Twitter is now in a 'death cross'

As if Twitter's stock didn't have enough problems, it now faces one more worry on the charts—a "death cross."

Shares of the social media giant are down nearly 30 percent since it reported disappointing quarterly sales on April 28. That plunge has implications for its technicals. Specifically, Twitter's 50-day moving average has crossed below its 200-day moving average. Technicians refer to that bearish pattern as a "death cross," indicating short-term momentum has moved to the downside relative to longer-term momentum.

According to options expert Dan Nathan, a death cross can serve as a signal for a stock's next move.

"Sometimes this works very well," Nathan, co-founder of RiskReversal.com, said on "Options Action." "I used it in January in Tesla and the stock dropped 15 percent. And I used it back in the fall in Google and the stock dropped 13 percent."

With Twitter's large price swings, this move has happened before since the company went public in November 2013.

Twitter saw a death cross on Dec. 15, 2014. At the time, shares were trading at $36.85. A month later, they were still around the same price but by mid-February, Twitter was trading at $48. It closed Monday at $36.63.

Nathan, who is long the stock, expects Twitter will find support around the $35 level. "At some point soon, it feels like it's getting pretty oversold," he said. "It really, really needs to hold $35."

Traders looking to take a position in Twitter may find its options trading at their cheapest ever. The implied volatility in the stock's options—essentially, the options' prices—are near all-time lows of 30.7. That's half of where it was in April.

"For those of you who are worried about that death cross and think you could get a break of $35 on the next bad piece of news, maybe you define your risk and you buy near-dated calls," recommends Nathan.


Correction: This article has been updated to reflect that Twitter has had one previous "death cross" since it began trading in 2013.

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