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May 29, 2022

News of the Trade

Latest trading, investing, and financial news

Musk’s ‘bizarre tweet’ is the latest reminder that retail investors eyeing Twitter should proceed with caution

If you recently gobbled up Twitter
TWTR,
-9.67%
stock on the news that Elon Musk would be paying $54.20 a share to acquire the social media company and take it private, Friday the 13th is living up to its reputation.

Just know that investing experts have been urging caution all along for anyone eyeing potential profits in a short-term market play while the world’s richest man set his sights on the company.

Twitter’s stock price fell sharply after Elon Musk’s early Friday morning tweet saying that his deal to buy the social media for approximately $44 billion was “temporarily on hold” amid a review to check that spam and fake accounts are a sliver of Twitter’s users.

After Musk’s 5:44 a.m. tweet, the stock reeled in pre-market trading. Musk followed two hours later with a tweet that he was “still committed to acquisition.”

Investors didn’t appear reassured, with Twitter share prices hovering Friday morning around $41.78 after a Thursday market close at $45.08, a roughly 7% decline. Twitter did not immediately respond to a request for comment.

((Shares of Tesla
TSLA,
+5.71%,
where Musk is CEO, were up more than 5% on Friday morning, trading around $767 after a $728 close Thursday.)

Throughout April, Twitter’s trading volume has hit crescendos during key points in the story of Musk’s bid, according to FactSet data. For example, there were 269.2 million shares traded on April 4, the day news broke that Musk had acquired a 9.2% stake in Twitter. The day before, there were 12.1 million shares traded, FactSet data showed.

By late morning trading Friday, there were already 56.21 million shares traded, exceeding the 65-day average of 50.13 million shares traded per day, MarketWatch data showed.

By late morning trading Friday, there were already 56.21 million Twitter shares traded, exceeding the 65-day average of 50.13 million shares traded per day, according to MarketWatch data

Weeks before Friday’s plot twist — and the rocky slide down for the stock market generally — financial planners and stock market experts said it could have been tempting to buy Twitter stock on the assumption its final sales point would be $54.20 per share. After all, that would have yielded a tidy profit from around mid-April onwards, when the stock was trading around the mid- and upper $40s.

But it was worth remembering the risks of such a move, including the chance that the deal didn’t go through, they advised. That was one of the reasons why the stock price didn’t stay pegged at the $54.20 offer price from the time Musk and Twitter’s board said there was a “definitive agreement,” they noted.

“Individual investors can express their own opinions about the probability of the deal’s closing and at what time it is likely to do so, but realize that there are professionals who do little else other than assess these variables,” Steve Sosnick, chief strategist at Interactive Brokers
IBKR,
+3.14%,
previously told MarketWatch in late April.

These professionals were “already heavily engaged in the pricing and positioning around the Twitter deal,” Sosnick said at the time.

The problem is, many professionals may be blindsided too on Friday. Musk’s “bizarre tweet” injected a whole new level of uncertainty on the deal and transformed the “Twitter circus show into a Friday the 13th horror show,” according to analyst Dan Ives, of Wedbush Securities.

There’s already a $1 billion break-up fee that could apply to either Musk or Twitter if the deal doesn’t materialize, according to SEC filings.

Twitter’s stock was down almost 4% year-to-date as of Friday morning. At one point in late April, the stock was up approximately 19.6% year-to-date.
The Dow Jones Industrial Average
DJIA,
+1.47%
was down roughly 11% and the S&P 500
SPX,
+2.39%
was down nearly 16% as it veered toward a bear market.