(This is an excerpt from an article I originally published on Seeking Alpha on May 14, 2014. Click here to read the entire piece.)
I last wrote about Twitter (TWTR) three months ago to conclude that the “crescendo top” in the stock was confirmed and to review the importance of sentiment in determining the fate of the stock. I now see a high probability that a crescendo bottom has occurred for TWTR, placing another bookend on the trading opportunity in the stock. In this piece, I update the sentiment picture on TWTR and provide its potential implications.
{snip} The reason’s for some optimism include: a powerful combination of strong revenue growth, especially internationally, and a decline in variable costs; and potential ad revenue growth helped by healthy timeline metrics. I add to that list continued product innovation.
Let’s now see how sentiment has changed for Twitter…
Analyst sentiment
{snip}
Right after TWTR’s last post-earnings sell-off, Deutsche Bank and Goldman Sachs bravely reiterated their buy ratings. Deutsche also lowered its price target from $65 to $52. Since these were rating reiterations, they provide little new information for sentiment.
More interesting are the upgrades that occurred after the disastrous end of the last lock-up period. {snip} Until some analysts start downgrading the stock, I consider the analyst-driven pivot underway for TWTR.
Open interest put/call ratio
{snip}
Source: Schaeffer’s Investment Research
The $50 bet and momentum
{snip}
The $50 point was not just important as a round number, but it also marked the intraday high on TWTR’s first day of trading. {snip}
What I could not foresee three months ago was that the stock market overall would remain bullish while the market for stocks like TWTR would collapse. {snip}
Lock-up expiration
TWTR’s lock-up expiration on May 6th unleashed a 2-day flurry of selling. {snip} However, just as an extreme surge in buying helped mark a top for TWTR back in December as the market ran out of its most eager buyers, I believe an extreme in selling has helped make a case for a bottom in TWTR as the market may have run out of the majority of its most eager sellers.
{snip}
Source: FreeStockCharts.com
Short interest
Short interest may be the last piece of the puzzle. Bears have yet to release the pressure. {snip}
Source: Schaeffer’s Investment Research
Given the current data, I am trading for a bottom in TWTR…{snip}
Source: StockTwits
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on May 14, 2014. Click here to read the entire piece.)
Full disclosure: short TWTR put spread and puts, short covered call