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Twitter Has Unfinished Business to the Downside


Worse-than-expected earnings or otherwise, the stock is projected to fall at least under 8%.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

On the morning of April 29 before Twitter's (NYSE:TWTR) earnings, I posted a cautionary Buzz & Banter on the stock given the lack of capitulation volume and excessive optimistic sentiment, while the chart was still deteriorating. This left no room for error for the report, and unfortunately, we did indeed get a breakdown after it was released.

From April 29:

On March 31 on the Buzz & Banter [subscription required], I posted a chart of Twitter, highlighting the importance of the 47.28 level (23.6% Fibonacci retrace) and how losing it could trigger a full retrace to 38.80. We pretty much accomplished that with a low of 39.68 one month later. A sizable bounce followed, which stalled at 47.28 -- and, of course, in true 2014 style, proceeded to destroy everyone who jumped on board late. Yesterday, the stock retested the lows, and the double bottom has gotten everyone excited today. Unfortunately, we have yet to see a capitulation low in terms of volume, so I suspect we're not done with the downside, whether after earnings or later. The stock is currently up 4% for the day, and volume put to call has dropped to 0.50 (at the time of this post), an astoundingly optimistic level. This has raised the bar even more for a stock that's trading in bear territory, much like many Nasdaq highfliers. A close above 47.28 would go a long way toward restoring confidence. Until then, tread with caution. This is a sector everyone wants to get out of on rallies this year.

Is it over? I don't think so.

The volume since then looks more like a churn bar, and now that we broke 38.80 on a closing basis, we're most likely headed for a minimum projection to either 30.32 or 29.03. This doesn't mean we won't bounce here and there, but keep the bigger picture in mind, which is biased to the downside. Sellers will be waiting for those bounces.

Click to enlarge

Twitter: @AheadoftheNews

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