
How You Trade Twitter Now -- Plus Jim Cramer's View
What can you say about Twitter (TWTR) - Get Report stock in 140 characters or less?
The social media company's stock hit an all-time low Tuesday, to $13.90. This means the stock has lost yet another critical area of support thanks to last week's weak first-quarter revenue report and disappointing 2016 outlook.
Twitter did show accelerated user growth, although it was not enough to excite investors. But if timed correctly you can make a gain of at least 10% on this stock.
TWTR closed Tuesday at $14.01. The shares have lost 40% of their value for the year to date against a 1% rise in the S&P 500 (SPX) . From a technical perspective the stock, having now fallen 46.5% below its initial public offering price of $26 in November 2013 -- and down more than 50% since Jack Dorsey resumed his role as CEO -- is in a perilous reversal.
TheStreet's Jim Cramer and Jack Mohr, research director of the Action Alerts PLUS portfolio, have been less than excited by their Twitter holding. Cramer and Mohr consider Twitter a "show me" story because they are "intrigued by management's confidence in revenue opportunities in the back half of the year."
However, "the essentially flat user growth, coupled with a string of disappointing quarterly results, make the investment story that much bleaker," they said.
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From a fundamental standpoint, Twitter has plenty of problems. But from a technical perspective, now's an ideal time to play for a climb, at least in the near term. Take a look at the chart below, courtesy of TradingView.
The long black arrow shows where shares closed Tuesday at $14.01 and reaching an intra-day low of $13.90. TWTR is now trading well below its critical 20-day ($16.50), 50-day ($16.95) and 100-day ($18.24) moving averages. But there's still a 16% gap between $17.75, the stock's close prior to first-quarter earnings release, and $14.86, the stock's opening price the very next day.
If you believe gaps always get filled, playing the gap is a good strategy. Why? With the stock down to all-time lows, there are likely fewer sellers and more buyers interested in Twitter. The bet is, anyone who have wanted to exit the stock has already done so. With Twitter having shown user growth acceleration, betting on some fundamental improvements is also a factor.
How to execute the trade: Buy TWTR at any price within $14, using $13.90 to $13.50 as near-term resistance. If it breaks below $13.50, exit the position with a loss and live to play again. The bet is within the next few weeks, the stock will fill the 16% gap back towards $17. Even if that threshold fails, the trade would still be profitable at $15.60 (solid blue line), netting an 11% profit.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.










