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Buy Twilio on Guidance Boost? Here's the Trade

Twilio stock is ripping to highs on Friday after the company updated its third-quarter guidance. Let's look at the trade from here.

The markets are swooning on Friday -- but not Twilio  (TWLO) - Get Twilio, Inc. Class A Report, which is up 13.5%.

A positive covid-19 test by President Trump and a disappointing jobs report has the market wavering ahead of the weekend. That’s not seeming to have an impact on Twilio, which is rallying on a business update.

The cloud-communications platform company said it expected “revenue for the quarter ended Sept. 30, 2020 will be ahead of the company's previously issued guidance of $401 million to $406 million."

It’s not clear how good of a quarter it was, only that it was a strong result for the company. It’s also clearly ahead of analysts’ estimates, with consensus expectations calling for $404.6 million in sales.

What Wall Street Is Saying About Twilio Report

In any regard, investors know the secular growth driving Twilio doesn’t appear to be slowing at this point. Momentum in its business is translating to momentum in its stock price, too.

Can Twilio make a statement and clear its prior highs with authority? Let’s look at the charts.

Trading Twilio Stock

Daily chart of Twilio stock.

Daily chart of Twilio stock.

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Look at the way the shares exploded higher in May when it was clear that Twilio was a play on covid-19. After consolidating those gains, the shares went on to climb even higher, topping out around $288 and right near the 261.8% extension.

After a quick pullback at the start of September, Twilio stock found support at the 100-day moving average and near $220, a support mark that came into play in July.

On Friday, Twilio gave us what I call a “deliberate move,” as the shares opened right at downtrend resistance (blue line) and pushed higher. 

The stock could have opened above and failed or opened below and reclaimed it. Instead, it “deliberately” opened right at it, and ran higher after doing so.

The stock has now taken out its prior high near $288, as it flirts with a move toward $300. 

If you ask the analysts, the stock is heading there soon and potentially much higher. RBC Capital raised its price target to $375 from $320. A few others are also north of $300, too.

Should Twilio clear $300, it puts the three-times range extension in play near $315, followed by the 361.8% extension near $366.

On the downside, a close below Friday’s low at $272.50 does not do bulls any favors. It could put a gap-fill in play down toward $258 and the 10-day moving average.