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.
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.
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.