Twitter Inc (NYSE:TWTR) shares slumped today, falling more than 6% after Forbes contributor Ramki Ramakrishnan said Elliott Waves could suggest that the stock could fall back to $55 a share before it turns around. The writer used the Elliott Wave Principle, which dates back to the 1930s and was created by Ralph Nelson Elliott. He said all impulse waves consist of five waves, and Ramakrishnan said this can be applied to Twitter stock as well.

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Predicting Twitter moves with Elliott Waves

According to the theory, investors will start looking at a stock right after a “significant low.” Then they should watch for five minor wave increases, which will indicate that the first bigger wave is complete. This is followed, according to Ramakrishnan, by a downward move which happens in three waves. This downward move is the second wave of the bigger move.

After that second wave is finished, he said investors will “eagerly buy up shares” because the following wave “will be very powerful and carry a great distance higher.”

Examining Twitter’s chart

The contributor pointed to Twitter Inc (NYSE:TWTR)’s stock chart and notes that the second wave fell to precisely the 50% retracement level of the first wave. He said this is especially important for analysts who follow the Elliott Wave model because of the Fibonacci number series.

Ramakrishnan said for those who bought Twitter Inc (NYSE:TWTR) stock during its second wave, the amount the third wave will go up is important. He said “a normal third wave” could reach up to 161.8% of the first wave. However, he notes that the theory also says that at least one of the first three waves often travels “an usually [sic] long distance.”

He notes that during the third wave, shares of Twitter went up 600% of the first wave. In addition, he noted a rarity associated with Twitter’s wave. He said a strong bull market can create a second extension in a wave, which happened with Twitter in its fifth wave, which he said extended. In fact, he said the fifth and third waves were about equal in length, although the fifth wave went slightly higher.