Twitter (TWTR) - Get Report has been a standout stock in 2019. Since the calendar flipped to January, shares of the social media stock have soared more than 36.6%, trouncing the otherwise stellar 21% total return that the S&P 500 has put up over the same timeframe.
And now, with third-quarter earnings looming for Twitter on Thursday, shares look primed to kick off another leg higher.
Wall Street is looking for earnings of 20 cents a share, on average, from Twitter for the third quarter. Historically, Twitter has beaten estimates pretty consistently but investor reactions to those beats have been less predictable.
For instance, even though Twitter has posted positive earnings surprise in every quarter since the start of 2017, other factors like user growth have led to a price reaction that's been positive only about 60% of the time.
This time, though, another factor could tip the odds in favor of a bullish reaction to Twitter's earnings: the technical setup.
To figure out what's going on in the price action, we're turning to the charts for a technical look.
Twitter's price action in 2019 has been about as straightforward as it can get. Since the start of the calendar year, shares have bounced their way higher in an incredibly well-defined uptrending channel that's prompted shares to catch a bid on every test of trendline support on the way up.
Now, as Twitter tests support this week for the fourth time in this 10-month rally, it makes sense to buy the next bounce higher.
That doesn't necessarily mean it's wise to pull the trigger on Twitter right now - earnings risk is still a huge factor heading into Thursday, and an unexpected miss could derail the uptrend that investors have been enjoying year to date.
The technical setup in shares makes higher ground more likely given mediocre fundamental performance for the third quarter but it doesn't guarantee a move higher.
For that reason, it makes sense to wait for the initial reaction to earnings Thursday morning before jumping into the trade. If Twitter catches a bid at support, we've got a clear signal that new highs are likely by year-end.
Meanwhile, relative strength continues to be one of the most important indicators to watch in this market environment. In Twitter's case, an uptrend in relative strength means that shares continue to systematically outperform the broad market, even now.
If Twitter manages a positive price reaction following Thursday's earnings, we've got a clear signal that much more upside likely lays ahead.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.