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How Twitter Can Rally to $50 Ahead of the Election

Twitter shares are trying to rally after pulling back off their fresh 2020 highs. Let's look for a rotation higher ahead of the election and earnings.

Shares of Twitter  (TWTR) - Get Twitter, Inc. Report continue to waver, but overall the trend still looks favorable for the social media stock.

As the election heats up, so too has social media activity. Coupled with more users on social platforms with Covid-19 still lingering around, the entire industry has done much better than expected.

That goes for others too, like Facebook  (FB) - Get Facebook, Inc. Class A Report, Snap  (SNAP) - Get Snap, Inc. Class A Report and Pinterest  (PINS) - Get Pinterest, Inc. Class A Report.

Regarding Twitter specifically, the company was attacked by President Trump earlier this week over the way it handled a recent article from the New York Post. That didn't help the latest rally.

In any regard, it’s possible that with the increased usage of social media - and Twitter specifically - ahead of the election, that the stock could fetch a bid ahead of the big day on Nov. 3. It helps that it could also enjoy a pre-earnings run, with its quarterly release scheduled for Oct. 29.

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Trading Twitter

Daily chart of Twitter stock.

Daily chart of Twitter stock.

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I like the risk-reward setup of Twitter stock. In September, shares rallied to new 2020 highs. However, like the rest of the tech space, shares came under heavy pressure.

In a show of healthy price action though, Twitter shares held support at the prior breakout point, near $38. This was roughly the high in February before the coronavirus struck and was resistance in July.

Shortly after that, Twitter stock has been enjoying a strong run over the last month. Most recently, the stock pushed through both the 2018 and 2019 high on its way to temporarily topping $48.

Pulling back off those highs, Twitter is finding support from the prior September high near $44, as well as the 10-day and 20-day moving averages.

This is what I mean by an attractive “risk-reward.” A close below $44 — that's our risk — and the setup breaks down, putting the 50-day moving average on deck. If the 50-day moving average doesn’t hold, this stock could see $38 again. 

On the upside, I’m looking for a rotation back up through $48 and the highs at $48.65. A move above that opens the door to $50 and the 161.8% extension up at $51.78.

There’s no guarantee in trading; it’s a series of probability. I like the modest downside risk in Twitter for a chance to play for notably more upside potential. We can effectively play for $1 to $1.50 a share in downside risk and look for anywhere between $3 and $6 a share in possible upside.