How to Trade Twitter Stock After Mixed Earnings Report

Buy Twitter shares on weakness to its 200-week simple moving average. Reduce holdings on strength to semiannual and quarterly risky levels.
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Twitter TWTR first-quarter revenue exceeded analyst estimates, even in the face of ad- sales declines at the social-media messaging icon. 

The stock moves create an opportunity for investors.

Shares of the San Francisco company traded as low as $28.41 at Thursday’s open, then stabilized. On Wednesday, the stock had traded as high as $31.50, staying below its semiannual pivot at $31.64.

Twitter reported a 24% gain in daily active users to 166 million. Here is the total story as compiled by TheStreet.com.

On April 9, Bernstein upgraded the stock to market perform from underperform, which tracked the stock higher. 

The stock began April holding its monthly value level at $22.49. It traded as high as $31.50 on April 29, just off its semiannual pivot at $31.64.

The stock closed Wednesday at $31.09, down 3% year to date and in bear-market territory 32% below its 52-week high of $45.85, set on Sept. 9, 2019. 

The stock is also in bull-market territory 56% above its March 18 low of $20.

The stock is not for value investors as Twitter's p/e multiple is near 59 and the shares do not offer a dividend, according to Macrotrends.

The Daily Chart for Twitter

Daily Chart for Twitter

Daily Chart for Twitter

Courtesy of Refinitiv XENITH

The middle of the daily chart for Twitter shows the huge price gap lower. This was the reaction to the earnings miss reported on Oct. 24.

This gap lower led a death cross to form on Nov. 20, when the 50-day simple moving average declined below the 200-day simple moving average. Such a move indicates that lower prices will follow.

As 2020 began the stock held its semiannual pivot at $31.64, which tracked the stock to its 2020 high of $39.64, set on Feb. 6.

The stock failed to hold its 200-day SMA on March 3, beginning the cascading downside to its March 18 low of $20.

As April began the stock held its monthly value level at $22.49 as a buying opportunity.

The upside was to its semiannual pivot at $31.64, and the April 29 high was just shy of this level.

The Weekly Chart for Twitter

The Weekly Chart for Twitter

The Weekly Chart for Twitter

Courtesy of Refinitiv XENITH

The weekly chart for Twitter is positive, with the stock above its five-week modified moving average of $28.60. 

The stock is above its 200-week simple moving average, or reversion to the mean, at $27.61.

The 12x3x3 weekly slow stochastic reading is projected to rise to 36.36 this week from 33.02 on April 24.

Trading Strategy: Buy Twitter on weakness to the 200-week simple moving average at $27.61. Reduce holdings on strength to semiannual and quarterly risky levels at $31.64 and $35.66, respectively.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 and monthly levels for April were established based upon the March 31 closes.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.