Trading Blueprint for Twitter (TWTR) Earnings Report

Social media platform Twitter (NASDAQ: TWTR) reports Q4 2019 earnings pre-market Thursday, Feb. 6, 2020 followed by an 8:00am EST conference call. Analysts expectations are for $0.27-earnings per share (EPS) on revenues of $994.8 million. Shares collapsed from 37.76 to a low of 28.63 after the last earnings results in October 2019. Investors are bracing themselves for more visibility on daily active users (DAUs), monthly active users (MAU), ad spend trends, privacy and content related regulatory headwinds and further impact from banning political advertising heading into the 2020 elections. The company will be under much scrutiny over measures to combat election tampering and fake news but could also gain more engagements from the controversy. With the earnings sell-off from Facebook (NASDAQ: FB) and Snap (NASDAQ: SNAP), Twitter faces negative sentiment heading into its release, however, it can also be perceived as setting a lower bar. This could result in a short-squeeze or a trapdoor-like price collapse contingent on the narrative moving forward.

Macro Context and SPY Gap Fill

The S&P 500 ETF (NYSEARCA: SPY) is our macro market indicator. Market sentiment has improved  from the recent market sell-off to SPY low of 320.74 post-market on Jan. 31, 2020. The daily stochastic is has crossed up off the 20-band to test the 332.28 Fibonacci (fib) price level with next upper 1.618 fib at 333.95. Most of the SPY recovery occurred from consecutive price gaps squeezing bears higher. However, these price gaps at 330.01 and 326.18 are also a magnet to “fill” at some point in the future. Gaps can leave a hollow core that can collapse unless they get “filled” by retesting and solidifying the support. It’s akin to constructing floors on a building with hollow cylinders that need to be filled with cement to avoid collapsing.

Technical Analysis

Utilizing the rifle charts, TWTR monthly chart has a bearish but dormant stochastic mini inverse pup. Since mini pups rely on maintaining the 5-period moving average (MA), they become dormant when prices fall back between the 5-period and 15-period MAs and become active when trading back below (on downtrends) or above (on uptrends) the 5-period MA. On TWTR, the 5-period MA is 31.78. This is a critical level that bulls need to protect to avoid triggering the monthly downtrend. The weekly chart formed a market structure low (MSL) that triggered above the 29.77 fib forming a bullish stochastic mini pup with 5-period MA at 33.23 and a gap fill at 38.80 fib. The upper Bollinger Bands (BBs) sit at 43.39 super fib. The super fib at 29 was the support area from the last earnings reaction collapse and key downside support. If this level breaks down, then the monthly mini inverse pup may resume towards the 26.80 fib. These are very extreme levels to watch days to weeks after the earnings release.

Sympathy Stocks:

TWTR is the last of the domestically lister major social media platforms. Sympathy peer stocks to watch are FB and SNAP. Since these two dumped on earnings, TWTR has the potential for a gap up which could lift shares of FB and SNAP to a lesser degree. However, if TWTR gaps down, then SNAP should feel more selling pressure since they reported the day prior.    

Trading Game Plan:

TWTR could possibly trade in a tighter range which is why we have the daily reversion envelopes as a weekly envelope to utilize. Keep in mind the most volatility will hit on the morning session right off the opening bell. Use the envelope reversion levels for initial trades off on the second gapper reaction for scalps. Ultimately, the third reaction will form enabling potential swing trades. The upside key reversion price levels are: 34.69 super fib, 35.45 sticky 5s/super fib, 36.64 daily upper BBs/1.618 fib, 37.50 sticky 2.50s and 38.80 super fib gap fill. The downside key reversion price levels are: 31.89 fib/daily lower BBs/monthly 5-period MA, 31.77 fib, 30.26 fib, 29 major fib support from prior earnings. Price swings can start off large but tighten quickly as TWTR is a very thick stock making it great for larger sizing due to the abundance of liquidity. TWTR reports earnings pre-market with a conference call at 8:00am EST. This limits the ability to play the initial earnings reaction as most retail platforms won’t allow trading under the conference call begins, therefore focus on the opening action or consider playing FB and SNAP sympathy movers.