Twitter Gaps Lower on Trump Probe – Here’s the Trade

Buy Twitter on weakness to its 200-week simple moving average and reduce holdings on strength to its quarterly risky level.
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Twitter Inc.  (TWTR) - Get Report may soon be under an executive order to curb its influence on the 2020 elections. 

Social-media stocks including Twitter face pressure from the Federal Communications Commission as it creates rules on removing or censoring users' tweets. Here’s more details on the probable probe as reported by TheStreet.com.

At Thursday’s open the stock of the San Francisco messaging company gapped lower, but it quickly rebounded above its semiannual pivot at $31.64.

Shares of Twitter closed Wednesday at $33.07, up 3.2% year to date and in bull-market territory 65% above their March 18 low of $20.

The stock is also in a bear market, 28% below its 52-week high of $45.85 set on Sept. 9, 2019.

The stock traded as low as $31.32 at today’s open but quickly rebounded above its semiannual pivot at $31.64. 

The stock is below its 200-day simple moving average at $33.47 and its quarterly risky level at $35.66.

On April 30 Twitter reported an earnings-per-share beat, but the stock stayed below its semiannual pivot at $31.64 on April 29.

The stock is not for value investors as its p/e multiple is extremely elevated at 100 and it does not offer a dividend, according to Macrotrends.

The Daily Chart for Twitter

Daily Chart for Twitter

Daily Chart for Twitter

Courtesy of Refinitiv XENITH

Twitter had been above a golden cross confirmed on April 26, 2019, when the 50-day simple moving average rose above the 200-day simple moving average. Such a move indicates that higher prices will follow.

This tracked the stock to its 2019 high of $45.85 set on Sept. 9.

From this high, the stock became extremely volatile.

Twitter fell below its 50-day SMA on Sept. 27, then plunged below its 200-day SMA on Oct. 24. This price gap on the chart was caused by the earnings miss.

A death cross formed on Nov. 20 when the 50-day SMA fell below the 200-day SMA.

As 2020 began the stock popped higher on Feb. 6 on a positive reaction to earnings. This put the stock back above its 200-day SMA.

By March 3, the stock was back below its 200-day SMA. Then on March 11 the stock was back below its semiannual pivot at $31.64. This tracked the stock to its March 18 low of $20.

On the rebound the stock reached its 50-day SMA on April 27. The stock held this average on May 14 as the stock moved to its May 26 high of $34.27.

The stock could not sustain gains above the 200-day SMA, but the semiannual pivot remains a magnet at $31.64.

The stock is below its quarterly risky level at $35.66.

The Weekly Chart for Twitter

Weekly Chart for Twitter

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 $30.03. 

The stock is also above its 200-week simple moving average, or reversion to the mean, at $27.87.

The 12x3x3 weekly slow stochastic reading is projected to rise to 55.28 this week from 48.16 on May 22.

Trading Strategy: Buy Twitter on weakness to its 200-week simple moving average at $27.87 and reduce holdings on strength to its quarterly risky level at $35.66.

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.

The second-quarter 2020 level was established based on the March 31 close.

The monthly level for May was established based on the April 30 close.

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 midyear. 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.