Facing the Facts

Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.
— John Adams, 2nd President of the United States

In 2014, PBS released the documentary "To Catch a Trader." It's worth watching if you are new to the markets or are simply intrigued by the world of trading. In the film, Charles Gasparino, a reporter with Fox Business, highlights an interesting point about the relationship between some Wall Street banks and hedge funds: "Banks, because you give them so much trading commission, tell you about market information before the rest of the world...markets are based on rumors, all the time."

Gasparino's quote is in reference to the practice whereby some Wall Street banks may give advance word on stock upgrades/downgrades/deals/etc. to information-driven hedge funds, ahead of the general public. Why is this the case, one might ask? Well, hedge funds engage in a lot of trading activity and thus generate considerable commissions for Wall Street brokers; in so doing, some of them expect an "information edge" to increase their probability of formulating successful trades. As one trader in the documentary notes, "They call it trading stocks, but it's really trading information."

In acknowledging the fact that markets often move on speculation, it's important to note that Wall Street banks aren't the only source of coveted information. Corporate insiders leak news/rumors to their contacts in finance and media too and sometimes that trickles out to the public domain. Twitter is a great example of this. Its stock traded above $20 in late September thru early October 2016 amidst a flurry of chatter that the company was in buyout talks with multiple supposed suitors. The talks were neither confirmed nor denied by Twitter's senior management despite evident gaps in the reporting of various news outlets that steered the narrative. Eventually, the speculation fizzled out and the stock dropped back below $20; it hasn't traded nor closed above it since then.

Now let's take a look at $TWTR (NYSE: Twitter Inc.) by facing the facts and focusing on the stock's long-term price action:

$TWTR (NYSE: Twitter Inc.)

$TWTR broke below the $20 level in January 2016, when it closed the month at $16.80. Prior to then, it had never traded below $20 since its November 7, 2013 IPO. It's no surprise than that some shareholders are now calling for better corporate governance (among other things) via the #BuyTwitter campaign in light of the company's poor market performance since going public.

Since January 2016, $TWTR traded below the $15 level six times on the monthly time frame, as highlighted by the green up arrows on the chart. The stock has only closed below $15 on a monthly basis twice: in April 2016 and March 2017. Its lowest monthly close, $14.62, occurred in April 2016. Despite six attempts at closing below $14 on a monthly basis, the bears were simply no match for the bulls who protected that level fiercely.

Notably, since January 2016, $TWTR has only closed above the $20 level once on the monthly time frame: in September 2016. The stock closed at $23.05 that month, spurred by the buyout speculation running rampant at the time.

All in all, $TWTR has essentially traded within a price channel between $15 and $20 for over a year. Now the bulls have reclaimed momentum in light of the market's positive response to the company's Q1 2017 earnings report thanks to increased MAUs, DAUs, and #golive viewership figures. Furthermore, Jack Dorsey, $TWTR's CEO, has purchased 1 million shares since the beginning of 2017 and Mark Cuban also recently announced he has been purchasing the stock. The announcement of a 24/7 news partnership with Bloomberg has also boosted bullish sentiment, among other new partnerships.

In the intermediate term, $TWTR bulls must overcome the $20 level. If the stock can achieve a close above this level on a monthly basis, the initiation of a longer term bullish reversal would be confirmed by further momentum to the upside if it leads to a subsequent close above $20 on a monthly basis, in my opinion.

Using the Fibonacci retracement tool and going off of the stock's historically lowest and highest monthly closes ($14.62 in April 2016 and $64.50 in January 2014), it appears that a retest of $TWTR's $26 IPO price would be the next target for bulls to aim for, assuming a bottom has been firmly established now. If the $26 price area is reached, the next challenge for bulls would be to reclaim the $30 level. $TWTR hasn't traded above $30 since November 2015.

Alas, in response to a recent letter from a Twitter user that claimed to be a shareholder along with her father, Jack promised he will make $TWTR shareholders proud. In facing the facts, investors need only look to the market to judge whether or not Jack's vow is ultimately fulfilled.