Friday, March 28, 2014

Twitter (TWTR) price chart update ...

There is a saying that goes "the market tends to do the expected, but in unexpected ways". I bring this up in regards to twitter stock because all I heard going into it's IPO was how everyone wanted to be a buyer around the mid to low $30 level.

The daily price chart above goes all the way back to Twitter's IPO last year. In my last comment I made on this particular stock I mentioned how the stock price had fallen back to it's IPO high (horizontal white line) and how it needed to hold that level if it had any chance of continuing higher. We did get a short term bounce off that level but the selling pressure has remained for fundamental reasons, as it's first quarterly earnings report left a lot to be desired.

Twitter has now dropped 42% off it's highs and is down 27% year to date. A full 50% retracement from highs drops the stock price back to it's lows at $38. Investors may very well get their low to mid $30's price point that they clamored for during it's IPO, after all.

However this is not unusual for growth stocks in their infant stages, and doesn't necessarily mean that Twitter is a broken stock with no future. Let's take a look at a couple recent and very popular names. Facebook (FB), chart above, dropped 61% off it's IPO high price, albeit for different reasons.

The stock eventually found support, fundamental factors kicked in to support the stock price and it has rallied higher over 313% in the last 18 months since.

Tesla (TSLA) experienced drops of 50% during the first week of it's IPO and 42% a few months later.

It's now some 1200% off those lows over the last 3 and a half years.

Of course there are plenty of other examples out there. The purpose here is not to compare twitter to any of these others. I certainly have no idea whether twitter will take off in similar fashions or not. I am not long any of these names but would seriously consider twitter in the low to mid $30 range if it did happen to get there.

The purpose here is to show that although these names are popular and have a lot of hype surrounding, they are awfully volatile and should be treated as such. If you can stomach these 50-60% corrections in a short amount of time then they may have a place in your portfolio. Otherwise don't get sucked into all the hype and emotions.