Signal Says Software Stock is Primed for Fresh Highs

TWLO has pulled back to a historically bullish trendline

Deputy Editor
Dec 3, 2020 at 2:43 PM
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The shares of Twilio Inc (NYSE:TWLO) are up 1.1%, last seen trading at $323.01, but have taken a breather since their  Oct. 13 record close of $337.88. And while TWLO's 120-day moving average caught a pullback in November, the equity still is down 3.8% in the last three months. The good news is that a shorter-term trendline has stepped up as support, one that if past is precedent, could help the software stock take out those October record highs.

TWLO Chart December 3

More specifically, Twilio stock is within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, TWLO has tested support at this trendline eight other times over the past three years. The stock was higher a month later 100% of the time, and averaged an 8.7% gain for that time period. A move of similar magnitude from TWLO's current perch would put the equity at a brand new all-time high of $351.11.

In the options pits, there's a strong preference for calls at the moment. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the stock sports a 10-day call/put volume ratio of 2.99, which ranks higher than 90% of readings in its annual range.

Short sellers have been hitting the exits, and a continued exodus could fuel tailwinds. In fact, short interest is down 4.4% in the last reporting period. However, the 8.70 million shares sold short still account for a healthy 7.4% of the stock's available float. 

What's more, options traders are pricing in relatively low volatility expectations at the moment, per the security's Schaeffer's Volatility Index (SVI) of 54%, which sits in the 27th percentile of all other annual readings. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) sits at a high 92 out of 100. This means the stock has greatly exceeded option traders' volatility expectations during the past year -- a boon for options buyers.

 

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