Tech-oriented growth stocks have been destroyed in recent weeks due to concerns about their valuations in the face of rising inflation, and therefore, interest rates. However, some of these selloffs appear to be overdone, so if you’re brave, have a longer time frame, and can stomach some eye-popping moves in both directions, it may be a good time to start nibbling.
One stock I think is probably overdone to the downside is cloud communications platform Twilio (NYSE:TWLO). I said back in October the stock wasn't measuring up and it’s down 38% since then, so I’m feeling pretty good about not buying it at that point. But now that it’s off more than half since its high, I think the valuation looks pretty attractive, and I’m changing my tune.
We’ll start with the price chart, which we can see is just hideous, unless you’ve been shorting Twilio. There are countless rejections at the 20-day EMA, which continues to plummet. That’ll be the first indicator that a sustainable bottom has been made; bottoming stocks need to see the 20-day EMA flatten, then the stock needs to crest it to turn the moving average higher. We’re a very long way from that happening at the moment, but something to look for.
Next, let’s look at momentum, which I measure through the PPO, the 14-day RSI, and the rate of change, or ROC, which is on a 10-day basis.
The PPO is unsurprisingly very negative, but it is putting in a positive divergence at the moment, for what that’s worth. A positive divergence is when the stock...