Twitter ended April as one of the best performers in the S&P 500.
Todd Gordon, founder of TradingAnalysis.com, says the rally is just getting started.
“Twitter is a very good-looking chart post earnings. We saw some pretty impressive data following those earnings. Revenues were up 18% year over year and active users saw a pretty good increase, particularly in the U.S.,” Gordon said Tuesday on CNBC’s “Trading Nation. “
Given the strong fundamental case, Gordon sees Twitter clawing back from the losses suffered through the last half of 2018.
“As we take a look at the charts here, you can see that there’s a significant gap right here from $44 down into below $40, so on the back of this earnings report,” he said. “They’re trying to close that gap, which is a technical phenomenon that does often happen, so the gap closure will take place right around the $42.50 mark.”
Twitter gapped down below $40 in a sell-off in late July. It has not closed above that level in nine months.
“As I see this gap close happen, I think provided the overall market can maintain its current trend, which is up as we’re pressing or at new highs in the indexes, we should be able to 1) close that gap and 2) retest these old highs right around the $48 mark,” said Gordon.
A move back to its 52-week high at $47.79 represents 20% upside from Tuesday’s close. It has fallen 16% since hitting a multiyear high last June.
Gordon is buying the June 21 expiration 42/47 call spread for around $1.30. This is a bullish play that Twitter heads back above $47 by expiration.