Twitter Stock on Fire After Subscription Service Chatter

Twitter, Inc. (TWTR) stock rocketed higher on heavy volume in Wednesday's session, gaining more than 7% after reports that the social media portal is working on a subscription service. The company didn't confirm or deny the initiative, but market players jumped in anyway, lifting the stock to a five-week high that sets the stage for greater upside in coming weeks. It's even possible that the uptick will mark the next wave in an uptrend that finally ends a long period of laggard behavior.

The stock is consolidating gains on Thursday after two Congressional Republicans renewed criticism that Twitter's content moderation was unbalanced, leaning to the left while stifling conservative voices. They again pointed to the company's new fact-checking mechanism, which has flagged several presidential tweets. Trump has threatened to use the power of his office to regulate social media, but there has been little follow-up from the Oval Office in the past few weeks.

Wall Street consensus has been cautionary on Twitter stock in recent months, with 5 "Buy," 19 "Hold," and 3 "Sell" ratings. The subscription service, if confirmed, is likely to lift a number of Hold ratings into the Buy column, adding a stiff tailwind to this week's rally momentum. Price targets currently range from a low of $23 to a Street high $42, while Twitter stock is now trading about $5 above the median $31 target.

TWTR Long-Term Chart (2013 – 2020)

The company came public in the mid-$40s in November 2013 and entered a brief uptrend that posted an all-time high at $70.43 in December. The subsequent decline sliced through the IPO opening print in March 2014, reinforcing a resistance level that's still in play more than six years later. The initial selling wave found support in the upper $20s in May, setting the stage for a recovery wave that stalled in the low $50s in the fourth quarter.

Price action held the 2014 low until a 2015 breakdown that generated aggressive selling pressure. Buyers emerged near $14 in February 2016, but the uptick failed quickly, yielding a pullback that undercut the prior low by a penny in May. It tested that level a third time in the second quarter of 2017, completing a triple bottom that yielded the most prolific buying power since the stock came public. The rally ended less than three points above the IPO opening print in June 2018, giving way to a proportional retracement that found support in the mid-$20s in October.

Bulls lifted the stock into the $40s in 2019, but the rally came up short once again, reversing at the same resistance level. It then carved a two-legged decline, with 2020's pandemic-driven selloff dumping Twitter to a 16-month low at $20. It will now take a rally up to $40 to end the string of lower highs in place since 2018. Long-term resistance aligns perfectly with the 50% selloff retracement level, highlighting an obstacle that must be overcome to yield a sustained uptrend. The next test, if it comes, will be tougher than usual because the trendline of lower highs has also aligned at this price level.

TWTR Short-Term Chart (2018 – 2020)

February's unfilled gap between $36.30 and $38 marks the next short-term obstacle, perfectly aligned at the .618 Fibonacci selloff retracement level. Fortunately for bulls, the on-balance volume (OBV) accumulation-distribution indicator is leading price action to the upside, lifting to an all-time high this week. In turn, this predicts that price will follow soon, raising the odds that the stock will find its way back into the mid-$40s.

The Bottom Line

Twitter stock posted posted its heaviest-volume rally day since June 2018 on Wednesday, lifting shareholder spirits while raising the odds that the stock will test critical resistance in the mid-$40s.

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