Twitter, Inc. (TWTR) shares have moved sharply higher over the past few sessions amid buyout rumors that sparked interest in out-of-the-money call options. At the same time, the stock broke out from near-term trendline resistance and could make a move to break out from its next major resistance levels this week. Traders have been keeping an eye on the stock due to the opportunity to capitalize on both fronts.
Twitter beat analyst expectations last quarter with revenue that fell 4.6% to $574 million and earnings per share that hit eight cents. However, many analysts remain skeptical of Twitter’s ability to grow. Aegis Capital believes that the market is in the early stages of an ad recession, which could be bad news for companies like Snap Inc. (SNAP) and Twitter, while Jefferies downgraded Twitter stock in favor of other social players such as Facebook, Inc. (FB) and Alphabet Inc. (GOOG) subsidiary Google. (See also: Twitter Has Lost Out to Facebook: Jefferies.)
From a technical standpoint, the stock broke out from short-term trendline resistance at around $17.00 and made progress toward its next major resistance levels at the 50-day moving average, R1 resistance and trendline resistance at around $17.46. The relative strength index (RSI) remains neutral at 55.82, but the moving average convergence divergence (MACD) continues to improve from its lows made in mid-August.
Traders should watch for a breakout from the 50-day moving average, R1 resistance and trendline resistance at around $17.46 to R2 resistance at $17.99. A prolonged breakout could lead the stock to close the gap made in late July and move up to around $20.00, but traders should keep an eye on RSI levels moving into overbought conditions. The long-term trend also remains uncertain, with the stock trading mostly sideways. (For more, see: Twitter Would Lose $2B if Trump Stopped Tweeting: Analyst.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.