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Twitter Will Lead The Next Rally

08/01/19 12:57:18 PM
by Billy Williams

Naysayers say the bull market will end but Twitter just keeps shrugging off their predictions and will help lead the next bully rally.

Security:   TWTR
Position:   Buy

Coming off the January lows, the market has done a remarkable job of shrugging off threats of trade wars, rising interest rates, a cooling housing market, and trade-killing tariffs. Naysayers chime in that the bulls will run out of steam but, so far, their predictions have fallen flat. More, there is one stock that looks like it will lead the next bully rally but the question that hangs in the air is whether the bull market will continue?

First, the average bull market lasts about 7 years, give or take a year, and the current bull market has gone on for about 10 years. This statistic has been the cornerstone of the talking-heads' argument for a market bubble that is ready to be popped at the first sighting of disappointing earnings.

As night follows day, the market will decline at some point but that doesn't mean that it won't recover and continue shortly afterward. The S&P 500 (SPX) is trading at all-time highs with convincing strength that suggests that it will continue.

Figure 1. The S&P 500 has had a good run but there is no need to think it will end. Price action and positive economic performance reveal it has fuel to go higher.
Graphic provided by:
Adding to that, the economy is strong and supported by an influx of job creation giving confidence in the market.

And, trends are subject to the cause-and-effect of timetables and statistics. This means that though the bullish trend seems irrational compared to the statistic detailed above it can remain in place. Knowing that, then, for now, it's better to stay on the right side of the market than to time it's downfall.

So, where does the opportunity lie?

Twitter (TWTR) is a social media platform designed for short bursts of 140 characters to mobilize and engage in discussion from everything like BBQ sauce to politics to movie releases. The company went public in November of 2013 and, like most IPO's, cratered under investor scrutiny on how they could make a profit. Lacking investor support, the company's stock sold off and followed the pattern of most IPO's which underwhelmed expectations, trading from a price high of $74.73 to under $14 over the next 2 years.

Figure 2. The weekly TWTR chart reveals a Cup & Handle pattern, a bullish price chart, and that a buy point was triggered this previous trading session.
Graphic provided by:
But, the bright spot in the story is that TWTR managed to turn the tides, find price support and rally higher. The company developed a new ad platform to capitalize on its user base managing to increase its share value and attract institutional support.

In June of 2018, TWTR peaked at just under $48 before pulling back and establishing a price base. On the weekly chart, you can see where the base formed from June 2018 to early May 2019.

This price base formed a "cup" before pulling back and forming a "handle" in a Cup & Handle pattern.

A buy point of $41.02 was established and triggered on 7-26-2019 as trade volume spiked on TWTR and pushed the stock higher, forming a price gap and exploding up through the trigger point.

Figure 3. A buy point was triggered on 7-26-19 and confirmed on higher volume.
Graphic provided by:
TWTR recently missed its earnings estimate but the price action shows that investors are bullish on the stock. Dismissing the missed estimates, investors are bullish on the stock's potential and are flooding into taking positions helping the company recover from its initial fall from grace after its IPO.

The bullish price action, higher-than-normal trade volume, a bullish price pattern (Cup & Handle), ability to shrug off negative news, and having traded back and retraced its previous price highs reveal TWTR to have all the makings of a future stock leader.

For now, wait and observe, if you haven't taken a position.

Wait for a pullback and then scale into a position as TWTR proves its strength by reclaiming lost ground, then ride the next bull run adjusting stops along the way.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

E-mail address:

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