Twitter (TWTR) — Is it time to hit the "Follow" button on TWTR?
Discussed in this article: Twitter Inc ( $TWTR )
I want to look at Twitter ( NYSE:TWTR ) today. This is a great example of the efficient market theory. There are several folks, none of whom I respect, who subscribe to the efficient market theory, which is, why even bother trying to beat the markets, you can’t do it, the markets are too efficient, they price everything in right away, you might as well flip a coin, better yet buy an index fund, and then when the market goes up you make money, when the market goes down, well let’s not talk about the market going down lets just talk about the market going up, and the markets really efficient.
Well first of all the market isn’t efficient, but even if the market is efficient, even if it’s totally efficient, then what is that telling you? It’s telling you that the market is totally efficient, you don’t know squat, I don’t know squat, why are you trying to beat the market? There’s no point, the market is efficient, you can’t be beating the market. Who’s really more powerful, the market or you, the market or me? Answer, the market, the market is always right.
Okay, so let’s buy into that, it’s an efficient market. Great, guess what? That makes it even easier you don’t have to think. You don’t have to think, all you’ve got to do is look, all you’ve got to do is watch. I’ve been harping on this a lot lately, if you’re paying attention to the news, depending on when you happen to turn on your TV, or what website you look at, you’re going to get really, really bullish news or you’re going to get really, really bearish news or opinions, whatever you want to call it, but what really matters more than anything is the price. We want to buy low we want to sell high. I don’t care if I’m right about the fortunes of the company or not, unless it’s my own, I don’t really care about that, all I really want to do is make money.
So you hear a lot of folks, even I was looking at the valuation of Twitter ( NYSE:TWTR ), I’m going, “I wouldn’t pay $39.00 for this stock if it was the only stock being traded, it’s just way too expensive.” However, does that really matter? A lot of really, really smart guys are saying this thing should be a 30.00 or $35.00 stock. Well guess what it’s not, the stock is moving higher. So guess what? The stock that I wouldn’t buy at 39.00, loved it today at 46.00, 47.00, something like that. And do you know why? Because the market efficient, the market’s efficient; the stock is moving higher not lower. Who am I to second-guess?
So what do you do? First of all you keep an eye on the high-profile stocks and this would be one of them. You keep an eye on them, you look at them and like I said, I think at some point, I forget, I think shortly after the option started trading on this, I forget exactly what the situation was, but I think I was short this stock, via puts, being long puts, I think I was short the stock for a while, maybe a day, maybe half a day, maybe three days, I don’t remember. The reason I don’t really remember was because I do remember I closed out the trade for a loss, I was wrong. And why was I wrong? Well because the stock wasn’t going down like it was supposed to, apparently it didn’t know that I had made a judgment. And by the way I’m making a point here; the stock stopped doing what I thought it was going to do.
So what did I do? Well okay, I’m wrong so I better close out that trade. I closed it out for a small loss, hence unremarkable, in other words I can’t even remember the specifics about the loss, because I take losses a lot, and I take losses a lot because I trade a lot more, and sometimes you’re going to win, sometimes you’re going to lose. Think about it this way, you’ve got a “summer” portfolio, sum’er good, sum’er bad, that’s just the way it goes. So when I took a loss on Twitter ( NYSE:TWTR ) I still didn’t feel like trading it to the long side. You can see the stock going up, but frankly I was focused on other things, kind of like Apple ( NASDAQ:AAPL ) at that time. So I started looking at it though over the last couple days and this morning I noted that it had moved above this last high here.
Okay, that was kind of a big deal, particularly if you’re looking at the 15-minute chart, you can see that the stock had been trending sideways for a while, very tight volatility squeeze, I didn’t buy it there, I don’t think I was looking at it. It traded sideways and then on the 5th, which is Thursday, it started moving higher, not enough to really get my attention. Friday, it’s drifting lower like this, again, 15-minute chart. This morning this thing comes up on a volume scan, I see this starting to break out, I’m looking at the 15-minute chart, I even look at the 5-minute chart, and I remember thinking, you know what, I’m not going to wait for the breakout on the daily chart, because I think that my risk is limited.
If I look at this area right here I could put stop right there. I could put a stop there, I buy the stock, I don’t know, in here, buy it here, it doesn’t matter because you know where your stop is; you know that is going to be your exit. If the stock rolls over, falls below your stop, then you’re out and that’s okay. But instead what has happened the stock has just continued to move higher. Now those of you that are members, you are or you darn well should be familiar with the IPO strategy analysis, whatever you want to call it, that I use, and this is what it is, because this is coming really close, we’re anticipating a little bit.
I have seen time and time again that a stock like Twitter ( NYSE:TWTR ) here, this was the high, up about 50.00, I think $50.09 or something where the stock debuted. This was the intraday high, since that time the stock hasn’t come back to it, close to coming back today. I’m actually thinking of that movie where Robert De Niro plays Al Capone and Kevin Costner plays Elliot Ness; Al Capone’s talking about enthusiasms, their enthusiasms.
I always look at this initial high as the enthusiasm high then the stock starts coming down to earth and what often happens is at some point the stocks going to come up, nudge this high, we’ve seen it in Facebook ( NASDAQ:FB ), a lot of times they’ll even pull back a little bit; sometimes they’ll just shoot through, sometimes they’ll even shoot through and then pull back and then you can look out, you’ll see them trade this way, in this general range for a week, or two, or three, and then ultimately lean up against this resistance and then start blowing right through.
So my suggestion today on Twitter ( NYSE:TWTR ) was that you take this stock anticipating the test here, and ultimately a push through. So I don’t think it’s too late to buy this stock even now, the stocks up almost 10 percent today. Just know that in this method of analysis, and it’s not prediction it’s just a framework to study stock it’s up about $50.00, let’s see what the exact high was, yes $50.09. So if this stock starts pushing above $50.09 you’re going to hear the financial TV start talking about this more than it was today. That should push this stock even higher, even though the company is grossly overvalued, this stock should be much lower, the market is efficient, the market doesn’t care about the value guys, the market doesn’t give a rip about you or me, it doesn’t even know whether we’re long or short this stock.
So instead of over thinking things you can take a small position now if you haven’t already, you’re anticipating a test of this $50.09, we’ll just call it $50.00; didn’t even get there yet, didn’t even get there today. Then if the stock pulls back a bit you can even add to your position. But the way this chart is looking right now, the old efficient market theory, this stock is efficiently moving higher now you know where your stop is.