Twitter shares have been trending lower for the past few weeks and an opportunity to catch this selloff is emerging. A descending trend line can be drawn to connect the latest highs of price action and a pullback is occurring at the moment.
Using the Fib tool on the latest swing high and low also indicates that price is pulling up to an area of interest near the 38.2% retracement level. This also coincides with the dynamic resistance at the 100 SMA.
Speaking of moving averages, the 100 SMA is safely below the 200 SMA so the downtrend is likely to carry on. Stochastic is already indicating overbought conditions so it’s likely that sellers will take over soon. RSI is still rising but is close to the overbought levels as well.
Recent reports from the company have been indicating a stagnating user base, which limits the company’s ability to monetize and lift Twitter shares value. Based on its fourth quarter 2015 earnings, revenue jumped 48% year-over-year to $710.5 million from $479.1 million, slightly outpacing analysts’ consensus around $709 million.
However, the number of users was stuck at 320 million, unchanged from the previous quarter. Shareholder sentiment is also turning negative, with top firms lowering their target prices for Twitter shares.
Twitter shares could find resistance at the current $15.89/share level and make its way back down to the previous lows of $14/share. Analysts are even projecting a possible break to $13/share in the near-term, given the downbeat outlook for the social media company.
On the upside, a break past the highest Fib at $16.91/share could spur an uptrend for Twitter shares, likely on profit-taking or positive news from the company. This could lead to a test of the 200 SMA around $18/share and a break above this could put the stock on track for more gains.
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