Twitter (TWTR) at Cusp of Major Breakout

Twitter, Inc. (TWTR) has underperformed rival Facebook, Inc. (FB) and the broad tech sector for years, but the social media giant has just has rallied back to multi-year resistance in the mid-$40s, setting up the third test at this critical price level since 2016. Impressive buying power under the surface predicts that the effort will be successful, finally lifting the stock above the six-year-old initial public offering (IPO) opening print and into an eventual test at 2013's all-time high.

Key Takeaways

  • Twitter stock has returned to resistance at the IPO opening print for the third time in more than two years.
  • A rally above this level would target the 2013 all-time high in the $70s.
  • Buying interest has surged to an all-time high, raising the odds for a successful breakout.

The company acknowledged rumors of a subscription-based portal in August but asked for patience, noting, "We're early in assessing subscription opportunities and recognize that it's really important for the durability of our business that we have non-ad revenue streams. We would much rather be patient and get these things right than get people into a timeline that is less relevant, which is more likely to cause them to not make Twitter a part of their daily lives."

The confirmation was enough to get a large supply of skeptical investors off the sidelines, convinced that the stock will eventually break out to new highs. However, Wall Street has yet to jump on board the rally train, with a "Hold" consensus based upon 5 "Buy," 22 "Hold," and 1 "Sell" recommendation. Price targets currently range from a low of $30 to a Street-high $52, while the stock will open Thursday's session about $5 above the median $38.50 target.

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment, as it typically includes share premiums for current private investors.

Twitter Long-Term Chart (2013 – 2020)

Twitter charged higher after the November 2013 IPO at $45.10, lifting to an all-time high at $74.73 in December. The subsequent decline sliced through the IPO opening print in April 2014, establishing a resistance level that's still in play more than six years later. The selloff initially found support in the low $30s, yielding mixed action that crisscrossed the print three times before a 2015 breakdown that finally ended at an all-time low at $13.90 in May 2016.

A successful 2017 test completed a triple bottom reversal, giving way to a strong rally impulse that stalled just above the IPO opening print in June 2015. The stock posted a higher low at year end and bounced into 2019, but rally efforts were repelled at the same level in September. It fell to a two-year low in the low $20s during the pandemic selloff, turned sharply higher into the second quarter, and is trading just below the 2019 high in Thursday's session.

Twitter Short-Term Outlook

A Fibonacci grid stretched across the 2013 to 2016 downtrend places multi-year resistance right at the .50 retracement, highlighting the six-year testing process. Market history has plenty of evidence that "the third time's the charm," so bulls hope that the stock will now break out, especially in the strong late-summer momentum market. The 2013 high should then come into play, although it could take months to reach that critical level.

The monthly stochastic oscillator has now lifted to the most extreme overbought technical reading in Twitter's public history, but there are no signs this lofty level is putting a lid on buying interest, which has now risen to an all-time high. Even so, a consolidation pattern near resistance into the fourth quarter could generate more dynamic upside, rewarding long-suffering shareholders with a rapid advance into the $70s.

Consolidation is a technical analysis term referring to security prices oscillating within a corridor and is generally interpreted as market indecisiveness. Said another way, consolidation is used in technical analysis to describe the movement of a stock's price within a well-defined pattern of trading levels. 

The Bottom Line

Twitter stock has returned to resistance for the third time since 2018 and could break out, targeting the all-time high in the $70s.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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