When Twitter stock touched $14.12 on April 17th, 2017, it was just a few cents away from a new all-time low. Fourteen months later, in June 2018, TWTR was trading in the vicinity of $48 a share following a phenomenal 238% surge.
Unfortunately, just when the company turned free cash flow positive and everyone was lining up to take part in its bright future, Twitter stock started plunging again. Last Friday, it closed slightly above the $30 a share mark, which translates into a 37% selloff in just three months.
As it is usually the case with stocks, it is not only the company, but also the price you pay, which make the difference between a good investment and a poor one. So is $30.12 an attractive price for Twitter stock? We are asking the Elliott Wave Principle.
The 4-hour chart of TWTR reveal the wave structure since the April 2017 bottom at $14.12. It shows that the rally to $47.79 is a textbook five-wave impulse with an extended wave 3, whose sub-waves are also visible three degrees down. The impulse has been developing within the parallel lines of a trend channel, whose upper line was swiftly breached by wave 5 only to cause a massive plunge soon after that.
This recent crash must be part of the three-wave correction which normally follows every impulse. Given that it also has a five-wave structure, labeled i-ii-iii-iv-v, we believe the decline to $29.25 so far is wave A of a simple A-B-C zigzag retracement still in progress. This means Twitter stock is going to remain in pullback mode for the foreseeable future as waves B and C have to develop.
A bullish divergence shown by the RSI indicator between waves iii and v of A suggests wave B up can soon be expected to begin. Wave B can easily lift Twitter stock by 30% to roughly $40 a share, only to lure investors into thinking the uptrend has resumed. Those who fall for this trap are in for an unpleasant surprise once wave C down begins.
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