YOU CAN SEE THE CHARTS BUT CAN YOU DISCERN THE SIGNS OF THE TIMES?
Twitter exploded skyward yesterday like something wired by Elon Musk. Well, that’s annoying. Tuesday also proved a very nice day for Amazon and Alphabet and even nicer for Netflix.
Yesterday we cast the fact of TWTR’s deteriorating technicals. Guess what? They have been doing precisely that–deteriorating. But then, that state of affairs never means that some crazed howling jump to the moon will not occur. Why? Because it did.
Twitter went off right with the trading bell hitting 9.5% in morning action. Image our chagrin following our call. Question; is it wise to ignore long-standing leading indicators? In other words, does history and technical analysis matter? Should we trust either?
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TWTR, 04-16-18 Monday; The bearish three: double top formation(box), trading below 50-Day simple moving average(right), MACDs hooked bearish(bottom.)
Mondays daily chart shown above clearly displays the “double top” formation, a clearly broken trendline, and a sinking stock trading below its’ 50-day simple moving average. But then, so what?
Technical analysis cannot guarantee direction. No form of analysis can. Many consider true technical analysis an art. Either way, as individual investors working without a net we always benefit from knowing what the charts are telling us.
04-18-18; TWTR, Daily
- 11.46% jump on above average volume, double+ call volume, a strong bullish indicator. TWTR placed back above 50-Day SMA. Additionally, both MACDs(blue/red lines bottom) have curled up but within negative territory. Perhaps most importantly, this chart still features a broken trand.
Upon comparison, the above chart seems to display a stock that’s turning bullish, maybe. Yet “on-balance volume” continues to indicate a stock under “distribution” or selling pressure.
Often investors face conflicting signals. Twitter’s fundamentals continue to flash improving health and growth. The technicals were offering their clear “danger” signs, and for us a SELL. But still TWTR raged higher.
On February 8th this year out of San Francisco Twitter informed analysts about history. For the first time TWFR rocked profitable. The company beat on top and bottom lines and posted an EBITDA margin of 42%.
Morningstar had been holding a $17 price target. After Q4 they raised to $24. That’s a 40% jump. Was Morningstar that far off, or is Twitter outperforming?
TWTR faces the very serious challenge of increasing long-flat monthly active users(MAUs), if they wish to remain investable. Nothing easy there. However, user engagement continues growing, as did Q4s advertising revenue–up 27%. Perhaps Jack Dorsey can run two companies simultaneously.
On Monday we sold our position, thus missing the massive move yesterday. Does that mean any other technical sellers of the stock simply screwed up? Not in our opinion. As we all know stocks can remain in a compromised technical osition for some time–“over-bought” and “over-sold” are two easy examples of such.
Are we acting prudently when obeying leading technical indicators? Should we bother to dig out the fundamentals for clues? Answer. Yes, because the weight of historic market evidence supports both technical and fundamental analysis, but not as infallible silver bullets of directional truth.
While feeling slapped around by events, we continue to consider Twitter’s path forward to be dangerous. We now view TWTR as a spec play with increasingly robust fundamental metrics. Yet, bearish technical indicators remain, as does TWTR’s earnings report. Guess what we call that? A potential trigger event.
If you own TWTR now you enjoyed a very nice gift on Tuesday. What if the charts are correct, that it’s mostly downward pressure from here? Leave it all on the line? You could, trim, cut, chop, or dump. Ride it all only if you’re fully committed long-term.
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