Last week, we stated that our primary count suggests that we have completed or are about to complete a 3rd wave down within a 5-wave structure, known as a C-wave. This week, the count has not changed; it is still valid and still in play.

As part of the 5-wave structure, we stated, “this will give way to a 4th wave corrective bounce,” which I believe we are in right now.

The below chart outlines this plan in blue. Regarding the corrective bounce, went on to say that “the structure of the upcoming bounce will be crucial for providing further clues as to the on-going direction of the market. If the correction is overlapping and symmetrical, it will support the 4th wave thesis.

 I’m expecting this to find resistance around the 2500-2600 before topping out. However, if we see heavy volume and a structure that is impulsive – i.e., 5-wave patterns – then it will support the thesis of a potential bottom. I want to see the 2750 level taken back before I will believe the bulls are in control.” 

So far, the market has met resistance and appears to be topping out exactly where we suggested it would – between 2500 – 2600.

As of now, my plan has not changed. I expect us the retest the lows and to slightly make newer lows. In the coming days/weeks, I will look for entries in this bear market between the 2250 – 2060 region.

Why I’m Cautious

That being said, I do want discuss why I’m hesitant to dive into equities this last week. One reason is that the 1800 range in SPX is still in play. It is represented by the red box, and would be an extended 5th wave drawdown. If the market breaks the 2065/2050 region with force, it becomes probable that we see this target.

If this count comes into play, the idea of a quick recession, which can see us at new highs by the year end becomes unlikely. Instead, the signals would indicate the potential for a more prolonged recession. As an investor, with this potential on the table, I am remaining cautious with my excess cash, until proven otherwise.

On the other hand, if we do bottom within the blue target range, which I am still expecting, I believe we could see the final 5th wave off the 2009 lows, which I have been talking about in many prior market updates. The target for this will be a multi-year bull market could take us beyond the initial 4000 target before we encounter a prolonged bear market. This is based on Elliott Wave theory, which I use to remove emotions from major market moves and to set up game plans.

On a fundamental level, if we see the economy open back up sooner rather than later and a potential vaccine or antiviral helps reduce spread, then we will likely see a sharp reversal in equities. Also, it can’t be overstated the record levels of liquidity dumped into the market by the Fed, which with improved sentiment and economic numbers, could create the environment for this renewed bull scenario to play out. This is also why I am hesitant to speculate on a bottom. If this plays out, the multi-year bull market, fueled by excess liquidity will more than make up for being late rather than early.

Further evidence we are in a 4th wave:

 Fourth waves are notorious for complex and confusing structures. The structure of what the 4th wave is presenting us is not different. It can be counted as a 5-waves up pattern off the low, which is typically bullish. However, at a closer look, it appears to be a more symmetrical, complex A,B,C pattern. Because of this ambiguity, I tend to turn towards other clues that can help verify our thesis.

Negative RSI Reversal

The negative RSI reversal pattern is when the price is making a lower high, as represented by the red arrow on the chart, and the RSI (and/or MACD) is making a higher high, as represented by the green arrows on the chart.

We clearly have this pattern playing on the daily chart. It suggests that the momentum under the price is fading. In other words, it is taking more buying pressure to make lower highs. This is not a good sign, and suggests a reversal is soon to occur.

Volume Patterns

Price can rise on weak volume, but in a true bottom and reversal, it is usually met with massive buying pressure, which shows up in very large volume spikes.

This volume, typical increases its trend as the uptrend returns. This is not what we are seeing today. In fact, the volume trend is decreasing and the only daily volume spikes are red.

Volatility

The above chart compares the S&P 500, in blue, to the rolling 20-day realized volatility, in yellow, and the VIX, in orange. The VIX measures the implied or expected volatility in the S&P 500 over the next 30 days. When it is high, it means that based on the options market, there is an expectation for elevated levels of movement (up or down) over the next 30 days.

Realized Volatility is a topic in and of itself; however, in essence, it’s the actual measurement of historical volatility over a given time period. I used the 20-day measurement to provide us with a visible trend.

You’ll notice that the realized volatility peaks after the market bottoms whenever volatility hits. It then rolls into a recovery. Now, look at where we are. We have yet to suggest a peak, let alone a roll. Nearly every time, when the market has bottomed, we’d see this measurement already rolling.

The VIX is also at an extremely high reading. Anything above 30 has historically been considered high, and a warning to investors. Above 50 is typically considered extreme, and suggests speculation for anyone trying to initiate long term buy and hold positions.

Today we are above 60, and in an uncanny fashion, have stayed above 50 for one of the longest periods on record. This is not normal, and until the VIX can begin to settle at lower levels, it is unlikely that we find a meaningful bottom.

Bear Market Rallies

On Tuesday, the Dow gained 11.5% in a single day from extremely oversold conditions. This move was followed by two additional days of gains, inciting the FOMO crowd to think the bottom was in. The financial news media fanned this feeling by announcing that this was the fourth largest single day percentage gain in the Dow’s history.

What they failed to mention was the context in which the greatest single percentages occur:

The chart shows the greatest single day moves going back to the 20s. The one thing they all have in common is they occurred within major downtrends in a bear market. A week prior, Marketwatch put out an article that outlined the number of > 5% rallies and > 10% rallies within the past bear markets, like in 1973 and 2008, as well as deep corrections, like 2012 and 2016.

The results are shocking. Large swings are common when both realized and implied volatility are high. However, until the market breaks its bear market downtrend, coupled with additional indicators, these moves should be treated like small gains in a larger downward trend.

Our Goal

We believe that the best gains come from holding great companies involved in significant tech trends for an extended period. One of the benefits of deep and thorough knowledge about these trends and companies is that the analysis allows you to hold these companies for the long-term with conviction.

This conviction is the key ingredient, and one of the greatest values we believe this service offers. Most tech stocks are volatile, and can have multiple +50% drawdowns on the long road to becoming multi-baggers. We use technical analysis to simply manage this risk and seek out favorable entries.

Please keep in mind that with the right price, our plan is to hold without stops, hedge and add in weakness, and only sell when the story changes. We are excited about the prices we are starting to see, and are looking to make long-term allocations in this market when one of two things occurs:

(1) Prices get so low that we are OK with any remaining downside in the bear market. The targets that I outlined focus on these prices. In bear markets, we get a flush of sentiment and a rejection of hope that stocks will ever recover again.

Anyone who invested during the 2002 and 2009 bottom knows the feeling. This simply has not happened, which means that either this bear market is an anomaly, and new highs are in our near future, or that we have more of volatility in our future that will ultimately flush out the remaining sentiment.

(2) The economy corrects, providing encouraging data that a real expansion can occur. In this case, the bull market will be in its infancy and prices will be higher than they are at the bottom; however, there will be an element of safety with higher probabilities that the market will continue to grow with a new expansion of the business cycle.

It can’t be stated enough that bull markets create wealth, not bear markets. The primary focus of most legendary money managers is to conserve assets. It is much more difficult to rebuild than it is to preserve and deploy into safety. In other words, losses work geometrically against you. For example, and asset that goes down 50% will require a 100% gain to break even. If an asset goes down 80%, it requires a 400% gain to break even. We posted about this on the forum in regards to Boeing.

The advantage of protecting gains is why we spoke regularly about how our focus was to ride the remaining momentum of the bull market with reasonable stops to protect us from the downside. If you followed our stops and entries that we outlined in real time on the forum, as well as on the market updates, you should be sitting on nice gains and minimal losses.

We take our subscribers and your readership very seriously, and lean towards being conservative instead of reckless. Hence, the S&P 500 levels we are watching tend to be in the middle rather than within an extreme on either side.

Amazon, Facebook, and Google experienced multiple large drawdowns and required both conviction and risk management. This is what we hope to impart through our own strategies of using stops and proper position sizing. We do believe that we are in an environment that has the potential to offer us fantastic values for leaders in the next tech cycle.

Stock Updates

Nvidia (NVDA)

Nvidia, unlike many of the tech names we cover, does not appear to be in a fourth wave correction. It appears to be in a larger degree A,B,C structure. This is supported by the structure of the decline as well as the symmetry.

On the B-wave, noted in pink, the (a) wave is the same length as the (c) wave. While price is struggling to break out at this key level, the internals are weakening, suggesting another leg down.

The yellow band is the primary support in play. Below this level, and we could see a rather large suck out. With that said, I’ve raised my target to the lower end of the yellow band at $173.

Roku (ROKU)

Stepping back from Roku, it is clearly trading as a large degree ending diagonal – five sets of 3-wave patterns within a trend channel. When Roku hit its low, it tagged the lower end of the channel, which is enough to meet the 3-wave move down. This makes up the 4th wave in this pattern.

This means that we will either get a spill over on the next retest, of we are setting up for a 5-wave impulse into the final 5th wave pattern. The internals and volume are weak, which supports a retest. Regardless, I’ve raised my target to $70, which will account for both scenarios. We will likely add in increments in case Roku breaks down out of this pattern prematurely.

Shopify (SHOP)

I’ve also raised my target for Shopify to $285. Shopify, like Nvidia, is trading in a larger degree A,B,C pattern, which will put us in the early C-wave down.

These moves are typically symmetrical, which would target the $245 region. However, I can’t rule out that the retest of the lows may hold, which would set us up for a 5-wave move to new highs. For this reason, I’ve raised the upper range of the price target to $285. Like with Roku, we will likely layer slowly into a new position at these levels

Slack (WORK)

Slack is also in a corrective pattern. I believe it’s in an A,B,C pattern and not its final 4th wave down. This means, like with Nvidia and Shopify, we should see a C-wave down into the green target box. The volume and internals are suggesting the same. We’ve raised our target to the $17 range, and will look to add to our position around these levels.

Uber (UBER)

We closed our short on Uber for a nice gain last week, as stated. It has rallied on weak volume and weak internal momentum, which is suggesting another bout of price fatigue.

There are two scenarios at play: (1) we are in a fourth wave, which will take us back to the lows; (2) we are in an A,B,C pattern. In which case, we completed the A wave, and are in the process of topping out in the B-wave. If this is correct, the C-wave is projected to take us beyond the recent lows.

Above $35 should be a stop for anyone who wants to speculate another round of weakness for Uber. We announced on the forum that we purchased puts in both Uber and Lyft on this strength, which are dated through May.

Over the week, we moved away from providing broad market analysis and focused more on providing updated target entries for our shopping list of stocks. Please reference the Top Stocks List under the spreadsheet section of the site, as well as the forum for updated charts.

If you are new to the site, a few places to start in regards to the information below:

Blog Update on Target Entries

S&P 500 Levels We Are Targeting

Fundamental Analysis and Convictions

So far, we have updated entries for 16 names and plan to provide the remainder in the week ahead.

As of today, we are still holding onto our long-term positions in Microsoft, Alibaba, Nvidia and Roku. We are also holding our position in Zoom, which we are now holding without a stop, and just began building a small position in Slack when it traded in the $16 range (updated on the forum).

Our shorts, Uber and Lyft, traded above the 8-day EMA on Friday. they both closed the day below the 8-day EMA, so it was an intra-day move. However, as a discipline, I always, without question, follow my exit plan when I set it. Since the exit plan was to sell when the 8-day EMA was breached, I will buy to cover these positions on Monday for 2 really nice gains. As of the close on Friday, we are sitting on a 38% gain in Lyft and a 29% gain in Uber, which have acted as fantastic hedges for our long positions.

I believe the extreme gains we saw in these two positions over the last 2 days were simply short covering. Both these positions have very high short interest, which can make for violent corrective moves up when the shorts cover. We believe there is more downside to be had in both these positions, so we will look to add in any further corrective moves.

With shorts especially, we always follow exit plans as any gain in a short can turn into a loss very quickly.

With a long-term-time frame in mind, we have a very positive outlook. This is the type of market that you build lifetime positions with cost basis we will may not see again. However, our personal opinion and preference is to wait for our target entries and target SP 500 levels because we believe there is more downside in our future. The evidence for this opinion and belief is laid out below. We also discuss the “what if we are wrong” scenario.

Broad Market Valuations

Price-to-Sales (P/S) ratio is a metric we’ve talked about before when referring to market valuations. Using Price-to-Earnings (P/E) ratios to gauge the value of the market, especially in the era of large buy-back programs, is not as accurate as using a metric like sales. Top line revenue, like free cash flow, cannot be distorted. The problem with using free cash flow to gauge the market is that not all promising companies are positive free cash flow, yet the common denominator is they all make sales. 

That being said, the Price-to-Sales Ratio (P/S) of the S&P 500 was at an all-time-high in December 2019 at 2.32. For reference, anything over 1.55 has historically been considered expensive while anything below has been considered a value. Last December’s P/S ratio exceeded both the dot.com peak and the 1929 peak when ratios were just above 2.2.

The market is currently 30% from this all-time peak; however, the current P/S ratio is still hovering around 1.66, notably above the 1.55 historical mean. So, even after a 30% drawdown, we are still relatively expensive.

It’s hard to grasp just how overvalued equities were at their recent peak. Looking at the below image by Crescat Capital puts this into perspective.

The U.S. Market Cap/GDP ratio is one of Warren Buffet’s favorite metrics for gauging value in the market. It is calculated by dividing the total stock market by the gross domestic product. 

After a 33% drawdown, when we briefly breached the 2018 December low, the market traded around the valuations we saw at the 2007 peak. Today, after a slight corrective bounce, we are trading above this level.

Historically, in bear markets, stock valuations move from overvalued to undervalued. So far, according to two important measurements for market valuations, we have gone from very overvalued to slightly overvalued.

Intermarket Analysis

A few weeks ago, we analyzed the more economically sensitive sectors of the economy to see what they were telling us about the potential severity of the drawdown. At the time, these sectors were completely in a bear market or almost in a bear market, while the S&P 500 was still in correction territory. They were leading the market down a few weeks ago and I believe they continue to lead the markets down today. In other words, these sectors suggest more downside.

Every one of these sectors closed below the 2015 high around 2133. They are above the 2016 low, which is around 1800. These sectors, especially the regional banks and financial sectors, are suggesting an unwinding that has been long overdue.

Prior to the 2020 peak, the global debt was at a record high of $250 Trillion, which is over 3x the level of Global GDP. Like in most cycles, as they age, the quality of the debt deteriorates. The U.S. financial sector’s exposure to this debt is still in question and this why the sector continues to lead the market down.

Technical Damage

The amount of technical damage done to the market is extensive. This chart will be a regular update as we progress in either direction. The chart below also outlines what will need to happen in order to squash this bear market from a technical perspective.

So far, the market has failed to retest 1 of the 2 bear market trend lines in red. There are important moving averages, Fibonacci retrace levels, numerous open gaps, and prior peaks, all of which will act as strong resistance. Until we make a higher high and lower low and begin to take back some of these levels, I will be suspicious of any rally.

The below chart outlines the two scenarios that I am tracking for a likely path.

Scenario 1:

Scenario 1 is outlined in blue. The blue count is the count I am leaning towards as most probable. It suggests that the 3rd wave (within the C-wave) has bottomed or is close to bottoming. This will give way to a corrective 4th wave bounce, and then a final 5th wave down to the 2100 region.

Scenario 2:

Scenario 2 is outlined in red. The red count suggests that the 3rd wave will further extend into the 2200 region. If the economically sensitive sectors we are tracking break through the 2016 level, and this 3rd wave keeps extending, then we could see this market trade down to the 1800 level support level.

Regarding a bottom:

In order for the bulls to convince me that they taking back control of this market, I will want to see them take back the 2750 level on the S&P 500.  For me, below this level, and the pressure is down, which puts the above scenarios in play.

Some Good News – Positive Divergences

Beth is covering the speed of the bear market for MarketWatch this week. Since February 20th, the market has gone straight down with minor interruptions. In fact, March of 2020 holds the record for how quickest bear market in history at only 16 days starting on February 19th. The second fastest bear market to occur was the notorious 1929 followed by the escalator drop of 1987.

When calculating how quickly the 2020 market dropped 30%, the juxtaposition of our current situation is even more severe. The bear market of March of 2020 took 19 days to drop 30%, followed by 1987 and 1929, tied for second at 55 days to reach 30% drawdown. The other notorious black swans, the dot-com bust and the 2008 crisis, took almost a full year to retreat 30%.

The good news is that the market structure suggests that we are due for a large degree wave-4 bounce, and the MACD as well as the VIX are supporting this.

Note the MACD in the prior chart regarding the 2 potential scenarios we’re tracking. As the market is making lower lows, the MACD is coiling upwards. This is the type of positive divergence we see when we are approaching a bottom of sorts. This plays into the larger degree wave-4 that I am anticipating.

The VIX refers to the ticker symbol for the CBOE Volatility Index, and has become a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. In other words, it measures the amount of implied or expected volatility in the market.

So, as the market makes new lows, the VIX would typically make new highs because lower prices bring about more fear.

If you look at the above chart, in the final hour of trading, the market began to trend down and closed just above the all-time low for this bear market. However, the VIX also trended down. This is saying that the VIX is seeing a reduction of future volatility, while price is going down. This is a divergence we usually see towards a bottom or the bottom of a bear market.

It’s worth noting, that during the 2008 bear market, the VIX oscillated between the 70 to 50 range four times between October and November of 2008, before finally beginning to slowly trend back down. Basically, the VIX is still in a very elevated state and until it begins to settle down to much lower levels, we will likely not find a meaningful bottom.

What if we are Wrong?

As we stated on the forum to a few readers, this market presents two equal risks to every investor:

-Invest too early and see losses as the market attempts to price in a recession

-Invest too late and miss exceptional pricing (we are already at prices that nobody would have dreamed of a month ago).

Which risk are you most comfortable with? Only you can answer that. We are simply telling you what our plan is based on technical analysis that helps guide the positions we chose from deep-drive research.

I’d like to point out, we are not perma-bears or perma-bulls. We don’t comment a lot on the coronavirus because we are not doctors or health experts. We are sometimes on Twitter but are often too busy with research to tweet frequently.

We believe balanced research is an important strength. We have no desire to be right about calling a market. You won’t hear us pumping our positions during a historic selloff because we feel that it’s irresponsible to say “buy now” when our cost basis is low and we are not buying ourselves.

Instead, once the market broke key support, we worked overtime to find the S&P 500 levels we thought were most probable (and our personal target). We also published technical stops to help protect our readers’ gains. This was based on well over 100 hours of research (closer to 200 hours of research) over the past month on various technical charts and identifying stops and new entries for all of our positions. Our goal is to make money for our readers and to build the best portfolio possible in today’s market.  

Where the market decides to bottom is really anyone’s educated guess. Our targets take into account the potential for the blue and red counts I outlined above. These will be the levels that we will begin to build long-term positions. We plan to continue to hedge these long positions in case we are early.

We are not financial advisors. We use technical analysis to help create emotionless game plans, guide potential entries and manage risk. But, ultimately, you are the main arbiter of your investment decisions.

If your time frame is 5+ years and you can weather a potential 20% drawdown from current levels, then you will likely be glad that you bought at current prices.

There are numerous examples of roughly 30% drawdowns in past pandemic scares that showed a quick V-shape recovery. The level of fear in the market is palpable, and we are starting to see divergences amongst the MACD and the VIX, suggesting a bottom of sorts could be forming.  

Also, there is not much reference for the amount of liquidity being flooded into the market. On the flip side, this could act as a back stop to further economic deterioration.

However, if you believe this indicates THE bottom, it’s worth comparing today to the 2008 recession. During 2007-2009, we saw a 55% drawdown in stocks. However, during that time frame only the financial sector needed a bailout, now the list of sectors that needs a bailout is growing by the week. Also, airplanes were flying, Vegas was open, small business weren’t forced to close, there was no mandatory stay indoors policy and pro sports were still active as well as schools. No one knows the extent of the economic damage this pandemic will cause to the economy because we have never seen such a widespread halting of economic activity in an economy infused with record levels of debt.

Investors have been trained to buy the dip for 11 years. This strategy paid off handsomely for over a decade, and after 2018’s V-shaped recovery, there’s still a belief that we will see another such recovery. This scenario is possible, but I do not believe it is probable.

The structure of the upcoming bounce will be crucial for providing further clues on the on-going direction of the market. If the correction is overlapping and symmetrical, it will support the 4th wave thesis. I’m expecting this to find resistance around the 2500-2600 before topping out. However, if we see heavy volume and a structure that is impulsive – i.e., 5-wave patterns – then it will support the thesis of a potential bottom.

I want to see the 2750 level taken back before I will believe the bulls are in control. We need resistance to be taken back and an uptrend to form before I’m willing to support the idea that a bottom is in place.  

Position Updates

Please reference the Top Stocks List under the spreadsheet section of the site for updates on target entries. Please also reference the forum and the chat rooms for charts. Chat rooms are organized by stock ticker.

From peak to trough, last week saw a correction that traced 15.86% while at the same time breaking the pivot support at 3000 level.

As of now, the 2880-2600 region is crucial, and will be the area in which this correction bottoms or turns into something bigger. Whether we are in the early stages of a bear market or we have struck some kind of bottom, we can expect an attempt a reflexive bounce in the coming days/weeks.

The market needs to work-off levels of oversold conditions, and it will be in this bounce that I will look to increase my hedges and potentially raise more cash.

Obviously, we are not market prognosticators, rather we try to prepare for all scenarios. In fact, as I wrote this today the futures were down 1.3% and are now up 0.5%.

Here’s a glimpse of what COVID-19 has done to China, so far:

One of the major global supply chains has been disrupted. Adding more liquidity in the system via rate cuts will not fully address a supply chain problem. The February/March data will not help the markets, as the global economy slows due to the uncertainty around pandemic fears. So, any attempt at adding to long positions should be done with caution.

On the other hand, I want to point out the number of buyers we found in the NASDAQ at the 200-day SMA.

The above chart shows the Nasdaq. Look at the level of buying that stepped with a spike of green volume at the 200-day MA (noted by the black line). This is a great sign for bulls and should signal, at minimum, a temporary bottom, while we work off overbought conditions.

So, I’d like to offer some perspective on our positions, which have held up quite well considering the blood in the streets. We want to offer you some scenarios that offer good risk/reward trades with an exit strategy that protects your capital.

We aren’t financial advisors. Instead, we are actively seeking the best tech stocks at the best prices.

Elastic (ESTC)

We spotted the same setup in Elastic as we saw in Zoom when it was below $70. In Elliott Wave, it’s known as a 1-2, i-ii setup, which we see just before a powerful wave 3 takes over. On the forum, we pointed this setup out, and put a stop just under $63.50 on the closing price. The stock closed at $63.80, then earnings propelled ESTC 18% in a market that was down around 3-4%.

The bad news is that the probability of this setup holding is not favorable, per my count. We saw negative divergences within the RSI, MACD and MACD Histogram, suggesting the momentum is just not behind the move. Also, the Accumulation/Deceleration line, which measures if the price move is supported with volume and if that volume is “smart money,” also diverged.

I am holding a stop just under $69.25 to protect the gains we got for this move.

Roku (ROKU)

Roku has provided us with clear support levels. The first was at $125, which held for some time. Now, we are trading within the $115-$112 region, which Roku is now struggling to maintain. The recent buying pressure to push it back into the range was weak, and the “smart money,” which typically positions in the final hours of a day, is not buying right now.

The MACD failed at the 0 line, and is now in a clear decline below the range that held price within the tight descending wedge pattern for many months.

My stop for Roku is just under $86, and I’ll move my stops up if we get a bounce here.

It’s also worth pointing out the valuation of Roku at these levels compared to its runway. We believe, even in a a global recession, Roku’s business model is primed for growth. However, the stock market can have moments of being extremely mispriced, especially with misunderstood tech. It is for this reason that I have a stop in place for any new positions.

Nvidia (NVDA)

Nvidia found heavy buying at the $244 support region I pointed out in the last market update, which also coincides with the 55-day EMA. This also coincides with the middle of the target box we were watching. For us to have a bottom in place, the $244 region will be the battle ground going forward.

Even in light of the drawdown we saw in the market last week, where the vast majority of stocks in the market are trading at or below their 200-day moving average, Nvidia held the 55-day EMA with the MACD staying above the 0 line.

For anyone looking for a reasonable risk/reward entry for Nvidia, one scenario is to consider is entering at current prices, with a stop just under $241. This is a good setup to play any upside, while protecting from any further downside that may play out. Like with other positions, move your stops up as price increases.

Qualcomm (QCOM)

Qualcomm’s internals, as shown by the MACD, are showing that the selling halted and began to turn up well below the 0 line, with the histogram confirming this. The 38.2% retrace level, which is highlighted in blue on the chart around $73-$72 found buyers to step in and halt the decline.

However, it’s worth pointing out that QCOM stalled just below the 200-day MA, which is the psychological barrier that separates a downtrend from an uptrend. I would want to see it take back this region, which I expect it will, based on how over sold it is now, as a sign that, at minimum, a relief rally is underway. For anyone looking to go long, I’d hold a stop just under this level. A good stop would be $72.50.

Alibaba (BABA)

Alibaba is showing a lot of strength at the $200 region. For anyone who has been following us since we first covered BABA on our premium site, when it was trading around $180, you’ll remember that the $200 region was a tough hurdle for BABA to break above. Now that the price cleared this zone on the way up, that region is acting as strong support.

The internals are showing an easing of the selling momentum at this region. The MACD histogram is showing positive divergence, as the price is beginning to turn up below the 0 line. The Accumulation/Deceleration index is actually going up as the price is going down, which means that the “smart money” is buying into this decline.

For anyone looking to go long BABA, current levels with a stop at $197 would be a reasonable risk/reward setup. We believe in the long-term business model of BABA. If the coronavirus beats the stock down, we think that will be a gift.

This is a company to own for the long haul; however, the stop will protect us from another leg down in the correction if we get it before a bounce.

Zoom (ZM)

Zoom has been a fantastic position to hold during the sell off. In fact, while the market is down about 13%, Zoom is up about 3%. However, notice the very large Bearish Engulfing Candle that engulfed most of the move since the correction began. This is not a good sign for Zoom. This specific candlestick pattern usually precedes a change in trend, whether this change is the beginning of a failed impulse, which we’ve been tracking since wave-1, or it’s the wave-4 pullback we have been waiting for, only time will tell.

I have provided 2 stops: (1) the tight stop would be just under $94; (2) the wide stop would be just under the AVWAP, which is just under $84.

The Trade Desk (TTD)

It’s worth pointing out just how strong the Trade Desk has performed during this correction. As of now, it is only down about 10%. It found a swarm of buyers at the 200-day MA. After earnings, it quickly took back it’s 55-day EMA, and also the 10-day EMA.

The MACD is still under the 0 line with the histogram beginning to turn up, which is signaling bottom of sorts. Also, the Accumulation/Distribution line is making new highs before the price. There is a good chance that TTD makes new highs in any relief rally we get.

For any longs, I would watch the 55-day EMA as support and even as a stop, which is around the $275-$270 region as I write.

Dynatrace (DT)

Dynatrace has retraced to the upper region of our target box and found strong support around the $30 region, which is highlighted in blue on the chart. This also overlaps with the 55-day EMA in blue on the chart. The Internals are suggesting that at current levels we have not seen an exhaustion of selling.

For any longs at this region, I’d suggest a tight stop around $29.40 just in case we break this support. We have raised our stop to this point to protect our gains. Below here and we will likely see the $27.50 region come into play pretty quickly.