When TWTR was trading around the price of $40 back in December of 2013, I took to twitter and said that it was a good buying opportunity and that it would be chased higher very shortly. About a week later it began moving higher and in just a couple weeks was trading over $70. I did not make that call based on fundamentals, but on technicals, psychology, and momentum.
After TWTR released their first earnings report the stock sold off and went to a low of $49.99 the following day on February 6th. Since that time, the stock has been rangebound and for the most part out of favor among investors and traders alike. During that time it has not ever breached $50 again and for the most part has stayed above $53. So why would you buy it now you ask?
IPO Momentum: Weibo, the Twitter of China (under the company ticker SINA) is beginning to get buzz about their upcoming IPO. Often when a company with household name recognition is going to IPO, stocks within a similar sphere will begin to rally ahead of it. In this case Weibo is part of the social network realm and most closely related to TWTR. As SINA gets more attention, TWTR will likely ride on its coattail.
Interest Has Dried Up: When TWTR began running up from $40 it went from a hated stock with little interest to the hottest stock to buy and trade. For some people, once the chase was on it was too late and their wasn’t much upside room left before the euphoric rush was over and than earnings. Here we are again at a point where the stock isn’t being heeded much attention and is quite hated with 15.6% short interest (a 32% uptick from the previous short interest report).
Momentum and Psychology: Once TWTR gets above $59, which I think will happen sooner rather than later, momentum traders will quickly jump back in and the stock will be back over 70 in no time. There may be some stalling when it reaches the low 70’s (its previous highs), but once it gets above their, the ephoria will kick in, shorts will cover, and chasers will come back in taking it even higher. Once again though, they will be too late and will only have a limited amount of upside before the stock rests or gets hit by earnings or the lock-up set to expire in May.
If you want to be a frontrunner and not be left holding the bag at the end, then now is the time to buy TWTR. Short term traders can set their stop at $52.50 and aim to exit most of their position at $70 leaving a little left for continuation. Investors can set their stop at $49.50 and enjoy the ride.