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Christopher Wallace
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Former private equity fund manager, now full time private investor.
  • Capitulation Opportunity In Twitter 9 comments
    May 6, 2014 6:29 PM | about stocks: TWTR

    Today TWTR dropped almost 18% on 10 times the average trading volume. The news, if you can call it that, was that 480 million shares that were locked up under terms of their IPO, became free trading today. News? The world knew about this since the IPO and it has been well-publicized in the financial press for weeks. The hoards stampeded for the exits. The stock made a 52 week new low on record volume and the chart has made an inverse parabola. The bottom line: TWTR has fallen too far, too fast. This is classic capitulation, the last of the weak hands are dumping their shares at any price.

    This is not the informed smart money making a well thought out, rational investment decision. Those investors meeting that description shorted the stock weeks ago, well ahead of the lock up coming due. No, today was a classic panic selling stampede by emotional investors who the informed investors knew would want out.

    205 million shares declared they would not sell, leaving 275 million free to do as they wish. Half of them, 135 million shares traded, dumped their stock today. It really has the classic attributes of a capitulation: a rush to the exits when really nothing has changed.

    Say what you want about a multi-billion dollar market cap that has never made a profit. In the long run, that might matter; in fact it most likely will. But for short term traders, willing to take on high risk, this is exactly the type of scenario that creates a short term speculative buying opportunity. Twitter has fallen too far, too fast and has gone from over-loved to over-hated.

    I am looking for a short term bounce and to that end opened a small in-the-money calls position near the close today, in addition to buying common shares. Follow through selling may continue tomorrow but I expect that we are putting in a short term low down around here, creating a decent trading opportunity to go long TWTR and its derivatives for a short term hold.

    Disclosure: I am long TWTR.

    Stocks: TWTR
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Comments (9)
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  • Robert Duval
    , contributor
    Comments (7764) | Send Message
    I get the logic, but not for me. Far, far too early. That was size sellers hitting the bid, I would guess some of those big holders that "promised" not to sell.




    I am highly defensive and short the market here, but no twtr positon.


    Good luck.
    6 May 2014, 06:58 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1253) | Send Message
    Author’s reply » I too am largely short this market with a view to getting shorter. I was short TWTR until earlier today and got long by EOD. The huge volume was the real tell for me. This is not an investment for me, but a short term technical trade. These set ups come along once in a while and have generally provided good results. They are speculative and therefore I use small dollars for short durations. TWTR as a long investment? Never! But as a short term trade, a week or so, I like my chances with this set up.
    6 May 2014, 07:10 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1253) | Send Message
    Author’s reply » I actually played NFLX long about a week ago on a somewhat similar set up. I have been short that name several times over the least year.
    6 May 2014, 07:11 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1253) | Send Message
    Author’s reply » I should also mention for disclosure purposes that I am long VXX and VXX options which effectively shield my long TWTR position from a general market decline. Both are intended as short term holds. I can, and likely will, make changes to the positions mentioned here in the short term and will not provide disclosure about any or all of my short term trades. I just wish to be transparent here, but not have anyone rely on any aspect of this post.
    6 May 2014, 09:41 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (6633) | Send Message
    There was an interesting blurb that TWTR insiders have a cost basis of just 2.xy $ on average...


    "IPO market's acid test -



    2 days ago - Tuesday 480 million shares from Twitter insiders will become eligible for sale.... The average cost basis for all insiders is $2.21."


    If this figure is true I guess many more large sellers will bail if user growth slows further (I just posted a talk about bots on TWTR, I suspect many "active" accounts aren't actually human).


    I can see TWTR falling back to $20-25 in this scenario.


    PS: I also closed my short yesterday, but I would not go long TWTR based on fundamentals.
    7 May 2014, 05:07 AM Reply Like
  • Anyoption
    , contributor
    Comments (1058) | Send Message
    I like where your head's at. TWTR has been long overdue for a correction, but I think too many people jumped on that bandwagon too soon. Lucky for the smart ones who saw it coming and made bank off the short. I'm not sure I see TWTR reaching back to where they once were anytime soon, but hopefully this new reality will help them move forward in the right way.
    7 May 2014, 10:14 AM Reply Like
  • Anyoption
    , contributor
    Comments (1058) | Send Message
    By the way, thanks for the inspiration for my post today, "Twitter Will Rebound On One Condition".
    7 May 2014, 03:08 PM Reply Like
  • Christopher Wallace
    , contributor
    Comments (1253) | Send Message
    Author’s reply » Thanks anyoption - I read your post, well done!
    7 May 2014, 04:36 PM Reply Like
  • Anyoption
    , contributor
    Comments (1058) | Send Message
    7 May 2014, 10:43 PM Reply Like
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