After going on a huge run, the market’s stalling. Most sectors are hurting, bulls are nervous, and the trade war seems more uncertain than ever.
Stocks that enjoyed a nice rally over the last few weeks are getting particularly skewered as a result.
Some stocks, though, have actually been selling-off quite consistently since late September, when the market was rising virtually non-stop.
And though you’d typically expect stocks that are locked in a downtrend to continue dropping – especially when the general market reverses – a few of them end up rising instead, independent of what’s going on elsewhere.
Yes, I know… going long on stocks that have done nothing but sold-off is usually a bad idea. The micro-recoveries that occur during the collapse usually end up being “head fakes” before share prices fall even further.
But every so often, you can find a long-time seller that’s actually in great position for a bullish trend reversal.
Twilio Inc. (NYSE: TWLO), a cloud communications service provider, is one such stock.
There’s no doubt that Q2 and Q3 have been rough for TWLO. Since hitting an all-time high in June, shares have plummeted 30%. The stock made several attempts at a recovery since then but failed time after time.
Now, TWLO’s trying to do it again. With prices rising over the last two weeks, the stock has almost breached the downwards sloping trendline (which traces the standout highs of the recent downtrend) in the chart above.
Should TWLO keep rising, the next weekly candlestick will close above that trendline, meaning a breakout will likely be confirmed.
Normally, in a situation like this, I would be comfortable going long above the current week’s high (which is touching the trendline).
However, because TWLO ended up stalling at the trendline several times now, I need more evidence of an upwards move. For that reason, we’ve set our trade trigger higher than normal – slightly above the high from four weeks ago, at $104.00.
If TWLO rises to $104.00, a trend reversal will likely have been confirmed, meaning it might make sense to go long at that point. The stochastics still look low, telling us that the stock is possibly oversold, and the low from three weeks ago is a higher low relative to the last standout low (not on the chart) from 2018.
All in all, TWLO’s showing signs of a bullish reversal. Now, it just needs to keep rising, which, based on the recent price action, looks probable.