Friday, November 08, 2013

Twitter - Day Two

Talk about an ugly hangover, that was Twitter's (TWTR) second day of trading. What an... unpleasant situation. Geez. I mean, at this rate, they seem determined to make the Facebook (FB) post-IPO trading look good. Down over 7% in one day, on no news. Chalk it up to a bunch of short-term Wall Street speculative trading, probably people who bought on the market after the IPO expecting a huge pop and now jumping ship since there was no pop.
 
A month or two ago, the conventional wisdom for buying on the open market was simply to wait a few days for the initial euphoria and frenzy to burn off. So, let's see how Twitter closes on Tuesday.
 
As with Facebook or any other IPO, there will be additional downwards pressure on the stock when the two lockup periods expire, in three months and in six months. Those are the times when insiders can sell.
 
We may have reach "buying exhaustion" on Thursday, the point at which all the people anxious to buy have done so, so there is no longer any upwards pressure. As a result, a fair number of short sellers may have crawled out of the woodwork. That downward pressure could continue until we reach "selling exhaustion" where there are no more people lined up to short the stock.
 
In any case, I'll be looking at serious dips to make additional purchases. My usual plan is to wait for a 15% dip from the most recent high. Technically, Twitter did reach 50.09 early on Thursday, so a 15% dip would be $42.58, so at $41.65 it is in my dip window. But... I'm not going to treat that early volatility as significant. I'll use the $45.10 open as my starting point, so a 15% dip would be at $38.34. In fact, I may use the closing level on Tuesday as my starting point. I may also stretch my 15% threshold to 20% or even 25% for my initial dip purchase in light of the Facebook post-IPO trajectory. Or, I may just use $35 or $30 or even $25 as my initial dip threshold, and then revert to a 15% dip threshold once the stock starts climbing again in a sustainable manner.

-- Jack Krupansky

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