Twillio (TWLO) Shares Stay Volatile/ Profit Alert (SNE)

 

2:30pm (EST)

Shares of Twillio (TWLO, $27.99, up $0.48) continue to experience wild price swings following its October peak just north of $70. The recent backtest towards $35 in mid-December held a downward sloping 50-day moving average with near-term resistance at $29-$30.

The chart shows near-term support at $27.50-$27 with a close below the latter likely leading to the low $20’s. Shares went public last June at $15 and opened the session at $23.99. The original IPO offering was in the $12-$14 range.

In July of 2016, six analysts came out with various ratings for the stock with two Neutral’s and a Hold. The three other analysts gave Outperform, Market Perform and Sector Weight.

The firm that gave a Sector Weight came out this morning with an Outperform rating and called it one of its best “cloud” ideas for 2017. In mid-December, another brokerage firm initiated coverage of the stock with a Buy rating a $45 Price Target.

Negative earnings and sentiment have crushed shares and why I use both technical and fundamental analysis when evaluating an option or stock trade. The future could turn around for the company once they become profitable and they are in a growing space. However, this could take a few more quarters, or perhaps next year, before they become cash-flow positive.

The company recently reported a loss of 4 cents a share on revenue of $71.5 million. Analysts were expecting a loss of 8 cents on revenue of $64.1 million. While they beat on both the top and bottom line, current quarter numbers were given for a 5-6 cent loss on revenue between $72.5-$74.5 million. Estimates were pegged at 6 cents a share loss on revenue of $69.7 million.

While there could be continued momentum and a continued backtest towards $30, this is where I would look to short the stock. This is also assuming this level holds for several session and there is a fade afterwards. If shares close above this level, there may be an opportunity to go long.

To prepare for this event, I have the TWLO February 32 calls (TWLO170217C00032000, $1.40, up $0.10) and the TWLO February 27 puts (TWLO170217P00027000, $2.60, down $0.25) on my Watch List. If shares do make a run to $30, the aforementioned options will also provide an opportunity for a possible “strangle” option trade.

Turning our focus to the market, futures were slightly weak throughout the morning that led to a lower open. The action has been sloppy since as we head into the final 90 minutes of trading.

The Dow is down 52 points to 19,889 while the S&P 500 is off 3 points to 2,267. The Nasdaq is adding 6 points to 5,483 and the Russell 2000 is lower by 15 points to 1,372.

I have updated our current trades so let’s go check the tape.