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Twitter (NYSE: TWTR) appeared on my bearish scan last evening. When I started looking further into the signal, I found several items that made me think the bearish outlook was warranted.
The first thing that caught my attention was on the daily chart. The stock has a downward-sloped trendline that connects the high from last February and the high from October. That trendline is just above the $50 level right now and the stock is trading just below the $50 level.
Something else that stood out on the daily chart was the number of gaps in the chart. I have noted five in the last year with blue ovals. What you might not have noticed is that the gaps have alternated from upward gaps to downward gaps in each of the last four occasions. The most recent gap was an upward gap and it came earlier this month. It also catches your attention that the stock is overbought on both the 10-day RSI and the daily slow stochastic readings.
Looking at the weekly chart, we see the downward-sloped trendline a little more clearly. We also see that the %K portion of the slow stochastic readings has now entered overbought territory.
One saving grace for TWTR could be the sentiment toward the stock. The three main indicators that I look at are the short interest ratio, the analyst ratings and the put/call ratio and its percentile ranking for the past year. The short interest ratio is currently at 1.60 and that is the most bullishly skewed of the three sentiment indicators. The analyst ratings show 18 “buy” ratings, 20 “hold” ratings and two “sell” ratings. These numbers, when totaled, show indifference toward the stock. The put/call ratio is currently at 0.67 and that ranks in the 49th percentile for the past year—another sign of indifference toward the stock.
As a contrarian, I prefer to see overly bullish sentiment toward a stock when I get a bearish signal as those are the scenarios when you tend to see the biggest moves. In the case of TWTR, the technical picture is suggesting a downswing is more likely than a continued move to the upside, but the sentiment isn’t aligning with that bearish technical picture.
Given what I stated above, I still think TWTR heads down over the coming weeks, but I don’t have the same level of conviction I would have if the sentiment aligned accordingly. If you play TWTR for a downside move, watch for support in the $35 level and then there is a second layer of support at the $30 level. These two areas have served as the lows over the year and half since the stock went public in November 2013.
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