Twilio Inc (NYSE: TWLO) stock has resumed its uptrend after losing more than 29% in May. Is TWLO stock headed much higher?
Twilio Inc (NYSE:TWLO) stock has put behind it the massive post-earnings crash, which had resulted in more than 26% of its value being knocked off in a single day. The in-app communications specialist had delivered a beat on both top and bottom line numbers, but it was the weak current quarter and full year guidance which spooked investors. However, shares of the San Francisco, California-based company have made an impressive recovery in June. The stock price has climbed higher continuously since June 9th, with a latest pop of nearly 6% in yesterday's trade. There has been no specific news which has resulted in the constant rise in share price of late. Now, investors will likely be keen to know whether the uptrend in Twilio stock is here to stay. Can TWLO stock rise further?
Technicals give some valuable insights.
In the absence of any specific fundamental change in the narrative for Twilio, the technicals come in very handy to assess the next move. If you take a look at the technical chart of TWLO stock, you will see a Bollinger Band squeeze pattern formed from the beginning of June. This pattern is formed when volatility levels fall very low and the Bollinger Bands become narrow. There's an important trend to notice here and Stockcharts puts this as follows, "According to John Bollinger, periods of low volatility are often followed by periods of high volatility. Therefore, a volatility contraction or narrowing of the bands can foreshadow a significant advance or decline. Once the squeeze play is on, a subsequent band break signals the start of a new move. A new advance starts with a squeeze and subsequent break above the upper band. A new decline starts with a squeeze and subsequent break below the lower band."
Going by the above explanation, in Twilio's case too, we could witness a new move in the upward direction. In the chart, we can see the Bollinger Bands have formed a squeeze and subsequently the share price has broken above the upper Bollinger Band in the last trading session. An upside bank break is considered as a bullish signal. This combined with other technical signals indicate strong bullish signals. The fact that Twilio shares have broken above the 50-day Simple Moving Average(SMA) resistance in yesterday's trade further strengthens the chances of a big new upward advance. Traders generally use a break above resistance to confirm a break above the upper band.
Though the Relative Strength Index (RSI) indicator flashes an overbought signal after yesterday's pop, the above technical signals could be much stronger. The current RSI measure of 78.25, is comfortably higher than the overbought threshold of 70. With the recent uptick taking the stock price above the key 20-day and 50-day SMAs, TWLO stock faces its next resistance at its 100-day SMA which stands at $28.90. If the upward advance manages to break this resistance, then the stock could rise to as high as $34.77, the next resistance, the 200-day SMA. This would imply more than 22% rise from the last close. The probability of an upward trend is further boosted by a bullish Moving Average Convergence Divergence (MACD) crossover. The MACD line turned positive and broke above the center line on June 19th. For the time being, the bullish signals seem to be in abundance and are dominating the bearish ones. A further surge in Twilio share price could be very much on the cards. If you are a technician looking for technical trading ideas, check out our daily trading ideas section.
Twilio stock may benefit from a massive Short Squeeze.
After the cloud communications company's Q1 earnings, the market seems to have taken a very bearish stance on Twilio. Short interest as of the last reporting date of May 31st stands at a massive 27.9% of the float. Short interest is stands at 16.27 million shares, an increase of 4.8% from the preceding period. The 'days to cover' is very high at 6 days. With the stock seeing continuous gains, the short's could run for cover, resulting in a massive short squeeze. The past day's nearly 6% pop could be attributed to some short covering. The technicals appear bullish and days to cover short positions is high. All this strongly hints at a short squeeze and further upward movement in stock price.
The fundamentals of Twilio have not changed much since the company's Q1 earnings. The cloud service provider still carries the risk of being overly-dependent on few big clients like Uber. Meanwhile, the company has continued its good work to add some big names to its client base. It was recently reported that Morgan Stanley will use the services of Twilio to archive texts as part of the financial firm's wider digital strategy. Twilio stock appears to have still more upside left but it continues to be a risky bet. Risk-averse investors should avoid the stock at least till the company's next earnings until there is more clarity on its revenue growth ahead. The effect of Uber's partial pullout on revenues could only be assessed at the Q2 earnings. For now, TWLO stock could see a further rise in short-term.
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