What's next for Twitter's stock?

What's next for Twitter's (TWTR) stock? Good question. Now that the purchases from the opening day have settled (T+3) and short selling is possible, and now that options are available (on Friday), trading could become more active and more typical. I'd give the stock another week to settle into some sort of consistent trading pattern. I mean, there are probably a lot of people who were waiting for the initial frenzy to die off before testing the waters.

 

Given the large pop at the IPO open, I would say that the initial upside is rather muted. The result is that the stock is likely to trade in a range of plus and minus 20% for the next few months.

 

The next big test will be in February when the three-month lockup expires and insiders finally have a chance to dump some of their holdings. That will put some downwards pressure on the stock. OTOH, as soon as that event has passed the stock could bounce higher.

 

But... then in May the six-month lockup expires and even more insider stock will likely be dumped on the markets. That will be a mixed bag, again – a negative due to the downwards pressure of that insider selling, but then a positive as many investors on the sidelines will then feel that it is finally safe to dive into the stock once those initial waves of insider selling have passed.

 

The flip side of this is that since so many people will be tempted to dive in after the second lockup expiration, that will be a bad time to dive in, so the smart money will likely want to buy on significant dips that occur over the next few months before the coast is formally declared clear.

 

In any case, so far the stock has traded in a fairly narrow range, which is somewhat unusual for such a hot stock. It probably simply means that there is a rough equal balance between the bullish players and the bearish players. That sets the stage for significant volatility.

 

This coming week should be interesting, but I'll want to see how TWTR closes out the coming week.

 

Meanwhile, I need to make a mental note to place a 15% dip GTC buy order. And maybe a 20% dip (another 5% from the initial 15% dip) order as well. I may using 10% increments for my dip orders rather than 5%, but I haven't decided yet. I also need to consider using option trades as well.

-- Jack Krupansky