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Capitulation Opportunity In Twitter

|Includes: Twitter, Inc. (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.