Twitter Lockup is Expiring. Here's What to Expect by Market Authority
On May 6, Twitter (NYSE:TWTR) insiders will be able to sell 474.4 million shares. These are shares held by Twitter executives and various early-stage investors. Unlike Facebook's IPO, TWTR didn't allow any insiders to sell shares to the public at the IPO price. This "should" mean excess volatility for TWTR shares as traders try to anticipate how much stock will be sold on May 6, and the effect of the sales on prices.
Have a look at the performance of the stock since it opened for trading in Mid-November
Now, let me preface this by saying that lockup expirations can be volatile periods, especially if the market hasn't prepared for a deluge of sell orders. However, in the case of TWTR, the financial media circus is already covering the lockup expiration nearly 2 months before the event actually happens.
Fox Business last week was talking to a couple of economists about the expiration effect on the stock price. Two economists, who I might add, never traded a share of TWTR or a lockup expiration in their academic careers.
There was a clueless article from the WSJ where a TWTR bear claims the small lockup expiration this week will dictate what the effect of the larger expiration in May.
This is the same traveling circus that spent 2013 warning investors of the market impact of these events - fiscal cliff, sequestration, and government shutdown. And as we experienced each of these events, the market continued to trade higher. And similar to the outcome of these other media hysteria events, TWTR shares will trade higher after the lockup date.
Here's how these situations work- the 24 hour media creates the common narrative. The media needs stories (such as fiscal cliff, govt shutdown, etc) that instill fear to keep viewers tuned in. To use a term coined by Canadian media philosopher Marshall Mcluhan, "the medium is the message." In other words, the repetitive delivery of the idea that insiders are going to be selling TWTR stock becomes more relevant to future stock price than the event itself.
The amplitude of media fever pitch is negatively correlated with market impact. The more we hear about TWTR expiration lockup, the smaller the TWTR price move when the event occurs. If we had heard nothing about lockup expiration, and then insiders dumped millions of shares of stock- the price of TWTR would surely decline. However, this isn't the case.
Investors will hear story after story about TWTR lockup expiration, and the shares may decline in anticipation of May 6. This establishes the common narrative. Investors interested in TWTR will hear these stories and either hold off on purchasing until after lockup expiration, or short the stock in anticipation of a decline.
This market maxim is always true: If everyone thinks the stock will decline, then there's no one left to sell. When there's no one left to sell, the stock can only move higher.
EVENT : TWTR lockup expiration May 6th, where 474.4 million shares now available to trade
COMMON NARRATIVE (established by media): Shares flooding the market will drive TWTR price lower.
INVESTORS: delay purchase of TWTR shares or short TWTR stock, due to anticipation that negative event occurs.
ACTUALITY: Everyone sold as nobody anticipates the stock to trade higher, and that's the path TWTR most likely travels.
Tomorrow, I'll explain an options strategy that TWTR insiders and other ultra-wealthy investors utilize to lock in profits on restricted stocks. Hint, you need to be rich and have a great relationship with a private bank (Goldman, UBS, Morgan, etc) to sell restricted stock!
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