TWTR Shareholders Are Currently Risk Averse

I learn a lot from a man who goes by the nickname "option addict". Specifically how he has taught me to read sentiment. "Aversion" or being averse to risk is the status where people are less tolerant of a stock behaving poorly and have been emotionally susceptible to reducing exposure in the name. When they are risk averse they tend to own less of the name. Any move to the upside can trigger a serious chase to the upside as they become more tolerant of risk or even having high risk propensity. A condition of "risk aversion" represents significant upside risk relative to downside risk.

Shareholders have already experienced a major leg down and after the stock has started to climb again it is where the bears say "see we're right" and start promoting their case and the bulls freak out that their initial thesis is wrong and another leg down may be coming just as it was when they thought the panic lows would hold. But the slightest bit of increase in buying from this vulnerable state has the bears in a short squeeze and the bulls chasing to increase exposure long at higher rices. The emotional status represents irrational fear after a bottom has been established and often sets up the start of a bullish inverse head and shoulders.

Buffett says "buy when other people are fearful. This is one way that I like to do it with a really good, managable entry.
I like to read supply and demand via price history and volume and very frequently my read of sentiment coincides with the psychology of price support. The supply/demand of the shares typically tell you the buyers are still in control, even though their emotions are fearful. This contrasted to the panic phase when the buyers are fearful and often forced to liquidate but the sellers are in control and prices are seeking value lower.

 

In this case, It's difficult to say the buyers are in control, but it is difficult to say the sellers are either. I'd say a move above $42 and the buyers are more in control, and a move below 38 and the sellers are more in control. However, the stock continues in the long term to appear to be consolidating into a tighter range and it will be forced to break in one direction or another at some point. The additional read of "emotion" gives us the viewpoint that the market is likely to be overly pessimistic in the name at the time being and the RSI lets us know that the stock has been "oversold" and is starting to increase in relative strength even as the price heads lower which suggests a bullish divergence that increases chances that there may be a move to the upside coming.

However, if the market engages in a correlated sell off, the odds are TWTR won't be completely immune. Nevertheless, there is no reason to "worry" about the market with a setup this good. You place your bets such that the reward significantly outweighs the risk and you manage your risk. If this stock gets moving to the upside, it could easily hit 65 or 70. Although the odds are this may take awhile to develop it is worth it. Being that the "risk" is only just over a dollar per share and the upside is above 25 dollars per share, this is an absolute premier opportunity. Keep buying stocks that look like this and offer this kind of risk/reward and you don't have to be right very often to make a lot of money. In fact the breakeven not including fees is about 1/26 or a little under 4% of the time. You just don't see opportunities this good very often. Even if you are confident a bear market is around the corner it shouldn't prevent you from considering this opportunity in addition to some hedges or selling your other longs that are less appealing or offer a smaller reward to risk.