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The Twitter Turn, Part 2

Aug. 06, 2018 10:10 AM ETTwitter, Inc. (TWTR)GPRO, HMNY, SHAK30 Comments
Arun Chopra CMT, CFA profile picture
Arun Chopra CMT, CFA


  • After nearly hitting $50, Twitter drops 20%.
  • As the RSI 'surged' to all-time highs, I shorted the stock.
  • A deeper dive into stock cycles and sentiment.
  • This idea was first discussed with members of my private investing community, Fusion Trading . To get an exclusive ‘first look’ at my best ideas, subscribe today >>

Trends often lead to excess moves. By utilizing simple price driven tools, sentiment analysis, and contrarian thinking, we can 'fade' or sell that excess to the public.

In "The Twitter Turn, Part 1", I wrote a bit about how speculative stocks top, how bases are formed, what to look for in a quality name, and the overall nature of the Twitter (TWTR) turnaround from $14 to the mid-$30s. The article was mostly related to describing the cycle of an equity, loosely shown here:

The long-term Twitter chart I highlighted at the time can be seen below. After declining for years, the stock built a multi-year base before breaking out. From here it made one more run to the upper $40s. This is a good example of a stock cycle, going from liquidation into accumulation, and then into a markup.

Today, I want to further the conversation of topping strategies during the 'distribution' phase. Below I will show how I used an RSI 'surge' to short twitter at $46 and $47 in June. I will also show how using a relatively simple option strategy, I was able to define my risk nicely.

Distribution Phase: Doji Tops

In "The Twitter Turn, Part 1", I highlighted 'doji' tops from a variety of speculative tops in names like Shake Shack (SHAK), GoPro (GPRO), Tesla (TSLA) and of course Twitter when it topped out post-IPO in 2014. These all turned into big turning points and large downside trades.

Whenever writing about candle formations, I always expect comments. Last article was no different. What was nice was seeing readers step in and correct those with less experience with price action.

Precisely. A "doji" is an 'indecision' candle. It suggests a market that is unclear about its next direction. When this happens after a major move (either direction), it

This article was written by

Arun Chopra CMT, CFA profile picture
Arun S. Chopra CFA CMT MBA began as a research analyst in the Biotech sector. Arun has worked in wealth management, specializing in portfolio construction and hedging solutions, with a special emphasis on alternative investments. He has worked closely with alternative asset portfolio managers, hedge fund traders, and investment advisors on everything from single stock processes to longer term allocation decisions. He has earned both the CFA and CMT charters, with an MBA from New York University's Stern School of Business. His undergraduate education includes a study abroad program in micro and macro economics at Oxford University. His work has been published in the MTA's Technically Speaking. Outside of Finance, Arun spends considerable time in the independent film industry, having associate produced two full length features, Punching at the Sun (Sundance 2006, Best Picture SF Asian American Film Festival 2006 ), and Chee and T (Best Comedy LA International Film Festival 2016).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The Twitter bear call spreads have all been closed.

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