Elon Musk Feeds Twitter To The Bears On Attempt To Nix Merger Deal: What Does The Chart Say?

Twitter Inc TWTR was plunging almost 10% lower on Monday after Tesla Inc TSLA CEO Elon Musk filed to terminate his merger agreement to purchase the micro-blogging app.

An ongoing discrepancy between what each party believes to be the accurate number of bot accounts active on the social media site has been the sticking point since Musk formally announced his takeover bid on April 25.

Although combating the existence of bots originally appeared to motivate Musk to purchase the company, his belief that the number is far above the 5% claimed by Twitter executives has motivated Musk to back out of the deal.

From a technical standpoint, Twitter looked set to fall further on Monday because on Friday, Twitter broke down bearishly from the symmetrical triangle pattern, which the stock had been trading in since June 8.

A symmetrical triangle pattern is created when a stock forms a series of lower highs and higher lows between a descending and an ascending trendline, which meet on the right side of the chart to form an apex. The pattern indicates that the bulls and bears are equally in control.

A symmetrical triangle is often formed on lower-than-average volume and demonstrates a decrease in volatility, indicating consolidation. The decreasing volume is often followed by a sharp increase in volume when the stock breaks up or down from the pattern, which should happen before the stock reaches the apex of the triangle.

Aggressive bullish traders may choose to purchase stock in a symmetrical triangle when the security reverses course on the lower ascending trendline with a stop set if the stock rejects at the upper descending trendline of the pattern. More conservative traders may wait for the stock to break up bullishly from the pattern on higher-than-average volume.

Aggressive bearish traders may choose to trade opposite to the bulls, entering into a short position on a rejection of the upper descending trendline and covering the position if the stock finds support at the lower trendline. Opposite to the bulls, conservative bearish traders may wait for the stock to break down from the lower trendline on higher-than-average bearish volume.

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The Twitter Chart: After breaking down through the symmetrical triangle on higher-than-average volume on Friday, Twitter closed that trading day at its low-of-day price, which caused the stock to print a bearish kicker candlestick to indicate lower prices would come again on Monday.

On Monday, the stock gapped down again and at press time, Twitter was trading near its low of day.

• If Twitter closes Monday’s session near the low-of-day, the stock will print a second bearish kicker candlestick, which could indicate lower prices will come again on Tuesday. The second most likely scenario is that Twitter will print an inside bar to consolidate the steep plunge.
• If Twitter gaps down again on Tuesday, a bounce could be in the cards for Wednesday because the stock will then have printed a bullish three-gap-down-reversal pattern. A third consecutive gap down will also plunge Twitter’s relative strength index deep into oversold territory, which makes a relief bounce likely.
• Twitter has two large gaps above on its chart, with the closest gap falling between $34.90 and $36.80. Gaps on charts fill about 90% of the time, which makes it likely Twitter will rise up to fill the empty range in the future. If Twitter does, bearish traders can watch for the stock to print a reversal candlestick toward the top of the gap, which could indicate the lower high is in and that Twitter will continue to fall lower within its downtrend.
• Twitter has resistance above at $36.05 and $38.93 and support below at $31.32 and $28.73.

See Also: Walking Away From Twitter Deal May Not Be An Option For Musk: Merger Expert On What's Next