Twitter is popular on Wall Street this year.
Todd Gordon, founder of TradingAnalysis.com, says the stock chart is setting up for an even bigger rally.
“There’s all sorts of cool technical patterns here known as head and shoulders, traditionally a reversal pattern,” Gordon said on CNBC’s “Trading Nation” on Thursday. “We should have broken down in TWTR. We did not.”
Twitter formed a bearish head-and-shoulders pattern with a high in March, a higher high in June, and a lower high in August. That setup typically suggests the end of an uptrend. However, since then, Twitter has managed to break out above the lower high set more than three months ago.
“If you take that pattern and you just kind of isolate that and flip it upside down … we have an inverse — so a failed head and shoulders,” said Gordon. “A failed head and shoulders actually results in a strong move.”
The inverse head-and-shoulders pattern formed with a low in July, a lower low in October, and a higher low in November. That formation suggests the reversal of a downtrend.
“Despite a weak overall market, I am long the stock,” said Gordon. “I was hoping for a gap close — that’s at around $38.50. If the overall market can stabilize, I feel like Twitter can go up and close that gap, so I like it.”
At $35.50 in Friday’s premarket, Twitter shares are 8 percent from capturing $38.50. It last traded at that level in July.
The fundamentals picture for Twitter also supports more upside, says Mark Tepper, president and founder of Strategic Wealth Partners.
“The knock on Twitter is that the daily average user growth has been slowing for the last few quarters, but keep in mind that they’re really focused on shutting down fake accounts, so I think a number like that is really important for Facebook where people might only log in once a day, but with Twitter it’s more about the user engagement,” Tepper said on “Trading Nation” on Thursday.
Daily active users rose by 9 percent in Twitter’s third quarter, its first quarter of single-digit growth in two years. Sign-ups decreased by 20 percent as efforts to detect spam and malicious accounts made progress.
“They’re doing everything possible to increase engagement levels, and live streaming is a big part of that, and as you increase engagement, that’s going to lead to more advertisers,” Tepper said.
Advertising revenue grew by 29 percent in the September quarter, its third quarterly increase of more than 20 percent.