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Twilio Stock Plunges. Buy the Dip or Stay Away?

Twilio shares fell as much as 20% on Thursday. Here's how to trade the stock now as it approaches a key level.

It’s not a good day for Twilio  (TWLO) - Get Twilio, Inc. Class A Report stock, which is down about 17% after the company reported earnings.

The crazy thing? This is a great company and should be considered a high-quality growth stock. That’s how I look at Twilio.

But right now there appears to be a rotation out of growth and into more secure tech stocks — like FAANG — or into cyclical stocks like Ford  (F) - Get Ford Motor Company Report.

Worth mentioning is Ford’s post-earnings rally to seven-year highs after a top- and bottom-line beat and a boost to its full-year guidance.

For Twilio, the company beat on the one thing that should matter, which is revenue growth. (It beat on earnings, too.) 

While earnings guidance for next quarter was disappointing, revenue growth came in well ahead of analysts’ expectations. But doesn’t that seem to be the trend every quarter for Twilio?

The company crushes estimates, guides conservatively on earnings and investors sell the stock regardless of the other positives.

Twilio may not be in style right now, but I believe it’s more of a “when it comes roaring back,” not an "if," scenario. 

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Let’s look at the chart.

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Trading Twilio Stock

Daily chart of Twilio stock.

Daily chart of Twilio stock.

This morning gave investors a great chance to buy a great company that was down 20% from yesterday’s close and down nearly 40% from its high.

It also came as the stock was testing down into its 21-month moving average, a level I flagged earlier in the day.

The stock has essentially been consolidating between $400 on the upside and $300 on the downside. At times, Twilio stock has broken through those measures, trading as high as $457.30 in February and as low as $275.60 in May, where it ultimately bottomed.

The stock’s early rally has already been rejected by the $300 level. 

However, I’d love to see Twilio push through Thursday’s high and start filling the gap back toward $342. Along the way, it would also have to contend with its declining 10-day and 21-day moving averages.

On the downside, let’s watch for a break of the May low and see if we can get a quick reclaim of this mark. If that setup comes to fruition, we could have a low-risk reversal on our hands.