Twitter (TWTR) jumped 28% in the final three trading days of October, but a week later they had retraced half of that move. The retracement tested the top end of the October gap at the $19.50 level and it held. Twitter shares rebounded.
Last month’s final week rally took out some long term resistance and made a higher high on the daily chart. There was, also, some speculation in the financial press that investor or trader sentiment was shifting and that Twitter had turned a corner. That may turn out to be the case, but the price action over the last three sessions has formed a fairly reliable bearish reversal pattern.
The eveningstar pattern consists of a large up-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large down-day candle. It represents a transition from bullishness to bearishness.
Of course, all candle patterns require confirmation and even if the eveningstar is confirmed by downside follow-through, it does not signal the end of the intermediate term strength in Twitter. It could just reflect a healthy digestion of the rebound gains. On the other hand, if the $19.50 level is retested and fails, the stock would enter a support vacuum created by the October gap higher.
A return to the gap low would be technically significant and any earlier Twitter optimism would likely evaporate.