Twitter, Inc. (TWTR) closed the first half of 2019 at $34.90, which became a key input to my proprietary analytics. The only level left over from the first half is its annual risky level at $48.99. The daily chart shows a “golden cross,” and the weekly chart is neutral.
Fundamentally, Twitter is not a value stock, as its P/E ratio is elevated at 61.44 and the company does not offer a dividend, according to Macrotrends. Twitter is a global social media platform through which users communicate with each other. Tweets are limited to 140 characters. President Trump is one of the most important users of the Twittersphere. The social media giant reports earnings on July 26 after three quarters in a row of beating earnings per share (EPS) estimates.
Twitter reported strong earnings on April 23, and the stock gapped higher and responded by setting its 2019 intraday high of $40.92 on April 30. The stock then declined with the market to as low as $34.04 on June 3 and has been stabilizing since then. Twitter shares closed Tuesday, July 9, at $37.65, up 31% year to date and in bull market territory at 43.8% above the Oct. 11 low of $26.19. The stock is also in bear market territory at 21.3% below its high of $47.79 posted on June 15, 2018.
The daily chart for Twitter
The daily chart for Twitter shows that the stock has been above a “golden cross” since April 25, when the 50-day simple moving average rose above the 200-day simple moving average to indicate that higher prices lie ahead. The stock is above its monthly value level for July at $32.71 and below its quarterly risky level at $42.89.
The weekly chart for Twitter
The weekly chart for Twitter is neutral, with the stock above its five-week modified moving average of $36.42. The stock is also well above its 200-week simple moving average, or “reversion to the mean,” at $24.68. Twitter has been above its “reversion to the mean” since the week of Feb. 9, 2018.
The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 39.93 this week, down from 42.66 on July 5. Back in October 2018, this reading was 6.91, below the 10.00 threshold as a stock that was “too cheap to ignore” while trading at $27.99.
Trading strategy: Buy Twitter shares on weakness to the monthly value level for July at $32.71 and reduce holdings on strength to the quarterly risky level at $42.89.
How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an “inflating parabolic bubble,” as a bubble always pops. I also refer to a reading below 10.00 as “too cheap to ignore.”
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.