer months. The recovery wave then ended in a lower high, ahead of a failed April 2015 breakout attempt.

Aggressive sellers took control at that time, triggering a July breakdown that posted a long string of lower lows into May 2016's all-time low at $13.73. Subsequent price action completed a triple bottom reversal in April 2017, setting the stage for an uptrend that took more than 10 months to generate a steady uptick. The buying impulse ended just above the IPO opening print in June 2018, marking the highest high in the past two years.

A sell-off into the fourth quarter of 2018 posted a higher low, yielding a bounce that failed a September 2019 breakout attempt. Aggressive sellers took control once again into November, when bulls engineered a modest recovery that carved a lower high in February 2020. The stock broke support at the October 2018 and November 2019 lows during the plunge into March, coming to rest at a two-year low.

TWTR Short-Term Chart (2017 – 2020)

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

The uptick into the second quarter carved a bear flag that remounted resistance at the 2018 and 2019 lows, reaching the 200-day exponential moving average (EMA), which was broken on heavy volume in October 2019. The stock also failed a February breakout above that barrier, reinforcing resistance that will be tough to overcome in the current environment. It lifted above the moving average for five sessions in May and gapped down after the Trump threat, raising the odds that the bounce has now come to an end.

Flag support has aligned with the 50-day EMA and November 2019 low, marking a line in the sand for bulls because a violation would set off sell signals that predict the March low will eventually fail. The October 2018 low at $26 would then mark a final trading floor, prior to a test at the low. Given the bearish set-up, market players should watch the on-balance volume (OBV) accumulation-distribution indicator for a breakdown through the lower red line, which would confirm a major increase in selling power.

The Bottom Line

Twitter stock's recovery wave may have come to an end, setting the stage for a renewed decline that could test deep support.

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

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