Cloud communications company Twilio, Inc.’s (TWLO Quick QuoteTWLO - Free Report) shares have been witnessing an upward trend since the company launched its initial public offering (IPO) in late June. After debuting on the stock market at $15 a share on Jun 23, the stock closed yesterday at $58.86 a share, registering a whopping 292.4% gain for investors who kept their money parked in the stock.

 

The question is: where the stock is headed next? Is the rally over, or is it just the beginning?

 

Twilio reported its second-quarter 2016 results on Aug 8. The company reported a loss of 8 cents per share, lower than the Zacks Consensus Estimate of a loss of 15 cents per share. Twilio reported total revenue of $64.5 million that was up 70% on a year-over-year basis and 9% sequentially. 

 

The whopping increase in revenues is indicative of the fact that the services offered by the company are in high demand. Moreover, Twilio’s clientele includes some of the most influential companies such as Facebook, Inc. , Nike, Inc. (NKE Quick QuoteNKE - Free Report) and Uber among others, providing the required impetus to its digital sales. 

 

Being a provider of cloud communications platforms to corporations, Twilio is the missing link between businesses and the cloud. Additionally, as more and more companies are making the switch to the cloud, Twilio looks poised to ride the growth trend in the long run.

 

 

 

On Aug 15, an Inverted Hammer candlestick pattern appeared on Twilio’s chart, which is a very bearish formation. The stock opened the day at $56.75, made an intraday low of $55.13, followed by an intraday high of $66.40 before finally coming all the way down to close the day at $58.47.

 

A whopping 22.05 million shares changed hands on that day. 

 

This indicates that though there was good demand for the stock at higher levels, supply came into the market swamping the demand and pushing the prices all the way down to close the day in the lower one third of the candle. In a nutshell, the battle for the day was won by the bears (sellers) pounding on the bulls (buyers).

 

The 14-period Money Flow Index (MFI) is in the overbought territory with a reading at 78.31, signifying that too much buying has taken place in the scrip and one should wait for the stock to cool off a bit before entering a position.

 

In the short term, we expect the stock to take support in the $55.13 – $53.37 range where it formed a Common Gap on Aug 15. If that range breaks on the downside, the next line of support will come in the range of $41.00 to 42.00 where the trend-line joining the highs of Jul 14 and Jul 28 extends.  

 

 

At present, Twilio has a Zacks Rank #3 (Hold).

 

A better-ranked stock in the broader technology space is LinkedIn Corp. , sporting a Zacks Rank #1 (Strong Buy).

 

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