Twitter Inc (NYSE:TWTR) stock is on a continuous uptrend gaining more than 9% in the last few days. Will the rally sustain?
Shares of Twitter Inc (NYSE:TWTR) are again on a continuous uptrend for no particular reason as such. Twitter stock is up more than 9% since the beginning of last week continuously closing in the green. There hasn't been much fresh news pertaining to Twitter lately which could have driven the rally. The buyout speculation again seems to be the main driver for the rally. This pattern has become very common for TWTR stock over the past few months. None of the previous rallies have sustained for a longish period. Now, this brings to an important question: Can Twitter stock continue to rally? Is there still a significant upside from here?
Why has Twitter Stock been on an uptrend lately?
Rich Greenfield of BTIG Research revived the buyout speculation of Twitter last week again. Greenfield, while speaking to Scott Wapner, host of “Fast Money: Halftime Report" show, stated that "Disney needs to own Twitter". The argument behind his statement was that according to him sports is "moving to Twitter," with more and more people discussing games in real time using the microblogging platform. The BTIG Research analyst feels that Twitter acquisition will bring in great synergies which could solve Walt Disney Co's (NYSE:DIS) ESPN troubles. This commentary further gave a boost to the technical set up for Twitter stock which also contributed to the recent uptrend.
The other recent development which could be a positive for the company but lesser significance. The Jack Dorsey led company has brought in Facebook veteran Kay Madati, current executive VP of digital media at BET, to be its new head of content partnerships. The recent executive exodus at Twitter has been a headwind for the stock, in the light of this, the latest executive recruitment could have been treated as a positive by investors.
How far can the rally go?
Technical set up was also a key driver of the recent uptrend in stock. The good part is that TWTR stock has broken above a major long-term resistance level for the first time since its Q2 earnings in July. The stock broke above the long-term 2oo-day Simple moving average (SMA) last week. In a change of polarity, the 200-day SMA will now be a key support for the stock. Providing further strength to the breakout above the resistance level, Moving Average Convergence Divergence (MACD) indicator also made a bullish crossover last week. This bullish momentum has lead to multiple bullish breakouts this week. Twitter stock made bullish crossovers with its 50-day and 100-day SMA on Monday rising above the trend line from below. These breakouts were also for the first time since Q2 earnings. In other words, TWTR stock seems to have shrugged off the post earnings weakness.
Given all the above bullish technical signs, a word of caution for the Twitter bulls. The upside from here could be limited. TWTR stock is heavily overbought as per popular technical indicators Relative Strength Index (RSI) and Bollinger Bands. The present RSI measure of the stock stands at 78.31, well above the commonly used overbought threshold of 70. The share price has also breached the upper Bollinger Band to signal an overbought condition. Generally, the combination of the above two indicators is considered as a strong signal. A correction could be around the corner as the lack of any fundamental catalysts makes it difficult for the rally to sustain. We would like to point out to investors that the stock could drag itself to the $20 mark as it had done in July when it hit a new high in 2017. The stock was also overbought that time but soon saw a correction after that. The $20.88 mark is a strong resistance level for TWTR stock in 2017 which it has been unable to break this year. It is more or less likely the stock could retreat on touching the $20 level.
Option Traders are also betting heavily on Twitter stock to top $20 soon. Conservative investors are better off to book some profits in Twitter stock if the stock manages to reach the $20 mark, a 10% upside from the last close. The lack of fundamental catalysts suggests the rally in TWTR stock is difficult to sustain. Further, according to Yahoo finance 30 out of 37 analysts covering TWTR have a hold or underperform rating and the average price target is $15.91. This shows TWTR stock is a hold at best. Given the increase in short interest by 5% in the latest period, is another hint that the rally in the stock may not be sustainable. The short interest as of the latest period stood at 9.1% of the float with days to cover coming in rather high at 5 days. Long-term investors should avoid Twitter stock for now and investors holding the stock should cash in on the recent uptrend by booking some profits.
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