Signals Say Clear Skies Ahead for This Cloud Stock

Twilio options are attractively priced at the moment, too

When we last checked in with Twilio Inc (NYSE:TWLO), the cloud stock was flashing a bullish seasonality signal. Now, two weeks later, TWLO has pulled back to two bullish trendlines. If history is any indicator, these pullbacks could precede big runs up the charts.

More specifically, Twilio stock is now within 2% of its 80-day moving average. Since its inception, there have been six other times when the stock pulled back to this trendline, after which it was higher one month later all eight times, per data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, the software stock racked up an average one-month gain of almost 7% after these signals.

TWLO also finds itself within one standard deviation of its 40-day moving average. According to White, there have been nine other times when the stock pulled back to this trendline, after which it was higher one month later eight times, with an average return of 6.6%.

At last check, TWLO was trading at $137.02, so a move of similar proportion would put the stock just under $148, a new record close. Just above here sits the equity's all-time high of $151, nabbed on June 20. Year-to-date, the shares are up 53%, and have more than doubled in the last 12 months.

A rally could also be fueled by an exodus of short sellers. Short interest increased by 12% in the two most recent reporting periods to 11.26 million shares, its highest point since February 2018, and accounts for a healthy 12.3% of TWLO's total available float.

Now might be an opportune time to speculate on Twilio's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 44% ranks in the 6th percentile of its annual range, suggesting that near-term option traders are pricing in relatively low volatility expectations.