Twitter Inc. (NYSE:TWTR) got cracked following earnings that disappointed Wall Street last quarter, but the earnings driven freefall was just a continuation of the stock slide after posting an all-time high of $74.73 in December 2013.
For the last month or so, the price has flattened out while trading between $30 and $34ish; a mini-consolidation phase, but there's been something different of late. As you can see on the chart below, bargain buyers have started to accumulate TWTR as illustrated by the large green bars.
The recent spate of buying pushed the stock out of the consolidation phase and turned the 12-day average's trend higher, putting it on a path to bypass the 26-day mark. We've seen this look thousands of times, and it usually leads the stock to its 50-day benchmark.
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The 50-day is a tough barrier to break, but $40 appears to be a more natural point of resistance. The odds favor Twitter printing $40 sooner than later, in our opinion. From there, $45 would be the completion of a triangle pattern. Forty-five bucks is a high probability if investors bid TWTR past $41, again, just our opinion.
On chart two, you can see the 140-character social site's trading range has narrowed considerably since the start of June. From our experience, stocks tend to make substantial moves following a tight trading range. The spoils will belong to whichever side of the channel breaks first.
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As it is today, Twitter closed near the high achieved on TWTR's earnings-driven gap down day – May 6, 2014. The day before, the stock closed at $38.75 and then $31.85 on the 6th with a high of $36.10.
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If/when Twitter closes above $36.10, then it should begin the process of closing the gap-down, which would place stock in the neighborhood of the 50-day average; confirming our analysis up-top.
Momentum, as defined by Rate-of-Change is building for Twitter; however, the five-day and 15-day ROC readings are bumping into resistance. But that's OK because the trends for all three levels on the chart below are trending in the right direction for bulls.
Longer-term, the 25-day ROC shows TWTR's upswing should have some staying power. A rough day or two should be greeted by more green bars as bulls buy the dips.
Overall: Twitter Inc.'s (NYSE:TWTR) charts suggest shares could touch $40 – maybe more – in the not too distant future. Of course, TWTR will need some help from the overall market. If the indexes go into correction mode, then it would make the task more difficult, but still more likely than not, in our opinion.
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