The popular American online news and social networking service on which users post and interact with messages known as “tweets”, Twitter Inc. (NYSE: TWTR) seem to be gearing up for a surge as per its latest charts.
#1 Ascending Triangle Pattern Breakout: Twitter’s daily chart shows that the stock has currently broken out of an Ascending Triangle pattern. An Ascending Triangle pattern is a bullish pattern. This is marked on the daily chart in purple color lines. A breakout from an ascending triangle pattern generally indicates the start of a bullish trend. The breakout level also acts a good support level.
#2 Trading Above MAs: The stock is currently trading above both its 50-day and 200-day SMA, which implies that the bulls are currently in control.
[hana-code-insert name=’adsense-article’ /]#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has started rising from below both (+DI) and (-DI).
#4 MACD above Signal Line: The MACD line (light blue color) is currently above the MACD signal line (orange color) which is typically considered as a potential buy signal.
#5 Cup and Handle Pattern Breakout: The weekly chart shows that the stock has broken out of a cup and handle pattern.
This is marked in the chart in purple color.
The cup and handle pattern is a consolidation and breakout pattern. Since this pattern is being formed for more than few years now, it indicates that the pattern is very strong. Whenever a stock breaks out of the cup and handle pattern, it typically moves higher.
#6 Other Bullish Indications: There are also various other positive indications like the bullish ADX and DI, bullish MACD, and price above MAs in the weekly chart. These all point to possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy price for TWTR is at a price of around $35 to $37. But for those with higher risk appetite, you can purchase half the intended quantity of stocks of TWTR at the current price of $39.77.
TP: Our target prices are $45 and $50 based on the breakout from the Ascending Triangle pattern.
SL: To limit risk, place a stop loss near $36.40 (for entry near $39.77) and $32.40 (for entry near $35 to $37). Note that the stop loss is on a closing basis.
Our target potential upside is 13% to 43% in the next 4-6 months.
- Entry at $35: For a risk of $2.60, the target rewards are $10.00 and $15.00. This is a nearly 1:4 and 1:6 risk-reward trade.
- Entry at $37: For a risk of $4.60, the target rewards are $8.00 and $13.00. This is a nearly 1:2 and 1:3 risk-reward trade.
- Entry at $39.77: For a risk of $3.37, the target rewards are $5.23 and $10.23. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 6x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the ascending triangle pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
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