How to Trade Twitter on Recent Upgrade

Twitter began April holding its monthly value level at $22.49. This targets its semiannual pivot at $31.64.
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Twitter  (TWTR) - Get Report has been upgraded to market perform from underperform by Bernstein. 

The stock began April holding its monthly value level at $22.49 and traded as high as $29.05 on Thursday. This was shy of its semiannual pivot at $31.64.

Twitter is a social media platform that tracks events such as sports and new movies. Given the coronavirus pandemic these stories are missed. Here’s how this story was covered by TheStreet.

The stock closed Wednesday at $27.86 down 13.1% year to date and in bear market territory 39.2% below its 52-week high of $45.85 set on Sept. 9, 2019. 

The stock is also in bull market territory 39.3% above its March 18 low of $20.00.

The stock is not for value investors as Twitter has a p/e multiple of 52.26 and does not offer a dividend, according to Macrotrends.

In addition, the stock was hurt by an earnings miss back in late October. 

There was a positive reaction to Twitter's earnings miss in February, but this was a selling opportunity as the stock set its 2020 high that day at $39.64.

The Daily Chart for Twitter

Daily Chart For Twitter

Daily Chart For Twitter

Courtesy of Refinitiv XENITH

The daily chart for Twitter shows the huge price gap lower right in the middle of the chart.

This gap lower led to the formation of a “death cross” on Nov. 20 when the 50-day simple moving average declined below the 200-day simple moving average to indicate that lower prices would 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 $20.00.

The rebound into April held its monthly value level at $22.49 as a buying opportunity.

The upside is to the semiannual pivot at $31.64 and to 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 negative with the stock below its five-week modified moving average of $28.63. 

The stock is just above 200-week simple moving average or “reversion to the mean” at $27.44.

The 12x3x3 weekly slow stochastic reading is projected to slip to 29.94 this week down from 31.08 on April 3.

A weekly close above $28.64 would be a positive. A close below $27.44 is a warning.

Trading Strategy: Buy Twitter down to its monthly value level at $22.49. 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.