Although there is a lot of chatter surrounding shares of Twitter (TWTR - Get Report) on Monday, the bigger story is being told by technical analysis, which reveals that the implosion of hype about this stock in the wake of its initial public offering has likely run its course.
Rather than speculate on whether a deal will be announced, which amounts to gambling on rumors, let's look at the objective empirical information that is given by the crowd of billions investors, which makes up the collective unconscious of the market.
Before and right after its IPO, Twitter was being compared to Google (now known as Alphabet) and Facebook. This is the exact playbook that is often used by underwriters to overhype a public offering, especially when they have a vested interest in higher prices after the IPO. That ended within six weeks of Twitter's IPO, when its price made an all-time high. Since then, the public has wanted nothing to do with these now-hated shares, and the pattern displays a trail of dashed hopes -- until this weekend.
The deal of a deal aside, the crowd's behavior is easily tracked, and points to an imminent turn, which might include one more lower low, if a deal isn't announced this week. Notice that the weekly stochastics are deeply oversold, below the 10% threshold, and are just crossing up above the green stochastics; both of which are about to rise up toward the overbought zone, near the 90% threshold. That trip will take several months, not weeks, to achieve. As we often warn, the news will arrive to justify the decision support engine's forecast, which may or may not include Marc Andreesen. Regardless of the players, something is brewing, and the maturing of the corrective decline (in this case a crash from $74 to $14) warns that playing cutesy with the final wiggles could be costly. While a quick disappointment-purge can't be ruled out, toward $12, it's not required.
Therefore, the decision support engine's analysis is telling us that the only action indicated right now is only buying actions, not selling actions! This conclusion is not only given from the stochastics (which are only one of the dozens of algorithms the decision support engine uses), but also by the lessening challenge of prices to move below the lower two-standard deviation band (olive/gold line supporting price around $13.25), which includes 95% of normality. Compared with the August spike, which went so far below the two-standard-deviation band that it reached the three-standard-deviation band (containing 99.7% of normality), the recent spike/reversal off the two-standard-deviation band suggests that while selling was strong, it wasn't close to the August extreme, and it's waning quickly.
The opportunity appears to be knocking for those who want to establish long exposure, for a ride toward the $36 +/-$6 zone in the coming year. Any buying in the green buy box should pay off nicely. However, if you can skew your weighting toward the $13 +/-!1 zone, you can reduce your temporary pain if the shares have one more decline. But, closing above $21 will reduce the odds of a test of $12, and closing above $23 should eliminate it.
Twitter has much more bullish potential, beyond the pink box's $44 extreme, but that will only become relevant upon viewing how it behaves near the $40 level. For now, selling is not indicated, while laddering in to long exposure within the green box is indicated.
By Ken Goldberg
No comments:
Post a Comment