A Massive Breakout in Twilio Stock Is Imminent

Twilio (NYSE:) stock has had an eventful month in May. It came into its earnings report already up 50% year-to-date then added to it on the day of the event. Then, I shared a note to fade the earnings pop. And the action that followed played out perfectly as Twilio stock fell 12% from pop top to bottom.

3 Strong Buy Stocks Set to Crush Earnings: Twilio (TWLO)


While this sounds like a disaster, it’s not, and I am also not a bear on the company. So before you label me a naysayer know that I prefer to trade the upside of stocks. But sometimes it’s important to trade the action at hand. That trade setup was for the short term, so it didn’t speak against the TWLO long-term prospects.

I specifically noted my “caution against the price action from here. Ideally, it would be better to wait for a pull back to $125 per share.” All of my assumptions then came true and if you bought the dip to $125, then you profited both on the way down then up.

So now what Nostradamus? Well, it has been a wild ride for the markets in general, which makes guessing the momentum stocks even harder than normal. But there are clues to trade short term.

The range is tightening which foretells a breakout. TWLO stock is setting higher lows and lower highs coming into a perfect point. Odds are that for a healthy company like this, the bulls do have more stamina than the bears so this favors the upside scenario.

A move above $136 per share would invite buyers to target $144 or higher. There will be resistance at $141 per share. So I can set up the trade via stock or options but I’d set tight stop losses since this is a short-term bet on a fast ticker.

Conversely, the downside scenario could unfold if the bears succeed at breaking through $131. If that happens, they would target the point of interest around $122 per share with an interim stopover at $126.

So clearly today’s write up is for the purposes of actively trading Twilio stock. Those who believe in the company for the long term need not worry about this unless they are looking to defend their assets with put options.

How to Approach Twilio Stock Today

For those purposes, TWLO has support for as long as the macroeconomic picture remains this stable. If the markets stumble and the S&P reverts to its downside bearish target of 2,680, then TWLO support could fail and retest $108. This is not my forecast but it’s important to know all possible current scenarios.

In fact, I believe in the fundamentals of the company and I agree with the positive consensus on Wall Street. Management just reported a blow out quarter. They beat the expectations and raised their guidance. Revenues grew 80%, so this is a proper growth company focused on growing revenues.

Nevertheless, it is important to reiterate that TWLO stock cannot rally alone — it will need the help of the market in general. If the S&P 500 falls next week, then so will TWLO. The geopolitical headline risk remains high thanks to the U.S. versus China squabble. The two sides stopped meeting in person and they now negotiate on twitter and via state media releases. So all homework, including this one, is hostage to those headlines.

    So it is important to doubt every thesis, including this one, so I only suggest entering in TWLO stock with partial positions. This limits the damage if the price goes against me or to leaves room to add to lower the entry cost.

    Because Twilio stock is a growth stock, it’s not cheap and it carries a lot of froth. This is a tech stock that sells at 26X sales. This is more than twice as expensive as the original cloud company, (NYSE:). And remember, CRM stock is not cheap either, so I am not comparing TWLO to a bargain. CRM is more than most mega-cap stocks, even Amazon (NASDAQ:).

    Caution is warranted.

    Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and .

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    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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