Twitter tweeted out some disappointing earnings. Here’s how to trade the stock now.

Discussed in this article: Twitter Inc ( $TWTR )

Let’s tweet this, I’m looking at Twitter ( NYSE:TWTR ) after-hours. The company announced earnings that well, let’s just say they didn’t go too well, at least not what the market was expecting. A few different things, first of all, just as general note that’s pretty obvious to all but the most casual observer, trading after hours is really not particularly advisable unless you have extra money that you want to give away or you just feel lucky. But you can see a lot of times, not always, and that’s the problem, a lot of times the first to move is wrong. You’ve got somebody anticipating the news, or maybe they see the headline number and they do something stupid like buy.

Meanwhile the smart guys, it’s kind of like the young bull and the old bull on top of the hill and the young bull says to the old bull, “Hey, let’s go, let’s run down there, et cetera, et cetera.” And the old bull says, “Hey, why don’t we just walk?” And so that’s what’s happened here, you’ve got the young bulls just rushing in, buying this stock, and the smarter guys are sitting back waiting for a little more information; $70.00 down to well below 60.00, like 56.00, 57.00. That’s a pretty big move and if you’re the guy that bought up here, you’re selling somewhere. It could be during the conference call this stock goes from $59.00 up to 79.00, who knows. The bottom line is this is kind of like the Badlands of trading here, after-hours, simply put; you just don’t want to do it. We can even look at the 1-minute chart. If you’re a nimble trader and you know what you’re doing, you can trade this move, but this move is over now; this is something else.

So let’s look at the set up for tomorrow; first of all this is the first earnings report that Twitter ( NYSE:TWTR ) has done since going public. If I recall correctly they weren’t particularly that transparent before they went public, I mean there was kind of a deal where, because of their size or the number of investors they had, or something, they didn’t really have to publish a whole bunch of stuff, and guess what, they didn’t. And so you’ve got all these analysts on, all across the board, giving you numbers that they’re just pulling out of their hat about how Twitter ( NYSE:TWTR ) is going to be a $100.00 stock, or Twitter ( NYSE:TWTR ) is going to be a $20.00 stock. It was all across the board, nobody really knew for sure though, like a lot of analysts, always confident, sometimes correct.

So what do we do now? First of all the stock is down, we’ve got some data, I am NOT going go into fundamentals here because you’re not looking to me for fundamentals, and also I’m not smart enough to really be able to tell you whether this stock is cheap or expensive. But I will tell you this because I’ve got a pretty good memory, when the stock was down here, 40ish, there were a lot of folks saying, “You know, the subscribers just aren’t what people think they are going to be, these guys are very popular, but they’re not going to generate the kind of revenues that are being forecasted so this is a wonderful story that’s going to have a really bad ending.” There were a lot of folks that were looking for Twitter ( NYSE:TWTR ) to go lower, and frankly I believe I shorted this stock, I shorted it somewhere, I don’t exactly remember when because on my losing trades, just like my profitable trades, I just kind of book it and move on. But I know that I lost money on the short, I think I was shorting Twitter ( NYSE:TWTR ) here, but it might have been up here.

The bottom line was I wasn’t expecting it to go lower, the technicals looked like this stock could go lower and so I fired off a short and then promptly got stopped out because the stock continued to move higher. So this is one of those that have kind of confounded a lot of people, myself included. But now that we know things you’ve got to then really look at the chart and look at it in this way, right now this is where this stock is currently trading, everybody who bought in the square is a loser; that really means pretty much everybody is losing money right now. And so I’m looking at this level, let’s use the 50-day moving average, if Twitter ( NYSE:TWTR ) basically stabilizes where it is, we could see this stock enter this trading range right around there, down there.

We could see this thing trade around in this trading range for quite a while, just oscillating up and down here, making you a nice little gang of money, or not. But when a stock is so widely followed as Twitter ( NYSE:TWTR ) has been, and then they announce these numbers and they’re down, I’ve got to wonder what’s going to happen tomorrow morning. The company has guided down a little bit, so are you going to see analysts come in and lower their numbers? Are there going to be ratings changes from buy to market perform, which otherwise means, sell really fast; or to market underperform, which means you should have sold yesterday and all of our really important clients already got this information, but you can go ahead and sell today and maybe you’ll still get out before this stock craters. So we don’t really know what’s going to be happening tomorrow morning.

So what I think you really want to do is, watch this level; just watch this 50-day moving average. One thing I’ve got to tell you, I’ll just say it in my usual tactful and subtle way, you’re an idiot if you’re looking at this like a cult stock, like “Oh, I just know Twitter ( NYSE:TWTR ) is going to do really well.” How do you know that Horshack? There’s absolutely no way you know that, you’ve been turned into a fan, just like every once in a while when I say something that questions Apple’s ( NASDAQ:AAPL ) pending dominance of the world. I’ll get some email or tweet by some guy who’s obviously got his entire portfolio invested in Apple ( NASDAQ:AAPL ) and thinks that Tim Cook is just the best thing since airplanes.

The bottom line is you don’t want to be a fan, you just want to be a trader, just be a trader; it’s easier. And you know what? Then you get to always be on the winning team, if you’re on the losing team, switch sides. If I’m long and I see that that’s wrong then the only way I’m going to be right is to be out or be short. If I’m short or out and see that the only way for me to be correct is to be in and to be long, then that’s what I’ll be and I don’t care, I just want to make money.

So I want you to look at Twitter ( NYSE:TWTR ) the same way, as long as this stays above this level then go ahead and buy, buy, buy, and that’s fine. But if it starts trading a little bit lower then just liquidate, because you can always buy it back, you can always buy it back. One other thing, don’t be shorting at the open either, if you think that this is a bearish call on Twitter ( NYSE:TWTR ) you’re wrong; it’s a level call on Twitter ( NYSE:TWTR ). I’m pointing to this level saying this is where the smart money lies, this is where the powerful money lies and when there’s enough money that money is so strong it gets to define what smart and dumb is. So why don’t you get smart, wait for the money to do what it’s going to do and then just follow along, this doesn’t really have to be that hard.

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