What Happened to TWTR ??

Twitter Inc  (TWTR)

• What did happen to Twitter this Friday?  You can find lots of folks on the blogosphere and on platforms like StockTwits & Twitter that will "tell you the reason for the big fall".  If you believe everything you read on the internet, then I am a French Model - Bonjour!

• If you are anything like me, you may feel like there is probably not one simple answer to explain the dramatic fall.  Yes, I know TWTR was downgraded but that alone is the reason?  Yes, I know that TWTR is up HUGE in a very short time.  Everybody had to be get in but on Friday lots of people wanted out?  The bottom line is I don't really care to spend the time sorting out why the dramatic fall happened.  The reason(s), whatever it is (they are), will probably not help you stomach Friday's $10 loss any easier.  But there is a lesson to be learned here.  This isn't the first time this has happened and it won't be the last.  Let's take a look at some charts.

My intent in this post is to help you put things in perspective.  Let's start with a weekly chart.

This is a Weekly chart of TWTR

Click here for a larger chart of TWTR

• Here is some perspective for you.  TWTR is still following an Uptrend line that started in late November or early December.  If you bought this stock for your grandkids when it came public as a long term investment, you are still making money for them.  Next week the green uptrend line will be about 60.  If it falls below there, that is where I would begin to worry.  If you bought this stock hoping to just make some quick big money, you should have sold already.  Use stops to protect your profits if you can't watch the chart develop all day long. 

• Remember that TWTR is still a "new issue" and therefor we don't have much history to guide us.  But using what we have, we can look for price levels where this stock may gravitate to on the way down.  We can also look forward to potential levels on the way back up. 

• Notice that during the week of the 13th the high was almost 60, during last week the high was about 60, and during this week the low was about 60.  Out of 8 weeks of being in existence, 3 of those weeks have highs or lows around 60.  You have probably heard the phrase resistance becomes support.  Why should we be aware of the 60ish level?  Because the drop could be over when the price is around 60.  I would guess that many investors will either consider getting back in around 60 or actually pull the trigger on a small trade just to see what happens.  These small trades will probably create some up & down turmoil on the intraday chart.

• If the drop doesn't stop around 60 then I would say 54 is the next potential destination.  Notice that 54 is last week's low.  After the 54 area you could be looking at a test of 50.  Why 50?  Because it is the high of the first day of trading for TWTR.  If you have read my posts you have seen that the first day's high & low for an IPO are important price levels.

• Let's just say that TWTR gets to the green uptrend line and turns higher.  Where will it go?  No one knows.  But I will say that it has to get above 63.75 (this weeks close) to show any sign of strength.  Then eventually, if it wants to continue to be strong like it has been, it has to get back to the all time high of 75ish.  Get the picture now?  There is no crystal ball next to my keyboard.  I am just watching price levels that have happened in the past.  Closing above them shows strength.  Closing below them shows weakness.  This is a very simplistic approach but it should help any struggling investor.

 

                                                  

 



• Now lets look at a daily chart of TWTR.  Notice the circles were great places to get in.  Will we get another great place to get in?  Will the price just keep falling and go below the green uptrend line?  Those are both really good questions.  You can find lots of folks on the blogosphere and on platforms like StockTwits & Twitter that will "tell you where to get back in".  If you believe everything you read on the internet, then I am a French Model - Bonjour!

 

This is a Daily chart of TWTR

Click here for a larger chart of TWTR

• If I had to guess I would say there will be another great place to get into TWTR.  The thing is there is no telling when it will happen or how much profit you will get from your entry.  You will have to monitor your investment. 

• The end of a downtrend is a great place to enter a trade or investment.  You can see two examples of this on the daily chart.  Yesterday's candle allowed the creation of a new downtrend line.  Let's see how long it takes for the price to cross above it.  Maybe it will happen around the green uptrend line.  Maybe not...

• What is the major difference between a daily & weekly chart?  You get more timely data.  There is a candle for every day instead of a candle for each week.  How does it help?  It gives you more price levels to use for guidelines.  For example,  Thursday's close was at 73ish.  Once the price dropped below that level, some investors sold shares.  When the price dropped below Tuesday's low of  70ish, some investors sold even more shares.  All of this is a mechanism to protect profits and limit risk. 

• If you look at every daily candle you should notice that as TWTR was increasing in price, tomorrow's low is typically higher than today's low.  This is how the green uptrend lines are created.  you can use a trend line or the higher lows to make decisions about your long investment. 

• Even though TWTR is technically still in an uptrend, please realize that a stock can retrace back to a trend line at any time.  You have to protect your profits when the price is high above the trend line.  That way you can buy the same shares back at a lower price if you still like the company as an investment.

                         

 



Here is a Daily chart of TWTR with moving averages

• Why do I show you this chart too?  Because I want you to notice that Friday's close happened right about at the 8 day moving average (the light blue line).  In general, stocks that can stay above their 8 day moving average are strong and in a nice uptrend.  I also want you to notice the dark blue line.  That is the 21 day moving average.  Stocks that stay above the 21 day moving average are not as strong as stocks above their 8 day but can still be pretty good. 

• You should also be aware of the fact that the 8 & 21 day moving averages are good places to anticipate a change in direction.  Maybe TWTR will try to turn up right around this 63 level.  Maybe it will try to turn up when it gets to the 21 day.  Maybe it won't.  Remember, these are places to anticipate.  There is no way to know, for sure, what this stock will do.

• If I was long this stock, I would use the green uptrend line as a place to try to get back in.  It is a logical place for a change.  If the stock crosses above the red downtrend line before getting to the green uptrend line, then that too is a place to look for higher prices. 

• If I was short this stock for most of Friday, I would have taken some profits at the end of the day.  I would consider adding to my remaining short if the price drops below Friday's low and below the 8 day moving average.  I would then use Friday's low or the 8 day as a stop loss for my short. 

• At the moment, the trend is down.  So short the stock or strategically lighten up on your long position.  Don't try too hard to push your luck going long until the chart gives you a reason to. 

• Remember, stocks go up & down.  That is just what they do.  It's your job to be long on the way up or short on the way down.  This is a lot easier said then done.  It is also your job to protect yourself from reversals like the one we saw on Friday.  This is done by strategically lightening up on your position. 

Trade What You See...Not What You Think, Or Feel, Or Hope, Or ...

The Trend Is Your Friend...Until It's Not

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