- Musk argues that the social media company did not comply with its merger agreement obligations
- Twitter will pursue legal action to enforce the merger agreement.
- Twitter's stock fell almost 5.6% in today's pre-market session.
- Entry: $34
- Stop-Loss: $33
- Risk: $1
- Target: $37
- Reward: $3
- Risk-Reward Ratio: 1:3
- Entry: $37
- Stop-Loss: $38
- Risk: $1
- Target: $32
- Reward: $5
- Risk-Reward Ratio: 1:5
Twitter (NYSE:TWTR) plunged by 5.1% on Friday after Elon Musk called off his $44 billion agreement to purchase the social media company. Musk's attorney, Mike Ringler of Skadden Arps, claimed in a letter to the Securities and Exchange Commission (SEC) that Twitter failed to provide relevant business information to complete the deal.
Musk argues that the social media company did not comply with its merger agreement obligations. The billionaire CEO of Tesla (NASDAQ:TSLA) says to have requested, as part of the agreement, proof that there are less than 5% of its daily active users are bots, per Twitter's claim.
Twitter's board chair Bret Taylor tweeted that the company will pursue legal action to enforce the merger agreement.
Amid the ongoing soap opera, Twitter's stock fell almost 5.6% in today's pre-market session. Where will it head next?
The stock fell on Friday below the uptrend line since the Feb low, completing two patterns simultaneously: a Symmetrical Triangle, which is also the right shoulder of an upward sloping H&S continuation pattern. Unless Musk doesn't have a change of heart, the price will almost certainly open with a sizeable breakaway gap, reinforcing the bearish pattern.
Trading Strategies
Conservative traders should wait for the price to remain below the pattern for at least three days, preferably including a weekend, and await a return move to reduce exposure before considering a short position.
Moderate traders would wait for a two-day filter to avoid a bear trap and for the corrective rally to reduce exposure, if not to confirm resistance.
Aggressive traders could enter a long contrarian position, counting on the return move, which is trigged by stopping long positions, before joining the rest of the market with a short.
Trade Samples 1 - Aggressive Long Position:
Trade Sample 2 - Aggressive Short Position:
Disclaimer: The author currently does not own shares of Twitter.