PreMarket Prep Stock Of The Day: Twitter

Trading machine algorithms do not think long-term. They react to any news event in the way they are programmed and wreak havoc on short-term price action. 

This is especially true when news breaks on a company during premarket or after-hours trading. While their short-term impact on price action is significant, it does not necessarily mean it will parlay into a sustained move in the same direction.

The aforementioned scenario applies to Twitter Inc TWTR, which is Monday's PreMarket Prep Plus Stock of the Day.

Twitter's Broken Chart: After ending 2020 at $54.15, the issue bolted to $80.75 in February and collapsed. The extended decline took the issue to $45.98 on Tuesday, Nov. 23 and it rebounded to end the week at $47.07.

From the peak to the trough, that makes for a decline of 43%, for horrendous relative performance in 2021.

That low came in just above its low for the year, which was made in January at $44.40.

Hit The Road, Jack: At 9:20 a.m. Monday it was reported by multiple sources that Jack Dorsey would be stepping down as Twitter CEO. 

At that time, the issue was trading higher in sympathy with the stock index futures, which were firmly in the green, and was higher by 50 cents or 1% at $47.58.

Rightly or wrongly, the algorithms interpreted this as good news in a stock that has been in a prolonged downtrend. As a result, the issue caught a relentless bid on heavy volume. Within 3 minutes, the issue raced to $53.20 and sharply reversed course.

From Friday’s close, that was a gain of $6.13 or 13%  with absolutely no change in the fundamentals that would signal an end to the stock's recent death spiral lower.

The “live” trading action was the highlight of Monday’s PreMarket Prep Plus show:

Sell Your Peanuts When The Circus Is In Town: That's a familiar term used by the hosts of the PreMarket Prep shows to describe outrageous price action in any issue, up or down.
In other words, did the news of Dorsey’s looming resignation signify any real changes to the balance sheet of the company in the foreseeable future? No, and it will take some time to determine if the new leadership can return the issue to its former price glory.

TWTR Price Action: Calmer heads or smarter algorithms have prevailed. In fact, the issue never came close to the premarket high. After a higher open ($51.88 vs. $47.07), Twitter went to $52.27 and sharply reversed course.

The ensuing decline to the issue to $47.56 and was halted at $48.68. The issue has just come out of a 24-minute halt at 10.57 a.m. and was trading actively in the $48 and $49 handles, a steep discount to the premarket high of $53.20.