Month: June 2020

Market Report: June 28th, 2020

Posted on by io-fund

In this report we analyzed: INSG, TWLO, DT, ROKU, AMD, LVGO, TDOC

Please note the glossary of terms and techniques here and here.here and here.

You can access our portfolio here. You can also track in real time our buys/sells/position updates in the forum. If you want to track us in real time, we recommend that you set up alerts to these 3 chat rooms.  here. You can also track in real time our buys/sells/position updates in the forum. If you want to track us in real time, we recommend that you set up alerts to these 3 chat rooms.  

Twilio (TWLO)

We will look to add on the coming pullback, which we expect to be relatively shallow as of now.

Summary

  • Twilio has shown great relative strength in spite of broad market weakness.
  • Negative divergence in the MACD is suggesting a pullback is near.
  • I’m expecting the pullback to be relatively shallow and to bottom well above the earnings gap.
  • We will lower our stop to $186.90.

Key Price Levels

  • Below Support levels to monitor: $211-$210, $190, $177-174.
  • A break below $152.40 will make closing the large gap a likely outcome – we want to avoid this which is why we have the stop outlined above.

While the S&P 500 is down over 7% since it recently topped, Twilio is up about 16% in the same time frame. This is the type of relative strength we look for in market downturns. Furthermore, it’s worth noting the base that Twilio has built during this period of market weakness. We have noted this base in the chart by the green dotted arc below the recent price movements.

Since gapping up on its last earnings report, TWLO has slowly drifted higher towards the $211 resistance on decreasing selling volume. It then broke through this level, and has had a tight consolidation above the now $211 support region. Volume is starting to spike up as Twilio reached new highs above this consolidation point. We will now want to see a strong follow through for confirmation.

Regarding the Elliott Wave count, which can provide a general path forward, It is possible that TWLO is in the final 5th wave (light blue) within the larger degree 3rd wave (dark blue). This would explain the negative divergences we are seeing in the MACD, and it’s what I believe is actually going on. In short, if this is true, it helps support a relatively shallow pullback.

TWLO is due for a minor pullback that should consolidate above the gap. We will lower our stop on TWLO to the closing price of $186.90 in order to give it a little more room to breathe.

Inseego (INSG)

A strong break above $11.30 and we will add to our position in INSG.strong break above $11.30 and we will add to our position in INSG.

SummarySummary

  • Inseego has built a solid base, which I noted by the blue arc below the recent price movements.
  • It’s formed an inverse head and shoulders pattern just below $11.30.
  • A strong break above $11.30 will confirm the next leg up.
  • We will look to add on the breakout.

Key Price LevelsKey Price Levels

  • $11.30 is the primary resistance level to watch.
  • Below $9.20 signals a break of the base INSG built and lower levels ahead.
  • If $9.20 breaks, look to $7.75, $7, $6.50 for a potential bottom.

In our May 17th report, we noted the positive divergence forming in INSG. Because of this, we went long, and since then we are up about 16%. Further encouragement has followed due to the solid base INSG has formed above the 55-day EMA (in red).

The price is now approaching the $11.30 resistance while the MACD is coiling. This is the type of internal pattern we see before the next move up. Furthermore, the price has formed an inverse head and shoulder pattern below this level, to further build the bull case.

We are in a period of market weakness, which will be a hurdle Inseego will need to continue to overcome. As long as it holds the $9.20 support, the base INSG has built will remain intact. Below this level, and the yellow band will come into play between $7.75 – $6.50.

Roku (ROKU)

A strong break above $131.50 is a new signal to go long. A break below $113 is the signal to target the $102-$89 support.strong break above $131.50 is a new signal to go long. A break below $113 is the signal to target the $102-$89 support.

SummarySummary

  • Roku has spent 7 days above the previously noted resistance levels, which is now support.
  • Roku is also forming a solid cup and handle pattern.
  • It is retesting these levels now and setting up for a breakout move above $131.50.
  • A break below $113 signals a failed uptrend.

Key Price LevelsKey Price Levels

  • $131.50 is the primary resistance to watch now.
  • $113 is the main support.
  • Below $113, and $102 – $89 region comes into play.

Roku has broken above the downward trendline in red and the 200-day SMA in black. These two levels have kept Roku bottled up for most of this year. Recently, it has closed 7 days above these key levels and stayed between 14%-4% above these levels. This lends to the case that this recent move up is not another fake-out.

The recent move has also given us the final confirmation level to signal a large cup and handle pattern that will be confirmed on a break above $131.50.

As long as the $113 support level holds on any pullback, the bull case for Roku can hold. However, below $113, and the green target box comes back into play.

AMD (AMD)

AMD is setting up for another buy around the $49-$47 range.

SummarySummary

  • AMD is reaching an inflection point between a relatively large breakout or breakdown.
  • It is approaching a large cluster of important supports with positive divergence showing up on the MFI.
  • We will look to take advantage of this setup.

Key Price LevelsKey Price Levels

  • Key resistance that will signal a potential breakout – around $57.
  • Key support that will signal a breakdown is the 200-day SMA, which is around the $44.50 region today.
  • Primary target zone for a favorable risk/reward trade will be in the high $48 region.

We recently stopped out of AMD as the price closed below the 55-day EMA. We closed the position around the breakeven price. As you can see in the above chart, AMD is trading in between two major trendlines in blue. The above trendline has acted as resistance, bottling up the price from making a substantial move up. The below trendline is a four-year trendline that AMD has tested and held 5 times so far, not including the potential test we will likely see soon. One of these levels will give way to a sizable move.

Regarding trendlines, the longer it remains in place and the more times it holds a test, the more meaningful it is. This should put into focus the importance of the below trendline. Furthermore, the 200-day SMA in black just below this trendline. This will be the final support for AMD’s impressive uptrend since 2016.

However, the strength in the internals of AMD gives credence to the bull case. The RSI has broken the 50 line, which leaves the 40 line as the next support. This level held in the March selloff, and we expect it to hold in the coming selloff. However, note the MFI. It is showing clear positive divergence, signaling a bottom is near.

The $49-$48 region is a large cluster of Fibonacci prices levels as well as symmetry points. This should coincide with the below trendline, as well. We will look to try again on AMD, which will setup a favorable risk/reward trade, which we hope will turn into a long term position in AMD.

Dynatrace (DT)

Still largely unknown by the market, DT is expected to have a shallow pullback within a much larger uptrend. This pullback is another buyable event.

SummarySummary

  • We will target the $37-$32 region to add to our current position.
  • Below $29 and the uptrend is in jeopardy.
  • As long as the $29 region holds, the 5 wave pattern we are tracking is projecting a big move.

Key Prices to WatchKey Prices to Watch

  • $37-$32 is the buy zone.
  • Below $29 and the uptrend is in jeopardy.

Dynatrace appears to be completing its 3rd wave (red) within a larger degree 3rd wave (blue). We are seeing negative divergence in the MACD, which is characteristic of 5th waves. This also supports our case, because we are likely completing the 5th wave within the 3rd wave right now.

If this where we are in the current count, we should see DT bottom between $37-$32. We will look to add within this price range. If the $32 level breaks, the final level in the uptrend will be $29. We will use this level to place our stop on this new trade.

Teladoc (TDOC)

As extended as TDOC appears, this is a stock that could continue to out-perform this year. We will look to make our first attempt soon.

SummarySummary

  • Teladoc has built a good base as it attempts to breakout above the $205 resistance.
  • The internals are weak, supporting a retest of support first.
  • We will look to go long on the breakout, or target the yellow band between $158-$138.

Key Price LevelsKey Price Levels

  • Above $205 signals a breakout.
  • If $197-$190 breaks below, it will put the yellow band in play between $158-$138.

Teladoc has formed a solid base, as noted by the blue arc on the chart just below the recent price movements. The selling volume has stayed subdued as the price approached the breakout zone at the $205 resistance. A clear break above this price and we will go long with a very tight stop.

There are some concerning signs that need to be pointed out. First, note the negative divergence on the MACD – it is making lower highs while price continues to climb. Also, the Accumulation/Distribution line noted a rather large dump at the end of the trading day on Friday. This coincides with a large selling spike in volume, which made a bearish engulfing pattern on the daily chart. All of these together will make a tough barrier for TDOC in the coming days.

If Teladoc fails at the current level, we will look between the $158-$138 for entry.

Livongo (LVGO)

LVGO is signaling a top is near, which should give way to a notable pullback that we will use to enter the stock.

SummarySummary

  • This stock, like Teladoc, could have a large runway ahead of it due to remote health care
  • It will likely be choppy considering that it is relatively small and a momentum darling.
  • If the 20-day EMA breaks in blue, we will target the $56-$38 region for an entry.

Key Price LevelsKey Price Levels

  • If we break to new highs, the next resistance region for a potential top will be $85.
  • If the 20-day EMA in blue gives, the green target box comes into play between $56-$38
  • A break below $30 signals an end to the uptrend we are tracking.

Livongo is another stock that has had an epic run this year. This is a stock we will keep an eye on for future trades this year, especially as the stock could be dumped by momentum traders taking gains and/or causing big swings. We will use these swings to trade the stock.

I believe we are approaching one of those moments. We are seeing notable negative divergences between the MACD, RSI and the price. Furthermore, the RSI is holding the 60 line. Once this level gives, it will signal the pullback we are targeting.

Assuming LVGO does not make a higher high, my current Elliott Wave count has us completing the larger degree 3rd wave in blue. The 4th wave targets will be between $56-$38. This is a larger target area than normal, due to the small market cap of Livongo and recent popularity.

We are not sure where within this target region we will initiate. So, we will use basic technical analysis to assist us along the way. For long term buy and hold investors, please review Beth’s recent pdf. The growth in this segment (LVGO and TDOC) could outperform other cloud software this year. So, we may not get too picky with our cost basis if we hit the upper regions of our target box.

Telehealth: Premium Analysis

Posted on by io-fund

678197ce-8a30-4972-8bfa-93818e2a76f8_Telehealth-Premium-Analysis.pdf

Telehealth: Premium Analysis

Overview

Telehealth is the trend that shows the most evidence of overnight, digital transformation ushered forth from covid-19. According to a new report from S&P Global, telehealth patient volume has increased 3,000 to 4,000 percent during the early months of the Covid-19 outbreak. 

In times of indiscriminate buying and indiscriminate selling, things can get noisy. As we continue to focus our efforts on breakouts that become buy and holds, we believe this is a trend that will outperform and are eying an entry despite a run-up in some names.

According to the report from S&P Global, providers that rarely employ remote care options have switched over to telehealth services. Facilities such as NYU Langone Health saw 7,000 video visits per day or about 100,000 video visits in April compared to 300 visits per month pre-pandemic. 

According to American Telemed, three-quarters of U.S. hospitals are using digital technology to reach their patients via video, audio, chat, or email. Patient use of telehealth is up from 11% in 2019 to 46% this year, with 76% of consumers saying they are interested in using telehealth in the future. 

These reports allow for enough evidence to track this trend but predictions may prove to be too low by year-end. You can read a rather optimistic write-up of various accounts as to this explosive trend here. 

These two comments piqued my interest as we see that volume continued into May:

“In just the last three months, our healthcare providers completed over 605,000 virtual visits, including nearly 247,000 in just the month of May. What’s equally impressive is our projections for telehealth usage post-pandemic.

Mass General Brigham providers will go from approximately 1,500 virtual visits per month to 250,000.”

“In established virtual care leader, PSJH’s telehealth network was able to scale services from 70,000 telehealth visits in a year to 70,000 in one week to support the COVID-19 surge. Their clinicians leveraged telehealth technologies in many ways, including helping diagnose appendicitis in a young patient, working with a firsttrimester pregnant patient to guide her using a fetal heart rate monitor, providing a more calming experience for behavioral health patients, and staying engaged with frail and elderly patients.”  

We see similar evidence of this in Veeva’s earnings call where management stated telemedicine is increasing rapidly from less than 1% of visits in February to 30% of visits in April. Teladoc and Livongo are guiding for over 70% growth during a year when companies like Google are expected to report a dip in revenue for the first time. 

On July 25th, the current telehealth regulations are set to expire. Examples of this include increasing the services used by Medicare, paying for virtual care, and letting doctors treat patients across state lines. Also, recently on June 15th, thirty senators signed a June 15 letter asking for temporary telehealth provisions to be made permanent. 

According to an analysis on Medicaid and CHIP Payment and Access Commission, 44 states and territories expanded telehealth services by changing Medicaid policies in response to the pandemic. Additional state-based policies now allow a patient’s home to qualify as an originating site. 

In early June, a new bill was sent to Congress called the “Evaluating Disparities and Outcomes of Telehealth During the COVID-19 Emergency Act of 2020” that proposes a study of telehealth use for children’s health and mental health. The goal is to establish new policies for telehealth coverage including for Medicare and Medicaid Services. 

As Livongo points out in their most recent earnings call, in-patient appointments are important and by no means will be permanently replaced. Yet, remote monitoring and virtual appointments are here to stay and the trajectory here will change if regulatory barriers are lowered permanently. If this is the case, then there’s nothing quite like having the right product when a new microtrend is ignited. 

Essentially, we do not think these trends are in the rear-view mirror or a temporary pull forward situation, rather we believe we are in the beginning stages of a green field for cloud software in the sluggish and expensive health care industry. Driving down costs and increasing effectiveness can literally save lives. 

We think one of the most bullish points is that the tech giants have eagerly wanted to move into this space and select companies with market caps with $7 billion to $15 billion market caps have instead taken the lead (LVGO and TDOC). We’ve included Veeva in this analysis as a more conservative choice as the company has shown consistent revenue growth and profit margins. Should we see a rotation to profitability, Veeva will be a top choice. As of now, I am asking Knox to prioritize Teladoc and Livongo as we think these momentum plays can become solid buy and hold companies.

Veeva

Veeva Systems is an industry-specific competitor to Salesforce but with more data management and regulatory compliance features than typical customer relationship management software (CRM). Biotech and pharmaceutical stocks can be volatile yet Veeva has navigated this well and has proven to be a stable way of investing in these industries. In Veeva’s S1 filing, there were 23,000 life sciences companies with revenues of $1.6 trillion. The market is now at $2 trillion and growing at 5%.

One major benefit to Veeva over the other two companies covered in this report is that Veeva is mature and has shown verifiable gains for many years and increasing cash flow to upwards of $400 million.

Subscription revenue retention rates are 120%. Revenue increased 38% year-over-year in the most recent quarter to $337 million with non-GAAP operating income increasing 39% year-over-year to $130 million. Non-GAAP net income increased 34% year-over-year to $105 million. The company’s forward growth for the upcoming quarter is at 27% to 28% with EPS between $0.63 and $0.64. The company has over $1 billion in cash and no debt as of April 30th, 2020.

Full-year FY 2021 revenue guidance is between $1.38 billion and $1.395 billion with EPS of $2.50 to $2.55. This forward guidance was reduced by $10 million on the top end and operating income was increased by $10 million due to reduced travel expenses. 

The company has a goal of tripling this revenue to $3 billion by 2025.  

Financials Takeaway: Veeva is a financially fit company with nearly 30% revenue growth and decent profit margins of 20%. Although in the current hypergrowth climate, this may be overlooked right now, there may come a time when profitability is more desirable than sheer top-line growth. When this time comes, Veeva is a solid company. 

Product Overview:

Veeva spans three products: Veeva CRM, Veeva Vault and the Commercial Cloud, which includes event management on the Physicians World platform and patient analytics Crossix. Last year’s revenue primarily came from higher-margin subscription services at around 80% compared to lower-margin segments at 20%.

Veeva CRM is fairly straight-forward customer relationship management software that allows sales reps to collaborate across teams and engage more customers to drive business growth. The Commerical Cloud combines CRM with other offerings, such as data applications and warehouses for data management and new AI products to identify next-best actions. 

Commercial cloud is expected to contribute about $580 million in revenue with total subscription revenue being $1.14 billion. Of the $580 million, Crossix adds $76 to $78 million. The headwinds to the Crossix business will be offset by the strength in CRM add-ons. Crossix was an acquisition recently made for $430 million in cash to strengthen Veeva.

Vault:

Veeva Vault is a CRM platform and applications suite built for life sciences. The value proposition Vault offers is to combine content applications and the associated data onto one platform for efficiency and compliance. 

The name Vault is a nod towards security and regulatory oversight while allowing for horizontal application access. Vault revenue is expected to top $550 million for FY2021 and is growing in the 40% range and also now accounts for half of revenue. Veeva is looking to expand into cosmetics, consumer goods and chemical businesses. Management thinks the market could be at least $1 billion annually for Vault.

Veeva’s narrow industry-specific focus allows the company to move quickly, such as when the company accelerated the launch of SiteVaultFree for remote monitoring. AstraZeneca implemented Veeva’s remote monitoring to manage clinical trials for covid-19. 

The clinical suite project is a unified platform for clinical trial management system (CTMS), electronic trial master file (eTMF) and studies. AstraZeneca is preparing to supply upwards of 1 billion doses of a covid-19 vaccine. Veeva stands to benefit from ongoing Covid-19 lockdowns due to the need for virtual monitoring of clinical data and the need for virtualized sales channels. 

Veeva has had the luxury of being a first mover with a lack of direct competitors. Microsoft has a new health care and data solution that is more geared towards sharing health care data to find cures and improve patient health. This may not overlap as much with Veeva’s CRM which is more concerned with improving the sales process but there may be some overlap here with Veeva’s Vault product.

Conclusion:

Veeva stands out as a company with consistent growth and strong profitability. According to some analysts, Veeva should see more upside on profits than Salesforce. Although it’s reasonable to say that some of Veeva’s growth this year may not sustain after a vaccine, there is likely going to be some permanent effects of digitization across health care and life sciences. 

Teladoc

Teladoc’s revenue grew 41% year-over-year to $180 million in Q1 2020. The global subscription access fee revenue increased 29% YoY to $137 million with the United States increasing 33% and global increasing 17%.

Net losses and EPS year-over-year were marginally the same with about $30 million in net losses or ($0.40) to ($0.43). Adjusted EBITDA was positive $10.7 million compared to $1.2 million in the year-ago quarter. 

This was a miss on EPS as analysts expected ($0.36).

Visit fee only revenue saw phenomenal growth of 93% year-over-year to $43.7 million with the United States increasing 205% for visit fee only and 69% growth for paid visits. This is an area where Teladoc has a growth opportunity globally as the International visit fees grew only 5% YoY. Total United States Paid Membership saw growth of 60.8% and Visit Fee Only growth of 88.7%.

The company is guiding for revenue growth of $215 million to $225 million next quarter representing growth of 65% to 73%. Adjusted EBITDA in the range of $20 million to $24 million with EPS of $(0.28) to $(0.23).

Total revenue guidance for the year is between $800 million and $825 million with adjusted EBITDA in the range of positive $70 million-$80 million. Net loss per share in the range of $(1.27) and $(1.13). 

The company has $508 million in cash and long-term debt of $447 million. In May, the company raised $850 million in convertible debt with proceeds partly used to exchange $228 million in existing 2022 notes for a combination of cash and shares of Teladoc health common stock.

Financials Takeaway: 

Teladoc is guiding for accelerating revenue growth from 41% to 65%-73%. If Teladoc can deliver this (and maybe more) it will continue to be a top stock this year. What we see is a divergence between subscriber growth and reported revenue, which is a good thing as subscriber growth will drive ongoing revenue growth this year. Additionally, if Teladoc reports another strong quarter, I believe it will be differentiated from cloud software peers that may see 20% or so revenue growth this year (and have yet to report this due to Q1 having minimal exposure to the shutdowns).

Product Overview:

Teladoc Everyday Care offers nonemergency video calls with physicians for $59 with insurance or $75 without insurance. There are 43 million members using Teladoc’s service with 4 million appointments hosted last year.   

Teladoc also offers products such as Advance Medical, which is a medical opinion program that gives expert medical opinions from 800 dedicated health care professionals and 450 medical doctors. As of now, 35 million people access the service. Bestdoctors is a second opinion service that Teladoc acquired for $440 million in June of 2017. Betterhelp is a direct to consumer mental health product. Healthiestyou makes health care as easy as possible with prescriptions and access to doctors with an emphasis on ease for people on-the-go.

Current Growth/Flywheel Dynamic:

Teladoc is a coronavirus growth story with impressive numbers. 

The company may be going through some serious flywheel effects. It took the company until 2019 to cross 1 million visits per quarter and this doubled to 2 million in Q1 2020. New registrations increased 125%. 

The company expects to add 6 to 7 million paid members in the second quarter to end the quarter with 49 million to 50 million U.S. paid members. Management guided for 8 to 9 million total visits, or growth of 90% to 115%. The company expects adjusted EBITDA of $70 to $80 million, up 130% at the midpoint.

As Piper Sandler analyst Sean Wieland put it, the growth with Teladoc is “unprecedented across membership, utilization and scope of services.” Stephanie David Demko of SVB Leerink stated Teladoc is a sleep-easy name in highly uncertain times. 

A few risks/competitors … 

Teladoc’s moat comes from being first-to-market and working across many disciplines in health care, such as behavioral health, dermatology and second opinion ancillary services. The “right place, right time” may be hard for competitors to catch up to. 

Allen Lutz of Merrill Lynch pointed out that the pandemic “is driving substantial engagement and interest from payers.” He is referring to payers moving into the space with United Health’s potential acquisition of AbleTo for $470 million that could pose a threat to Teladoc. 

In the private markets, Zocdoc is a competitor and has an all-star line-up of investors. The company pivoted in April from being an appointment booking startup to including virtual doctor visits. Therefore, this competitor is only two-months old. Zocdoc has a different pricing model with medical providers paying a $299 annual fee and then is charged for each initial visit.

One could argue that Microsoft Teams is also a competitor here although the singular focus Teladoc demonstrates will be hard to beat, as evidenced by the acquisition of InTouch Health.  

Livongo

Livongo is a hypergrowth company with many triple-digit growth numbers. Notably, this was the case before covid-19 as the core product for diabetes has been growing rapidly. The pandemic may be delivering new opportunities for Livongo to expand into behavioral health and other new areas. 

This quarter, Livongo reported outstanding revenue growth of 115% year-over-year in the Q1 2020 results to $68.8 million. Gross margins are at 73% with non-GAAP earnings of $0.03 per share and adjusted EBTIDA of $3.8 million.

Livongo for Diabetes members increased by 100% year-over-year to 328,000 with clients up 44% quarter-overquarter. Estimated Value of Agreements nearly doubled from last quarter to $89 million up from $48 million.

To put this growth in perspective, Livongo had 114,000 members for its diabetes program in March of 2018 and 164,000 members by March of 2019. By December, the number was 220,000 (pre-covid) – so doubled in 18 months. The company then grew to 328,000 in March of 2020. These are numbers to pay attention to. 

Revenue guidance remains strong for next quarter at $73 million to $75 million. The annual revenue is expected in the range of $290 million to $303 million, representing growth of 70% to 78%. This is an upward revision from $280 million to $290 million. 

Adjusted EBITDA for the year is expected to be between ($14) million to ($10) million. The company had cash and cash equivalents of $368 million with no debt. 

Livongo has demonstrated strong revenue growth year-over-year from $30 million in annual revenue in FY 2017 to $68 million in FY 2018 and $170 million in FY 2019. 

Financial summary:

Similar to Teladoc, Livongo is guiding for some serious growth of 70%+. This is during a time when budgets may be cut in other areas of tech as Q1 did not provide enough exposure for internal budget planning to shift. 

I do believe that TDOC and LVGO have the ability to deliver these growth estimates this year and can continue being winners.  

Product Overview:

Livongo helps people manage chronic diseases. The diabetes-management technology platform helps patients with diabetes check their blood sugar levels. This is done with a cell-connected blood glucose meter to check blood glucose and receive personalized feedback and recommended lifestyle changes. 

At the time of the IPO, Livongo’s prospectus cited case studies that the diabetes program lowered HbA1c, a clinical metric that reflects blood glucose over the last three months. The company’s platform also reduces cost with savings of 21.9% for diabetic patients. Livongo began with diabetes as the condition is chronic, costly and requires close monitoring. 

By year-end, 35% of Livongo’s customers used solutions other than Livongo for Diabetes. To address heightened behavioral health needs, Livongo for behavioral health powered by myStrength is now offering specific COVID-19 and social isolation modules to manage stress and anxiety to all people. These also include Livongo for Hypertension and Livongo for Prediabetes and Weight Management.

Areas for growth:

Livongo can expand existing partnerships with companies such as Amazon Alexa, Apple Health, Fitbit and more. These companies are in need of a more vertically integrated monitoring solution for their hardware as they’re more experienced in hardware and more broad applications for consumer tech. 

As management stated in the call, “Remote monitoring is here to stay, and we expect it to become the standard of care for the most vulnerable and expensive populations” – I agree that any solutions that can lower health care costs for providers and improve the health of expensive/vulnerable populations should be in high demand even after a vaccine. The main issue with remote monitoring is user adoption and this may be on a new trajectory with covid-19. Insurance companies may also help to drive this trend of monitoring. 

On that note, I am not one to make acquisition calls as it’s impossible to predict what goes on in private negotiations but the synergy between what Livongo offers and what Apple needs for the wearables segment is uncanny. Bezos with Amazon is more visionary than Tim Cook, so if Apple does not look at the company, then Amazon could see Livongo as a way to leap forward very quickly with remote monitoring solutions. 

In March, Livongo made inroads with a CVS partnership as detailed here.  

Livongo has a product that aggregates data across devices for personalized insights (although this is challenging in health care with HIPAA laws around prescriptions). These personalized insights turn into nudges for specific actions and behavior support that are continually improved through recommendation engines. The company has signed deals with Dexcom and Prognos Health to accelerate the Health Signals platform and AI engine. 

What Livongo Health does that separates itself from a long line of healthcare solutions providers is aggregate copious amounts of patient data and use artificial intelligence to provide helpful tips for people with chronic illnesses in order to incite behavioral changes so they live longer, healthier lives.

Similar to Teladoc, the surge in demand has partly come from an easing of regulations and lower barriers from the coronavirus. For instance, with Livongo’s Behavior Health product, covid-19 modules make-up 3% of content but are driving 25% of member views. 

Livongo is continually gaining more credibility with the Government Employee Health Association choosing them as a covered benefit for diabetes prevention for more than 2 million federal employees. The company is also on a new curated marketplace Health Transformation Alliance, or HTA and Welltok, for the consumer engagement platform that serves 7 million employees. 

Kaiser Premanente has selected Livongo for Behavioral Health for their entire population. This is the largest behavioral health contract in the company’s history and will be roll out over the next five years.  

The company states 147 million Americans are living with a chronic condition and 40% live with more than one chronic condition. The majority of health care spending goes towards chronic conditions with Livongo reporting this to be 90% or $3.7 trillion. With that said, Livongo believes their addressable market is $46 billion.

From what I can tell, Livongo’s retention rate is 94% as stated in the Q4 earnings report. Some cloud software investors draw a hard line at 100% with the pickiest drawing a line at 120%. My analysis tends to be more forgiving if the company meets other qualifications – such as guiding for forward revenue that is likely 200% higher than many cloud software companies this year (who have much higher retention rates).  

Piper Sandler analysts estimate that the new contract (GEHA) could provide Livongo with 10,000 more customers this year, and said the company is positioned to pick up business from Medicare recipients. 

Goldman Sachs analyst is positive of the quarter results. However, he cautions “Livongo does still primarily sell into the employer space, and the impacts of high unemployment/recessionary environment on its growth is a concern”.

KeyBanc analyst Donald Hooker raised his price target on the stock to $85 from $52. Hooker wrote to clients that

KeyBanc sees Livongo "as a potential 'beat-and-raise' story through 2020 and 2021." 

I am also impressed with the company for the revenue growth prior to covid-19 between 2017 and 2019, plus the drive management had in bringing the company public when digital health companies were out of favor last July. 

This was the first time in three years a digital health company went public. This decision shows Livongo is more of a leader than a follower, albeit a bit anecdotal, it doesn’t hurt to observe the behaviors of the management in these smaller companies and the risks they’re willing to take before there are tailwinds.

Where’s The M In FAANG? Here’s Why 2020 Belongs To Microsoft

Posted on by io-fund

This article was originally published on Forbes on Jun 26, 2020,02:56pm EDTForbes on Jun 26, 2020,02:56pm EDT

When the acronym FANG was created and later extended to FAANG, tech investing was dominated by mobile, advertising (led by mobile), over-the-top streaming and e-commerce. Today, tech stock investors would be remiss to not have cloud in their tech portfolio as the category has proven to be secular and insulated from economic drawdowns.

Microsoft is a central hub to the cloud trend with nearly every segment of its revenue driven by cloud except PCs/Surface and gaming, although gaming too will shift towards cloud. With Microsoft being nearly a pure play in cloud computing while boasting a $1.5 trillion market cap, the talking heads in media may need to find a new acronym.

I’ve covered the sheer supply of cloud software companies potentially weighing on returns in the coming months as the market begins to sort the winners from the losers this year. There are likely to be cutbacks across all budgets and these covid-19 cutbacks did not show up yet in the first quarter due to the limited, two-week exposure in March before companies started reporting (this lack of exposure in Q1 may seem obvious but the market has certainly not priced this in).

Meanwhile, Microsoft stands to benefit regardless of which cloud software companies pull ahead. Hundreds of cloud software companies crowd the public and private markets yet they all funnel into cloud infrastructure. This is the common denominator.

Hybrid Cloud Accelerated by Covid-19

Satya Nadella made a bold statement in the last earnings call that the company had seen two years’ worth of digital transformation in two months. He cited a surge in demand from the structural changes due to companies quickly reorganizing.

The coronavirus shutdowns accelerated cloud usage from current customers yet the most important impact is that it forced slow-to-adopt companies and industries to migrate to the cloud overnight. These slower-moving companies are more likely to adopt a hybrid cloud strategy which is where Microsoft excels over the competitors.

My original thesis when I began covering Microsoft nearly two years ago was that the company would rival AWS due to its focus on hybrid cloud. Historically, Microsoft was built around on-premise and the company is well situated to assist in a more conservative, slow migration, especially for enterprises with significant intellectual property or unique security concerns. According to a 2018 survey, the top reasons for using hybrid cloud include controlling where important data is stored, at 71%, and using cloud for backup and disaster recovery, at 69%.

Hybrid cloud allows for scenarios where customers can keep their most sensitive data on their own servers while sending workloads to the private or public cloud that gain an advantage from mining data more efficiently and require improved accuracy and productivity. Azure’s strength in hybrid computing has made it the main player in the industry with the product being used by 95% of Fortune 500 companies.

Microsoft’s Windows operating system has run on servers for decades, and it was a natural extension to offer Azure Cloud to run on-premise. Specifically, the company’s presence in traditional on-premise deployments of server and SQL databases have propelled Azure forward as an obvious choice for public and hybrid cloud deployments. This is due to being the path of least resistance for on-premise to Azure.

This prompted my prediction that Microsoft would beat Amazon in a contract for the Department of Defense and I believe Microsoft will win yet again from the coronavirus shutdowns for the same reason.

Azure’s strength in offering both on-premise and cloud in a hybrid solution has prompted Amazon to chase Microsoft with recent efforts to improve its hybrid strategy. According to a Goldman Sachs survey pre-covid, the majority of executives preferred Microsoft Azure over AWS. The survey is done bi-annually and Microsoft has been ticking upwards in the results since 2017. With that said, AWS is capturing an estimated 200% more revenue than Microsoft on cloud infrastructure at $9 billion for AWS compared to $4.33 billion on Azure (per analysts).

Notably, the Goldman Sachs survey may not have taken into account that outside of the Fortune 500, AWS has a loyal startup and SMB following, and is also popular with agile enterprises that scale quickly, like Netflix and Facebook. Often times, these companies look outside Microsoft’s walled garden.

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For comparison purposes, some of Microsoft’s offerings are cheaper than AWS while having a larger global data center footprint. In the most recent earnings report, Microsoft stated it had more data center regions than any other cloud provider. New center regions announced in this quarter are Spain and Mexico. It plans to invest $1.1 billion over five years in Mexico. In Spain it plans to open Azure regions and also expand Telefonica relationship. This is especially helpful as compliance regulations require local data storage.

Halo Effects of Microsoft Teams

The story of the year may very well be cloud productivity apps. Microsoft Teams, though not exactly a verb, has been seeing rapid growth among Office 365 users. According to the recent earnings report, Microsoft Teams has increased 70 percent quarter-over-quarter to 75 million daily active users. This is up from 44 million daily active users in March. Perhaps even more impressive, Microsoft saw 200 million meeting participants in a single day in April.

This isn’t to say that Microsoft Teams will wipe out competitors outside the Office software ecosystem but it’s certainly going to help the company protect its turf. Zoom Video is likely to hold more mindshare as consumers can also enjoy HD video and office workers can share video links seamlessly outside of Microsoft’s enterprise walled garden. Slack is likely to lead on innovation as a developer and programmer favorite. After all, AWS is still in the lead over Azure and these customers will want a Microsoft alternative.

(Disclosure: I’m an investor in both Zoom Video and Slack and recommend these stocks to my premium service).

For the Fortune 500 and the 250 million who don’t mind Microsoft’s walled garden then Microsoft Teams offers valuable collaboration features, such as sending files within the apps, and holding video or audio calls. As of now, 20 organizations with more than 100,000 employees use Teams with Accenture being the first company to surpass 500,000 users.

Beyond enterprise companies, Microsoft Teams is also seeing inroads into education and health care from the coronavirus shutdown. According to the fiscal Q3 earnings call, more than 183,000 educational institutions rely on Teams with an emphasis on global education, including the United Arab Emirates, which has over 350,000 students using Teams, and Italy, which moved over 80,000 students to Teams in just three days.

The health care industry has 34 million users on Teams, including in New York and in the UK. Microsoft also launched its first industry-specific cloud offering that allows organizations to work horizontally across apps, like Dynamic 365 and Azure IoT, for virtual visits, chatbot assessments, and remote health monitoring.

The CDC and various healthcare systems are using Microsoft Health Bot Service to build and deploy AI-powered virtual assistants that reduce that workload on emergency services. As of early April, about 1200 instances of covid-19 bots had serviced 18 million individual users and served 160 million messages.

Microsoft also expanded Teams recently with the Booking app, which allows healthcare providers to schedule, manage and conduct provider-to-patient virtual visits with Teams. Depending on the size of the organization, this could be a competitor to Teladoc.

Conclusion:

Microsoft has many inroads into cloud and is nearly omnipresent in this category. There is a halo effect that allows for upgrades into premium products and increased renewals. When it comes to industry specific data needs, such as health care, Microsoft will also be a strong competitor for its experience in strict compliance across data-driven environments. I believe Microsoft’s biggest strength will take center stage this year, which is massaging the more conservative enterprises to adopt cloud with hybrid architectures. Teams, as well, could not be in a better position to strengthen the walled fortress.

June & July Portfolio and New Hedging Strategy

Posted on by io-fund

We are moving away from ranking the stocks by conviction as the organization forced us to choose between too many stocks that we have equal conviction on. The conviction and story rarely change and the monthly time frame set up an expectation that the conviction changes very frequently. What does change daily/weekly is price. Instead, we are going to display our portfolio and the stocks we are watching closely for entry. This will also serve as a reference page for Knox’s active trades. This list combines the fundamentals with technicals to find good entry points for our active watch list.

You can view our portfolio here.herehere.

These include: (1) Active Portfolio, which is the tech portfolio that tracks our open-trades and long-term positions; (2) Conviction List, which tracks the gains made in Beth’s top picks from the date of her first publication on each stock and those we are watching to enter; (3) High Growth list, which tracks the current momentum names for anyone looking to play quick moves in the market.

You can view a list of research and stocks covered here. stocks covered here. Please use this list to get acquainted with the general microtrends we are targeting as well as the positioning of the companies we believe will benefit most from these microtrends. We will build out this list to have brief information on the conviction so check back soon.

We are also testing a new hedging strategy that meets our objective of building and protecting a long-term, buy and hold portfolio (i.e. our “Active Portfolio”). Our cost basis for “long-term” positions is set with a series of trades (these are noted on the Active Portfolio as “open-trades”). Some of our positions have a low-cost basis and others are trading near our entry.

Regardless of when you build a tech portfolio, these stocks are high beta and the sell-offs can happen quickly, especially because momentum traders are attracted to the high revenue growth in tech names. Beth covered some of this in her H2 2020 Cloud PDF. 

We have been working on a hedging strategy that allows us to remain in our long-term/buy and hold positions even when the market goes through drawdowns. In our industry, this can happen a couple of times a year regardless of the economic backdrop.

Picking the stocks is half the challenge. The other half is holding onto the company once you have a position. For example, if you had the foresight to grab Amazon near its IPO, you had to withstand six drawdowns that gave up at least 30% each time. Two of these drawdowns were greater than 50% and one of them was greater than 90%. Today, the position is up around 1800%.

This is the reality you face even with great tech companies that have massive addressable markets, little competition and are diversified across multiple growth segments (i.e. Amazon as the example). Emotions are difficult to manage and our goal when testing a hedging strategy is to not sell prematurely.

We are developing hedging strategies that will allow us to remain long. The first is a trend following strategy that is rules based. This strategy was inspired by Puru Saxena on Twitter, who is a must-follow. We watched him navigate the March 2020 sell-off and it was flawless.

We reached out to him for permission to test his hedging strategy especially because he also invests in high-beta tech stocks. He gave us the green light and we are grateful for the “FinTwit” community where everyone can continually learn and improve their craft. 

We made a few tweaks on the strategy to fit our portfolio. This is because we cover a broad range of names including semiconductors, digital media, small caps and big cap stocks.

PLEASE NOTE: You will be notified of when we our hedge is on and when our hedge is off. You will not need to incorporate this directly. We will simply let you know when our hedge is on and off and you can choose to follow or not.

Please always consult with a financial advisor for any stock trades or strategies you wish to purse. Beth is a technology industry analyst only and I am a technical chartist and someone who manages my portfolios only who discloses my personal trades.

Trend Following Hedging Strategy

The first step is to find the ETFs that correlate with our portfolio. For semiconductors, this would be SMH. If we are overweight mega-cap tech names, our system could pick QQQ. Due to to the run-up in cloud software, we are more closely correlated to the Russell 2000 growth ETF under symbol IWO.

The following are rules to determine if we should be hedged or not: We will follow three exponential moving averages to track two trends: (please review the glossary of terms):

  • Short-Term Trend: when the 5-day EMA > 13-day EMA, the short-term trend is up. When the 5-day EMA < 13-day EMA, the short-term trend is down.
  • Long-term trend: when the price of the ETF is above the 150-day EMA, the long-term trend is up. When price goes below the 150-day EMA, the long-term trend is down.

When the long-term trend is down AND the short term-trend is down, we will short the dollar value of our tech portfolio. For example, for every $1 we have in long positions, we will take out an equal $1 short position in IWO. This means the short amount will be equal to our allocation in technology stocks.

While the long-term trend is down, we will follow the 5-day EMA/13-day EMA crossover to tell us when to short and when to cover that short. When the short-term trend is down with the long-term trend, the hedges will be on.

When the short-term trend is up and the long-term trend is still down, the hedges come off. Also, when the price of the ETF we are tracking goes above the 150-day EMA, the hedges come off.

The pros: you will have some segment of your portfolio that is long volatility in case of a deep sell-off. This should counter balance the losses we will experience in our buy and hold tech portfolio. This will reduce our drawdowns and help us comfortably sleep at night during times of immense volatility.

The cons: In a market like 2015/2016, there could be a number of whipsaws, causing minor losses and erratic signals. In this situation, we may sacrifice gains on the upside in order to protect our downside.

Market Report: June 21st, 2020

Posted on by io-fund

In this report we analyzed: WIFI, FFIV, ROKU, ATOM, NVDA, MSFT

Please note the glossary of terms and techniques here and here.here and here.

From the trades below, I am personally most excited about the trade setups with Roku and F5. I also like Boingo for the small caps and am cautious on Atomera, Microsoft and Nvidia. Feel free to ask questions in my chat room.

Beth wants to remind readers that Inseego can make a nice hedge should the coronavirus shutdowns resume. We own this company already. You can access the PDF and blog update here. Feel free to ask questions about this on the forum in her chat room.

Boingo (WIFI)

SummarySummary

  • Potential Break Out.
  • WIFI is building an encouraging base above the 200-day SMA, while at the same time, sellers seem to be drying up.
  • The volume profile is supporting a real breakout, but the internals are not.
  • We will wait for price to close above $15 before reinitiating – please note the downside risk of owning it before a breakout is confirmed and the risk of not owning it due to the rumors that it gets bought out below the $15 mark.

Key Price Levels to WatchKey Price Levels to Watch

  • $15 – this is the only level that matters right now. A break above on heavy volume, and day’s closing price above this level will be an encouraging sign.
  • $11.70 – a close below here and we have a failed base. This puts the green target boxes into play.

We have attempted two trades in WIFI over the course of our service. The first was tracking a cup and handle breakout that stopped out in March with a slight gain. The second one just stopped out when WIFI closed below our stop, which was the 55-day EMA (in red).

I want to point out that just because a setup failed, it does not mean that we don’t keep seeking new ones. In fact, some of my best trades came after being stopped out multiple times. The goal is to make our losses small and let out winners run. We never know when a break below a key level can lead to a small shakeout or a deep correction, which is why we lean towards being conservative on our entries.

That being said, I keep coming back to WIFI because of the structure of the price leading into the $15 resistance level again. Here are the encouraging signs:

  • Note that WIFI has made 7 attempts to breakout over this level. There is a rule in technical analysis that the more times a support/resistance is tested, the weaker it becomes.
  • Next, WIFI’s price action in relation to the volume pattern is bullish. As WIFI trends closer and closer to the $15 region, it has built a pretty strong base above the 200-day SMA with volume decreasing. In other words, it appears that the sellers are drying up.
  • Finally, the 200-day SMA is finally starting to turn up.

However, regarding the internals, they tell a different story:

  • The MACD is trending down and on the verge of breaking the 0 line.
  • The RSI is also quite weak and coming dangerously close to breaking the 40 line.
  • Most importantly, the Accumulation/Distribution line has made a series of lower highs each time WIFI has attempted to break out, suggesting that the buying pressure is fading.

We will watch the $15 level closely. A breakout above this level (again) on heavy volume will be our sign to get back in. I want to stress that we will wait for the price to close the day above this level.

Also, it’s worth pointing out the risks: (1) WIFI is a small cap growth story, which is prone to sharp moves. If it breaks the base it just built, the downside could intensify; (2) WIFI is a prime buy out candidate. This could happen below the $15 level and we could miss out.

F5 (FFIV)

SummarySummary

  • Break out Alert
  • F5 is still bottled up within its range.
  • The RSI and CCI are showing strong signs of a breakout.
  • F5 has built a solid base above key moving averages.

Key Price Levels to WatchKey Price Levels to Watch

  • Above $153.50 confirms the breakout.
  • Below $120 confirms a break down.
  • A close below $127.90 will be the likely stop for this entry.

F5 Systems is giving a buy signal. If you look back at our original thesis, there are 2 potential counts at play, and until price breaks below $120 or above $153.50, we will not know for certain which count is active.

Based on what I’m seeing, I believe the more bullish count is more probable. First off, the RSI is above the 50 line on a 30 day look-back period, while the short term CCI is in oversold regions (-100). Also, note the positive divergence on the CCI. As price is making a lower low, the CCI is making a higher low.

This, coupled with the strong base FFIV has built above the 200-day SMA in black and the 55-day EMA in red, supports a potential move up.

We will look to go long on Monday with a very tight stop, in case we get a fake out. If confirmed, our target will be around $210.

Roku (ROKU)

SummarySummary

  • Potential Breakout Confirmation is Close
  • Roku is close to confirming the b wave is over and we are in the early stages of the final c wave, which is targeting up to $240, if confirmed
  • A close above $131 should confirm this move.

Key Price Levels to WatchKey Price Levels to Watch

  • $131 is the level to watch for confirmation
  • A close below the 200-day SMA and the downward trend line (in red on the chart) suggests that the b wave theory we’ve been tracking is correct and we can expect to pick up shares in the $102 region.

Roku tagged our target box for a brief period two weeks ago. Unless you had an automated market order to buy at the $102 level, = you probably missed this pricing (as did we as it happened very quickly). Furthermore, we noted the positive divergence in price last week, and based on the structure, suggested that this would likely be the b wave within a larger b wave decline.

B waves typically retrace to the 50-61.8% retrace level. Today, Roku is at the 76.4% retrace level, which is the highest level I’ll give the b wave thesis before we look to go long. Furthermore, Roku is at a wall of resistance with the downward sloping trendline, the 200-day SMA, which is pointing down, and a confluence of important Fibonacci price levels.

If Roku can break above $131 and close above this level, I’ll abandon the b wave theory, and look to go long. This will also be the 3rd day that Roku closes above the trend line that has kept it bottled up for several months, which will be a show of strength.

We always prefer to catch a bottom in a stock. This is an incredibly difficult feet, which sometimes works against us. However, if the price upside targets in Roku are achieved that we are tracking, getting shares $30 above our target will not matter in the grand scheme.

Atomera (ATOM)

SummarySummary

  • Risk of Correction.
  • Atomera is tracking a complex/corrective uptrend.
  • It is in the final throws of this uptrend, which suggests that the upside potential is limited, yet could extend into the $12.50 region.
  • We will wait for a correction to add.

Key Price Levels to WatchKey Price Levels to Watch

  • Resistance levels for a potential top: $11.10, $11.75, $12.55
  • Support levels to confirm a top: $8.20 (a break below this price confirms a top).

Atomera is another small cap we are actively tracking for an entry price. Its structure is tracing a larger degree corrective uptrend – i.e., very overlapping vs. the more direct 5 wave impulse. If you note the green count on the chart, you’ll see what I mean. The B wave retraced the entirety of the A wave.

Then, the green C wave, which we are in now, has its own internal wave structure in blue. Note how the blue b wave overlapped the entirety of the blue A wave. This confirms that the current uptrend is part of an overlapping/complex move higher.

On a smaller time frame, C waves always unfold into 5 wave patterns, which is exactly what we have. If you follow the pink count, you’ll see this 5 wave structure that makes up the green c wave.

It’s worth pointing out that negative divergence in the MACD – as the price moves higher, the MACD does not. This is very characteristic of 5th waves. Also, the price is within a zone of major Fibonacci price clusters that are standard zones for a completed 5th wave. 

Because this is such a clean 5 wave pattern, I’m having a hard time buying into ATOM right now. It may extend, but to me, the downside right now is greater than the potential upside.

Nvidia (NVDA)

SummarySummary

  • Limited upside in the short term. Risk of correction is high.
  • In its final 5th wave with heavy divergences.
  • Within a cluster of price levels that will be significant resistance.
  • We are waiting for a correction to add.

Key Price Levels to WatchKey Price Levels to Watch

  • Resistance regions for potential top: $363 – $380, $407-$420
  • Key supports to confirm a top: $325, $319

Since Beth first wrote about Nvidia, we have guided/made 5 entries into this stock. We are actively searching for the 6th today. The structure of Nvidia, in my years of tracking price structures in stocks, is without question one of the most complicated charts I’ve analyzed.

What I hope to do today is to explain why I’m holding off on a new position. First off, if we look at the daily chart, NVDA is tracing an ending diagonal pattern for its final 5th wave within a larger degree 5 wave pattern. An ending diagonal is a 5 wave pattern that traces a trend channel (in gray), and each of the 5 waves has an internal 3 wave pattern. This structure has us in the final 5th wave before a reasonable pull back.

This is also confirmed by the RSI and MACD histogram showing notable divergences. The momentum is fading as the price makes new highs. This is very typical of the final 5th wave.

We do believe that this pullback will provide a chance to pick up shares sub-$300, and we will have to see how it unfolds before making a reasonable range to target.

The above chart is the weekly chart of Nvidia going back to its IPO. Being a semiconductor play, its prone to extreme up and down moves, which has made its chart quite complex. I believe that Nvidia is charting a very large degree leading diagonal that is taking decades to play out. We are approaching the end of the 3rd wave, which can extend from what I can tell into the $415-$420 level. However, once this stock reverses, a very reasonable, and shallow retrace will be to the middle of the trend channel or the 200-week moving average in red.

I’m showing this price structure to so that you can see the context of the moves we are expecting. Though we do not believe we will see a retest of the March lows, a move into the mid-$200 is not unreasonable.

Stocks in great companies like Nvidia can get ahead of themselves. We believe it’s wise to be patient right now.

Microsoft (MSFT)

SummarySummary

  • Microsoft is showing notable signs of weakness as it makes a slightly new high.
  • We are expecting a pullback, which we will use to add shares.
  • There is a potential for a double top, but it is the least probable scenario right now.

Key Price Levels to WatchKey Price Levels to Watch

  • Resistance for potential top: $198-$201, $208-$213
  • Key Support Regions to confirm a top: $190-$185

Microsoft’s chart is strongly suggesting a correction is due. Note the RSI and CCI diverging compared to the current price levels. Also, note the negative divergence in the RSI from the first top to now. This is a strong divergence that shouldn’t be ignored. Next the Accumulation/Distribution line is a fantastic leading indicator, which gives us an idea what smart money is doing. It’s trending down while the price is still trending up.

The price can still make higher levels with divergences forming. The blue region and the red region are likely resistance zones for this correction to trigger (please note the Key Price Levels to Watch above). The question remains how deep of a correction can we get in MSFT?

Using basic technical analysis, there is a real possibility for a double top reversal? A double top is exactly what it sounds like. From an Elliott Wave standpoint, this double top would be a b wave within a much larger corrective pattern. If true the C wave down would take us right back to the key $135 support.

However, many things must happen before this scenario becomes a probability. First off, MSFT has to break the 20-day EMA in blue, which has held the price up on its current uptrend. It would then need to break the 55-day EMA in red and the $175 region. Next, to confirm the double top thesis, the $165 region would have to give, followed by the 200-day SMA, which would not be far from this region.

We do not believe this is the most probable scenario. Instead, we believe the correction will likely bottom within the green target box before turning back up. This will set up a large degree cup and handle to new highs.

However, with the double top reversal on the table, we will be cautious in how we add shares in the coming correction.

Why I’m Stacking Satoshis

Posted on by io-fund

Last July, I began covering bitcoin. The premise was based on three phases for widespread adoption: institutional adoption, global economic uncertainty, and mobile payments.

With Square’s cash app reporting fifty percent of its payments being made in bitcoin, or $178 million, it’s time to revisit why bitcoin is a transformative technology that is often misunderstood. Square’s report was for the period between October 1st and December 31st, which represented an increase of 50 percent over the prior two quarters.

Perhaps the more critical point to understand about bitcoin is that its purpose is not to polarize opinions on fiat currency. This is not a political election where you must choose a side. Rather bitcoin solves critical issues with digital trust and the fees associated with financial transactions. Therefore, it can coexist with fiat currency while having a unique purpose.

In January, I covered a string of mergers and acquisitions across fintech, such as Visa-Plaid, Mastercard-Nets & Vocalink, Fidelity-Worldpay and Fiserv-First Data. The problem with these acquisitions is there’s little benefit to customers and merchants. Digitization in finance is built atop age-old infrastructure and ignores the most obvious area in need of disruption: transaction fees.

Peer-to-peer payment apps on the market, such as Venmo, continue to charge merchants 2.9% plus a 30-cent transaction fee. Square charges 2.6% plus 10 cents per transaction. Therefore, the real value to consumers and merchants from fintech has yet to be seen. Last year alone, retailers paid $108 billion in electronic-payment costs — fiat currency can’t solve this issue.

Fiat currency also does not solve security issues as centralized systems do not inherently ensure digital trust. The Association of Certified Fraud Examiners reported a 42% frequency of fraud across small businesses costing an average of 5% of gross revenues. Credit card fraud is at $30 billion per year. Although Mastercard and Visa invest heavily in artificial intelligence for fraud detection, this is not necessary with a decentralized system that uses the network to verify identity.

Apple, Google, Microsoft and Amazon reached market caps of $1 trillion because their products scale to global populations and are required on a daily basis. Bitcoin not only scales to the global population but it also protects their livelihood – a necessity rather than a convenience.

At its current price of $10,000, the market cap of bitcoin is at $250 billion. Meanwhile, Bitcoin offers the most secure network in the world and is capable of reducing fees of $100 billion annually. This is in addition to automating our financial system, which can’t be done without a decentralized blockchain solution. The fact bitcoin hedges against inflation is a bonus, but is not the primary benefit of bitcoin.

Bitcoin V. Baby Boomers

Bitcoin is supported by some of the brightest minds in technology. By far, the most successful investors in technology believe bitcoin is a viable form of currency. Venture capital firms such as Khosla Ventures, Union Square Ventures, Lightspeed, and A16Z have been funding bitcoin projects for some time (circa 2013 and 2014). In an editorial written in 2014, Marc Andreessen put it aptly that there could not be a bigger divide between how technologists feel about bitcoin and how the rest of the world sees bitcoin. He argued that the ongoing movement by researchers and developers to bring this technology to the market will eventually win out over the public’s unwarranted bias.

One of bitcoin’s hurdles is multigenerational adoption. To date, bitcoin is predominantly a retail dominated asset. Charlie Munger and Warren Buffett both criticized bitcoin as worthless. In fact, Buffett went so far as to claim bitcoin is “probably rat poison squared.”

Furthermore, in 2018, Bill Gates spoke about how the anonymity of bitcoin will be used to promote terrorism. This became a reality in 2019 when it was discovered that North Korea partially funded their missile programs by acquiring bitcoins from cyber-attacks they enacted on crypto exchanges. 

The issue with listening to Warren Buffet, Charlie Munger and Bill Gates is they are not legendary tech investors. For the most part, Buffet and Munger invest in very large cap tech companies who are well past the stage of incubation. They are looking for safe, value bets with consistent cash flows. Early stage and disruptive tech could not be further from their investment goals.

Despite being a famous tech CEO, Bill Gates is a conservative investor who has done very little in the tech startup world. His top holdings are Berkshire Hathaway, Waste Management, Canadian National Railway Company, Caterpillar and Wal-mart.

Point being, the aforementioned venture capitalists have strong track records in identifying seed stage technology that disrupts industries.

There are a few traditional investors who have begun to embrace bitcoin. Paul Tudor Jones recently announced he has 1% of his fund in bitcoin and will grow to be 2% of his fund. He recently stated bitcoin may be the best performer: “When I think of bitcoin, look at it as one tiny part of a portfolio. It may end up being the best performer of all of them, I kind of think it might be,” he said. “But I’m very conservative. I’m going to keep a tiny percent of my assets in it and that’s it. It has not stood the test of time, for instance, the way gold has.”

Jaimie Dimon of JP Morgan has stated bitcoin “could be internal, could be commercial, it could one day be consumer.” In May, JP Morgan signed its first cryptocurrency exchange customers, Coinbase and Gemini. The bank will provide U.S. users with deposits and withdrawals via wire transfer.

To help institutional adoption, many custody solutions were introduced to the market recently. The word “custody” refers to a third-party provider of storage and security services for cryptocurrencies. In the first five months, six new custodians entered the market while a number of existing crypto custody providers have announced new features.

Vault storage is a popular method which keeps the majority of the crypto in offline storage with a minority in online storage. Custody solutions safeguard cryptocurrency, and go beyond private keys or wallets, which are subject to hacks or the misplacement of hard disk storage. These services are aimed at institutions and hedge funds, and incorporate a combination of storage online for liquidity and storage that is disconnected from the internet.

There has been some M&A in the crypto custodian market, as well, and exchanges such as Coinbase, Gemini and itBit have launched custody solutions. Upcoming modifications to the Glacier Protocol will also strengthen high-security offline storage for bitcoin for storage of over $100,000 (although notably is not for institutional use at this time).

You can read more here: Will Bitcoin Make a Good Investment? Part 1: Institutional Adoption

Economic Uncertainty: Look Beyond the United States

In addition to the benefits of decentralization for security purposes and to reduce the intermediary fees involved with transfers, bitcoin is also more attractive than many foreign currencies. For instance, even when Bitcoin lost value from $19,000 to $3,000, it still out-performed the inflation of Venezuela’s currency. On the flip side, when bitcoin rises in value from $5,000 to $11,000, it allows global populations to hold an appreciating asset.

Japan is an excellent case study for an economy that has struggled due to quantitative easing. As of 2018, the Japanese debt-to-GDP ratio is at an all-time high at 254% due to nearly 15 years of quantitative easing. Government debt to GDP in Japan averaged 137.4% from 1980 to 2017. Consequently, Japan is a thriving bitcoin market.

Over 3.5 million people in Japan trade cryptocurrency with the vast majority (84%) between the ages of 20 and 40. The trading volume in Japan rose from $22 million in March of 2014 to $97 billion in March of 2017. 

Perhaps more important than any specific geography supporting bitcoin adoption is to consider the Millennial demographic. Bitcoin and cryptocurrencies have been in existence for most of the Millennial generation’s adult life, having launched in 2008, and when this generation ages another decade, crypto and crypto wallets will be frictionless. Edelman Research published a study of 1,000 millennials with over $100,000 in income and found 25% own cryptocurrency.

You can read more here: Will Bitcoin Make a Good Investment? Phase 2: Economic Uncertainty

Retailers on Board

Paying for daily goods with a mobile wallet, tied to crypto, will become effortless in the years to come. One of the leading startups right now is Flexa’s SPEDN, which is linked to fifteen retailers, such as Whole Foods, Barnes and Noble, Nordstrom, Petco, Ulta Beauty, Lowe’s and Bed, Bath and Beyond. Several other online retailers accept bitcoin, as well, including brands such as Expedia, Hotels.com, Virgin Mobile, AT&T, etcetera.

JP Morgan has also built out its own blockchain settlement service with the dollar-backed JPM Coin. Centralized coins, such as Facebook’s Libra and JPM Coin, sound good in theory but coins do not hedge against inflation and are not scarce assets. They function like cashless digital transactions made through online platforms. AliPay functions similarly (although not encrypted) and was launched in 2004 and now serves 5% of the world’s population.

Starbucks, Apple and Google also allow digital transactions without the need for cash or credit cards. Centralized crypto coins have little benefit over a mobile app payment, and may be more cumbersome as the fiat currencies the crypto is based on will have to be exchanged, whereas with Starbucks, Apple Pay and Google Pay, no conversion to a “crypto coin” has to occur.

You can read more here: Is Bitcoin a Good Investment? Phase 3: Bitcoin Mobile Payments

CONCLUSION:

Too many critics misunderstand how development around Bitcoin, Ethereum and blockchain protocols improves the fiat system by removing unnecessary costs. Most recently, the Lightning Network has helped mobile payments.

Basic Concepts in Technical Analysis

Posted on by io-fund

Stop (or stop loss) –Stop (or stop loss) –a means to manage risk. If I buy a stock at $10, and place a stop at $9 (closing price). Then, if at any point my position closes the day below $9, the next day, I sell at the market with no questions asked.

We believe it is better to stop out of a position early and miss a few percentage points on the rally when it resumes (if we were to miss the new momentum by a couple of days). This is a better alternative to being stuck in a stock wishing we could get out.

It is more difficult to make up for losses than to make up gains. For example, if a position is down 50%, then you must go up 100% to make back the loss. If a position is down 80%, you must go up 400% to break even from that loss.

We use this technique on opening positions because we want to manage our potential losses. Substantial losses are difficult to overcome, so we attempt to mitigate this with using stops (as well as other techniques).

  • Once a stock is up significantly and our product-first fundamental thesis has proven to be accurate, we will remove the stop.
  • We then shift and hedge these “buy-and-hold” positions collectively.

After witnessing first hand many advisors and their clients’ getting wiped out in 2008, it became clear to me that everyone has an entry plan, but most of the PMs I met with neglected an exit plan. Losses most people experienced in 2008 take years to make up, and in some cases cannot be recovered. This is why all great money managers stress the importance of managing risk first and foremost.  

No system is perfect. We have found that managing risk by sacrificing some gains is a winning strategy, especially in the tech space.

Uptrend Uptrend – when price makes a series of higher highs and higher lows. Also, the various moving averages will be stacked on top of each other and trending with the shortest time frame on top and the longest time frame on the bottom.

DowntrendDowntrend – When price makes a series of lower highs and lower lows. Also, moving averages reverse to where the longest time frame is on the top and the shortest time frame is on the bottom.

Consolidation Consolidation – This is when an uptrend or downtrend pauses and moves in a sideways pattern. Price tends to be choppy. Also, note how the various moving averages swirl around one another in a disheveled order.

Support Support – A horizontal price level where buyers/demand steps in and halts a decline. Sellers become exhausted and buyers overwhelm the decline in price. Once a support region is broken, it becomes resistance.

Resistance Resistance – A horizontal price level where excess supply stops price from moving up. Buyers get exhausted and sellers step in. Once a region that is resistance is broken, it acts as support.

GapGap – This is literally a gap in price between trading days. For example, if a company reports stellar earnings and the price opens up, say, 20% above the close of the prior day, you’ll literally see a gap on the chart. There is a saying that price does not like gaps. These emotional points in a stock’s price movement can act like magnets, attracting price to “close the gap,” before continuing on a trend. Gaps are important points of support and resistance, as well.

Moving AveragesMoving Averages – a moving average represents the average price over a given time period. For example, a 5-day moving average is simply the closing price of an asset over a 5-day period, divided by 5. The next day, you add a new number to the average on the front end and get rid of the last number on the back end. So, it’s a fluid price, changes each day and provides valuable information about the short, intermediate and long-term trend as well as key support and resistance zones. The most important aspect of these averages is the direction they are pointing and the slope. The sharper the slope, the more powerful the trend.

Simple moving average (SMA) is created by taking the average price over a given period. 50-day, 100-day, and 200-day moving averages are widely followed averages to determine support and resistance points as well as key trends. Each day’s price is given equal weighting in determining the average price of a simple moving average. I use these to determine longer time frames.

Exponential moving averages (EMA) is like the simple moving average, but gives more weight to the most recent days. Past data is not as important as what is happening now. These are more geared towards determining the current trend on shorter time frames.

For the sake of this site, I use the 8-day EMA (green), 20-day EMA (blue), 55-day EMA (red), and the 200-day SMA (black). I will sometimes use the 150-day SMA, as well.

Anchored Volume Weighted Moving Average (AVWAP)Anchored Volume Weighted Moving Average (AVWAP) – A volume weighted moving average is a simple way to determine who is in control of price between the bulls and bears. This method factors in volume as well as price. For example, if one day you have 3 shares trade at $10 and the next day you have 1 share trade for $5, then the average volume weighted price is $8.75 (10+10+10+5 divided by 4).

The “anchored” element of this technique allows you to literally place the beginning of the calculation from any point in time – e.g., a top, bottom or maybe a gap in price.

It’s uncanny how accurate this method is for determining key support/resistance levels.

Trend lineTrend line – a dynamic, sloping line that price uses as support or resistance while trending. A stock’s movement will track this line throughout the trend.

VolumeVolume – The number of shares that have traded for a particular stock. Volume tells an important story in technical analysis. It shows the force of a price move or if a recent move is weak. For example, if price breaks through resistance on heavy volume, that tells us that several new buyers have stepped in at higher prices. We can also use volume to gauge institutional participation with huge volume spikes. Furthermore, if price is increasing while volume is decreasing, it is telling us that not many buyers are stepping in to support the elevated prices.

Cup & Handle PatternCup & Handle Pattern – a bullish pattern where price hits resistance, sellers step in with force, hit a support region, then buyers push price back to the resistance zone. Another sell off then follows, except with less volume. We then see price break through resistance on heavy volume. This is usually a bullish pattern.

Head and Shoulder PatternHead and Shoulder Pattern – A bearish pattern (an inverted head and shoulder pattern is bullish). The visual is 3 peaks, the middle peak being the highest. Volume is key with these patterns. You want to see volume create a cup pattern – decreasing as prices peak and increasing into the selling. When price breaks the neckline (primary support), volume should be high.

Source: Eagle FX

Flag Pattern (continuation pattern)Flag Pattern (continuation pattern) – A pattern that is a period of congestion after a sharp move higher (or lower). Flag patterns are sideways with the upper and lower boundary lines being parallel. “Pennant” or “Wedge” Patterns are also Flag patterns with the upper and lower boundary lines converging rather than being parallel. All of these are known as “continuation patterns” as they result in the prior price trend continuing in the same direction after the pattern completes.

Symmetry Symmetry – Symmetry is an important concept in technical analysis, especially with corrections. Correction tend to unfold in 3 legs (or waves in Elliott Wave Theory) and each leg relates to the others symmetrically. Prices also tend to form symmetries in time between bull/bear markets.

Basing Basing – is a pattern we look for to gauge a potential breakout. It is when a stock pulls back, holds support around a specific price zone multiple times and holds each time. Also, volume should be fading the more attempts price corrects into the support zone. Ideally, you want to see lower volume and smaller pullbacks the closer you get to the upper resistance that makes up the breakout price.

Coiling/Building EnergyCoiling/Building Energy – This is a term used to indicate a momentum pattern that we see prior to a break out. I typically use the MACD to gauge this pattern, but also use the CCI as times (look below for definition of these indicators). In short, this is when the MACD has a sharp 45 degree rise with price, then falls, usually above the 0 line, and holds in a horizontal level. This allows the technicals to reset for another move higher.

Indicators

If price were a person, then indicators read the vital signs. Indicators look under the hood of a trend to see if it is healthy or weak. They also provide crucial information about trend reversals as well as trend continuations.

There are three general classifications of indicators: momentum, which looks at the strength and direction of a trend; oscillators, which lead price and attempt to predict trend changes; volume based, which analyzes participation in a trend (these indicators are typically leading indicators and attempt to predict trend changes). There are hundreds of indicators; however, for the sake of this site, I will reference the ones below going forward.

Before I get into the indicators, there are two very important concepts that should be understood:

Negative DivergenceNegative Divergence – An important concept in technical analysis. When a momentum indicators/oscillator decreases, making lower highs, while price is increasing, making higher highs. This suggests weakness and usually leads to a correction at minimum.

Positive DivergencePositive Divergence – Refers to momentum indicators/oscillators trending up while price is trending down. This signifies that selling pressure is fading while price is hitting lower levels. It usually precedes a bottom.

Negative ReversalNegative Reversal – Not to be confused with divergence. A negative reversal occurs during a downtrend. Prices make lower highs relative to the indicator making higher-highs. This is a very powerful signal.

Positive ReversalPositive Reversal – A Positive Reversal happens in an uptrend. When the indicator (RSI in this example) makes a lower low and price makes a higher low, it usually signals that the uptrend will continue.

Relative Strength Index (RSI)Relative Strength Index (RSI) – is an oscillator that moves between 100-0. It’s used as a leading indicator of a potential trend change. It is designed to measure the internal momentum of a price series by simply measuring the speed and rate of change in a stock’s price.

The RSI measures how likely a stock is to keep heading the direction of its current trend. If it is overbought (above 70), it’s less likely to head lower. And if it’s oversold, (below 30) it’s due for a bounce back. Within uptrends, a reading of 40 tends to hold during corrections, while in downtrends, a reading of 60 tends to hold during corrections.

MACDMACD – A trend following indicator that measures the distance between two moving averages. The MACD is calculated by subtracting the 26-Day EMA from the 12-day EMA (this is the MACD line in blue).  Then a 9-day EMA is placed over the MACD line to provide buy and sell signals (in red). When the crossover occurs, these are potential buy or sell signals. 

The MACD HistogramThe MACD Histogram – is also an indicator I use, which is part of the MACD indicator. It is the green and red curves that oscillate above or below the 0 line. It was designed to help anticipate a crossover between the MACD line and the signal line. It’s calculated by measuring the distance between MACD (in blue) and its signal line (the 9-day EMA in red).

Like MACD, the MACD-Histogram is also an oscillator that fluctuates above and below the zero line. This indicator is an early warning sign for momentum fading or shifting. It works well with spotting weakness and divergences with a price increase or price decrease.

Accumulation/Distribution Index (A/D)Accumulation/Distribution Index (A/D) – this indicator gauges supply and demand by looking at where the price closed within the period’s range, and then multiplying that by volume. It was designed to be a leading indicator. The unique feature of this indicator is that it tracks the relationship between opening and closing prices intraday. If price closes higher than the open, then the A/D ticks up, and vice versa.

Opening prices tend to track pressure that has built up during the market being closed. Amateurs trading on reports/news will tend to use the opening hours to trade. Professionals trade throughout the day as well; however, the final hours, are mostly dominated by the pros/smart money. So, this gauge is a means of tracking what smart money thinks of a stock.

Chaiken Money Flow (CMF)Chaiken Money Flow (CMF) – Like the A/D indicator above, this is a volume-based indicator that looks to track the flow of money into and out of a security. However, instead of a cumulative total, seen in the A/D, the CMF sums the money flow volume for a specific look-back period, typically 20 or 21 days. The resulting indicator fluctuates above/below the zero line just like an oscillator. 

This oscillator is a great leading indicator that helps identify when a range bound stock is likely making a breakout move.

Money Flow Index (MFI)Money Flow Index (MFI) – Like the RSI, this indicator uses price to identify overbought and oversold conditions. However, unlike the RSI, this indicator also factors volume into its equation.

This indicator attempts to be a more meaningful leading indicator based on the idea that volume leads price. Because the MFI factors in volume, there is a sentiment component to it, so it factors in the accumulation at specific price points. In essence, it helps measure enthusiasm for a stock. When it is showing overbought/oversold or negative/positive divergences, it is more meaningful than the RSI, and usually holds more weight than a divergence on the RSI.

Commodity Channel Index (CCI)Commodity Channel Index (CCI) –Is a momentum oscillator that can be used to also show overbought and oversold conditions, as well as divergences. The CCI measures the difference between the current price and the historical average price. When the CCI is above zero it indicates the price is above the historic average. When CCI is below zero, the price is below the historic average. This indicator is also great for spotting new trends developing.

Candlestick Patterns

Candlestick PatternsCandlestick Patterns – Candlesticks are a visual representation of buying and selling within a given time period. On a daily bullish candlestick, the body of the candle opens at the base and closes at the peak of the body. The wicks that extend above and below the body represent the high and low of the day.

Source: Wikipedia

These patterns offer valuable information about the battle between buyers and sellers, which can be used to predict trend changes. There are numerous patterns; some of the ones I use are below.

Kangaroo Tail

Source: Trade Street

Engulfing PatternsEngulfing Patterns – the bigger the engulfing candle the more notable of a signal. Also, the more volume the signal is based on the number of days the candle engulfs.

Source: Trade Street

Hammer and Shooting Star PatternsHammer and Shooting Star Patterns – These indicate a strong rejection of a price advance. A hammer pattern signals that buyers have stepped in with force, and it can signal a bottom in a downtrend. A shooting star is the reversal of this pattern in an uptrend. Sellers step in with force, signaling a strong resistance level. These patterns can precede a trend change.

Source: Medium

Island Top ReversalIsland Top Reversal – This pattern occurs when price gaps up, then trades in a consolidation pattern/sideways. Then price gaps back down on heavy volume. This price usually precedes a reversal in a trend.

Source: All Charts

If you have any questions, you can reach out to us in our Chat Room on the forum, or email us directly at knox@beth.technology and beth@beth.technology. We only work with tech stocks on this site. We are not financial advisors, so we cannot offer personalized advice. We limit our analysis to what we believe and are actively doing with our own funds. We are happy to help with anything tech related.

Market Report: June 14th, 2020

Posted on by io-fund

In this report we analyzed: DDOG, DT, NFLX, TWLO, BAND, WIFI, AMD

Datadog (DDOG)

SummarySummary

  • Datadog is showing exceptional strength in relation to the broad market.
  • It’s forming a strong base above the gap and has broken out above $75.
  • The internals are mixed, so a break below $75 invalidates the breakout.

Key Price Points to WatchKey Price Points to Watch

  • $75 is the breakout zone. If the price holds this level, expect a continuation of the momentum.
  • If DDOG breaks back below $75, the below supports are $68.50, $61.
  • Below $61 could get bad for DDOG.

Going into the year, we put our focus on plays that we believed would do well in any environment. Cloud infrastructure/hybrid data centers was at the top of this list with Datadog as a top pick. We’ve guided two successful entries this year and potentially have a 3rd on the horizon.

Datadog has built a solid base above the gap up we saw on its last earnings. Note how the lows kept getting smaller as price drifted up towards the $75 region. Also, it’s worth pointing out that the selling days had lower volume than the buying days, and this selling seems to have faded.

The RSI has based/held support above the 60 line, which is very strong and the MACD is in a classic coiling posture, which is what we see prior to the next move higher.

The points of concern: the CMF is trending down, suggesting that not as much money is flowing into the stock at current levels. A divergence in the CMF when range bound usually gives us a clue as to the direction the price will go. Also, price has broken out and closed 3 days above $75.

The last two days were candlestick patterns that suggest indecision. A gravestone doji and a standard doji. This is not promising for a continued move up, so it should be watched.

For anyone wanting to take a flier on this potential breakout, I’d place a very tight stop under $75, just in case the broad market halts DDOG’s rise.

Dynatrace (DT)

SummarySummary

  • Dynatrace is tracing a 5 wave move off the March low.
  • It’s 3rd wave has topped and we are expecting a pullback into the $34 – $30 price range.
  • As long as this level holds and we press to new highs, my target will be $45-$52.
  • A break below $30 could mean that the 5 wave move is invalidated, which could imply the move off the low was corrective.

Key Price Levels to watchKey Price Levels to watch

  • Below $30 and the uptrend in DT could be over.

Dynatrace is a lesser known cloud infrastructure/hybrid data center play that we favor along with Datadog. Like DDOG, we guided two successful trades this year, one of which is base we plan to build a long-term position in.

Regarding DT, my primary count has us completing the 3rd wave. The 4th wave targets are in green, between $33.60 – $30.40. Below $30 and the 5-wave impulse we’ve been tracking off the March lows could fail.

Furthermore, it’s worth noting the RSI finding support at the 50 line 3 times so far. The price has been diverging from the RSI, making higher highs while the RSI is making lower highs. We see this before a correction. The key levels to watch on the RSI are 50, which if holds, would mean we will have a shallow 4th wave consolidation, and a break to new highs would be a buyable event.

If it breaks, I’d look to the 40 line as the next support region. This should coincide with other key levels, like the 55-day EAM as well as the price support regions we mentioned prior. In this region, we would have a reasonable risk/reward setup where we go long with a stop just under $30. 

Bandwidth (BAND)

SummarySummary

  • BAND is building a strong base above the $106 region
  • Selling volume is decreasing as price trends closer to a breakout, which is good.
  • The internal momentum and volume indicators are mixed. 

Key Price Levels to WatchKey Price Levels to Watch

  • Above $120.50 is a breakout
  • Below $106 and a top is in

Bandwidth is a stock we want to own. It is currently building a base above the $106 support level. Selling volume is decreasing on down days, as price trends closer to the $120.50 breakout zone. This is a positive sign, which suggest that the sellers are drying up.

Also, note the blue moving average on the chart, which is the 20-day EMA. This level has been solid support for BAND most of the uptrend off the March lows. This will be our key support to confirm the potential breakout. A break below this level is a warning to the bulls.

The CCI is in a classic coiling pattern, which is what we see prior to a breakout. The RSI has held above the 60 line, which is another show of strength in the stock. The only concern I have now is the CMF, which is suggesting that money is beginning to flow out to the stock below the 0 line. This indicator is a great leading indicator to what price usually does when range bound. So, seeing it trend down while price is trending up is not promising.

So, we’ll use price levels as our guide. If price breaks above $120.50, we’ll look to go long with a tight stop. If price breaks below the $106 region, the green target box come into play for our entry.

Netflix (NFLX)

SummarySummary

  • NFLX is forming a classic head and shoulders pattern.
  • A break below $393 with elevated volume confirms the pattern.
  • The target if confirmed is around $345-$340.

Key Price Levels to WatchKey Price Levels to Watch

  • $400/$393 is the key support for NFLX.
  • Above $460 invalidates the pattern, and would be a good breakout buy.

Netflix is playing out a classic head and shoulders pattern. Note how the head marked the end of the uptrend off the March lows. Also, the volume is confirming that this pattern is currently playing out. There was elevated selling at the peak of the left shoulder, followed by a decrease in volume leading up the peak of the head. Then volume picked back up as price fell into the right shoulder.

If we get a break of the neckline – $400/$393 – coupled with a volume spike, the pattern is confirmed. If this is the case, the standard target for NFLX will be the $344-$340 range.

Netflix has been a stock we’ve owned in the past; however, it is a stock we want to own for the long haul the next time it falls out of favor. We will look to this pattern playing out for our next entry.

A favorable risk/reward setup on NFLX for anyone looking to go long would be to buy at current prices with a stop around $390. It is, in essence, a bet on the head and shoulder pattern not playing out and using the neckline for a tight stop.

Twilio (TWLO)

SummarySummary

  • Twilio is showing a level of strength that is rare within a correction and we always want to invest into strength.
  • I’m expecting another leg down, but a bottom above the gap.
  • If TWLO makes new highs, we’ll consider that a breakout buy.

Key Price Levels to WatchKey Price Levels to Watch

  • $175-$158 is my lower level buy zone.
  • Above $212 is a breakout.
  • Below $152 and we could see a sharp drop.

The game plan for TWLO has not changed. It is building a strong base above the gap that formed on their last earnings call. Price is holding the 20-day EMA, even in the sell off, which is a sign of just how strong this stock is relative to some of the value trap names out there.

From an Elliott Wave count, I’d like to see it test the 55-day EMA, which will place the price within the standard targets for a 4th wave pullback – for Twilio, that’s between $175-$158. If these levels are reached, we will attempt a counter-trend trade with a stop just above the gap.  However, it’s worth noting that TWLO did touch the upper region of the 4th wave target, which opens the door for new highs.

I think we will hit these targets because the MFI has just breached the 50 line. This is never a good sign for a continued uptrend. Also, the CMF is trending down while price is holding/trending up. This is suggesting that big money is starting to take gains in the stock and is not being replaced with new buyers.

AMD (AMD)

AMD had all the hallmarks of a successful breakout: a tightening base in price, a solid floor below a key moving average, momentum and volume indicators breaking out before price and then a strong break above the descending trend line on heavy volume. Then the next day we gapped back into the consolidation pattern, yet above the key support at the 55-day EMA.

We are back where we started prior to the false breakout. We are long AMD, but have tightened our stops to a close below the 55-day EMA. If it fails, we will break even and look for the next entry.

Boingo (WIFI)

WIFI is another position we recently closed because it triggered our stop. The $13-$15 price region, which is highlighted in red, has kept WIFI contained on 7 attempts to breakout.

Furthermore, it’s worth noting the CMF has broken support on Friday, suggesting that new money is starting to flow out of WIFI. The RSI also broke the 50 line, which as you can see was support for the continued uptrend.

The 55-day EMA in red has been solid support for WIFI throughout the current uptrend, and for two days it closed below this key support. This triggered our stop and we will look for a new entry down the road.

Investing in Tech Stocks (Podcast)

Posted on by io-fund

The average cloud software company reported 10% growth during the 2008-2009 recession. Meanwhile, we’ve seen the market react harshly towards companies guiding for 25% growth (such as Elastic). We know the winners from shelter-in-place but we are still sorting out what growth should look like in the middle of the category. My guess is that 25% is going to be higher than average by the time we exit this year.

I spoke about this and other topics this week on a podcast with Simon Erickson from 7 Investing. Simon Erickson is the CEO and Founder of 7 Investing, a company that releases stock tips for long-term investing. The monthly recommendations come from a team of four advisors with a track record of beating the market.  

We discussed how cloud software is hot right now but that there are issues boiling beneath the surface. For instance, the upcoming renewal of large annual contracts that may be negotiated down in price or term, which payment model will be more resilient (usage based or per employee), and whether a cloud software company appeals to new subscribers or existing subscribers for upgrades (the latter may be stronger this year). We also discuss how to look for key metrics to help maintain conviction, such as Slack’s engagement 90 minutes per user.

Simon and I cover another topic around IPOs and why a buy and hold investor has different goals than a venture capitalist who is bringing the company public. In many ways, we are in the middle of a grand experiment where VC firms grow the top line at the expense of the bottom line with hopes the revenue growth will drive the public market interest. Over the last ten years, growth hacking has become a popular way of mechanically pumping the numbers through marketing rather than R&D. Uber was a supreme example of this as venture capital dollars were used to subsidize the rides rather than focus on achieving product-market fit, which is often determined by an equilibrium between supply and demand in the pricing.

We also discuss what’s next in tech investing with a discussion on connectivity. In order for most emerging technologies to become a reality, we need a better network layer. I believe we will be lay the groundwork for faster speeds and lower latency this year and next year to prepare for artificial intelligence and machine-to-machine communications. While some will call this 5G, I believe it also includes last mile connectivity and virtualizing infrastructure with software to lower capex.

Lastly, we talk about Roku, a stock that I covered very early after the company IPO’d and well before the market saw the potential. I explain why my conviction on Roku remains steady. Although Roku is an excellent operating system, a full tech stack, and an option for cord cutters, I see the real sticking point being the influx of pay TV advertising dollar over to Connected TV advertising.

View the full 30 minute video here.

Download the podcast here:

Apple Podcasts
Spotify

Interview timestamps:

0:00 – Introduction: Beth’s “micro trend” investing philosophy
3:00 – Valuation for cloud computing companies
7:56 – Net Retention Rate metrics and Slack
9:28 – Product-Market Fit and Investing Internationally
11:07 – Venture Capital and the Current IPO Market
16:17 – The Importance of Developers: “Bottoms Up” Investing
18:50 – Roku and the Shift to Digital Advertising
24:36 – Trends Investors Should be Watching: Connectivity and Chipmakers

Please Subscribe and Leave a Review for the Podcast Here

Market Report: June 7th, 2020

Posted on by io-fund

In this report we analyzed: LRCX, AMD, ROKU, ATOM, MDB, QCOM, DOCU

Lam Research (LRCX)

SummarySummary

  • Lam broke-out and has held above the upper breakout target around $282.
  • The internal indicators are either weak or overbought, which supports the potential for a false breakout.
  • We went long on Friday and put a stop just under $259 (closing price).

Key Price Levels to WatchKey Price Levels to Watch

  • First support: $282
  • Key Support for continued uptrend: $265 (don’t want to break below here).
  • Key Resistance: $309 (above here is bullish).

Lam is a position we have been tracking. The structure of the stock appeared weak, and suggested that the ascending triangle pattern would give to the downside. However, last week, LRCX broke to the upside and held for 3 days. In fact, last Friday it gapped up and held just below the $309 resistance, which is a key level LRCX has to take back going forward.

My concern is the possibility for a false breakout. The internals are not supporting a sustained move. The MFI is in overbought territory as well as the CCI. The MACD histogram is showing a divergence from price, suggesting that the momentum is fading.

Also, the Accumulation/Distribution Line (A/D) is a key leading indicator that helps us gauge what the pros are doing. When it’s making new highs ahead of price, usually, price follows. It’s staying subdued, not reaching a new level while price does, which is not what we want to see.  

These indicators help mold our probabilities of making a good trade. However, no indicator is more important than price. Because the indicators are relatively weak, we will use a stop on LAM for this trade with a close below $265. This is a stock we want to own, so if we do get stopped out, we will look for the next setup.

AMD (AMD)

SummarySummary

  • AMD has been in a consolidation pattern since April, sandwiched between the 55-day EMA (in red) around $51.50 and the downward sloping trendline in blue.
  • The internal indicators are strong, and suggest a resolution to the upside.
  • We are placing a stop at $47.40 (closing price).

Key Price Levels to WatchKey Price Levels to Watch

  • 55-Day EMA is the first support: $51 – $52
  • Below that is $47.75
  • Then the blue upward sloping trendline that started in 2016 (below here and things get bad).
  • A break above $57 is bullish.
  • A break above $61 is very bullish.

This is a stock we want to own for a long time and we are starting that process now. We picked up shares of AMD from a technical perspective for a few reasons. For one, the 55-day EMA (in red), has been solid support for AMD in the recent uptrend. The price is getting bought each time it approaches this level. Furthermore, note how the selling volume is decreasing, suggesting that the sellers are drying up.

The Accumulation/distribution line (A/C) and the CMF, which are fantastic leading indicators, are suggesting that money is flowing into the stock. The MACD is in a classic coiling position, which is when it rises at a 45-degree angle after an uptrend, then settles above the 0 line in a predominantly horizontal fashion. We typically see this before a breakout.

Once again, these indicators help our probability of a making a good trade that can potentially turn into a great buy and hold. AMD is approaching a key inflection point. The 55-day EMA is just below it, and below that is a trend line that AMD has respected since 2016.

Above the current price is the confirmation of cup & handle pattern that began forming at the March high. We will know soon what AMD will decide and we thought it was worth a chance that we get a resolution to the upside.

We will place a stop at $47.45 (closing price). We do not want to be in this stock just before the 4-year trendline breaks, so we will protect ourselves with the stop just in case.

Roku (ROKU)

SummarySummary

  • Roku is following our outlined plan perfectly, so far.
  • We are targeting sub-$100 and above the $79 region for shares.
  • The structure suggests that after the stock bottoms in this retrace, we should be on a path to new highs.

Key Price Levels to WatchKey Price Levels to Watch

  • Below $102 and we will look to add at key supports $96, $89, $86, $79
  • Below $79 and things get complicated.
  • A break above $125 and things get very bullish.

Roku is beginning to fall out of favor with the public. This will be the 3rd time since we began trading Roku in 2017 that sentiment has shifted away from Roku, and this will be the 3rd time that we accumulate shares during weakness.

We have covered demand drying up with ad tech in a global deflationary environment. Ads are usually one of the first items to go when a company needs to tighten its operating expenses. We believe Roku will make It through this process. Because of this, we are comfortable acquiring shares of this stock without a stop due to our time horizon being 5+ years.

I have written extensively about Roku’s long term price structure. I believe we are in the middle of a B-wave retrace that should take us sub-$100 to $79. This is a large price range, but we will look to be buyers within this region once we get signs of bottoming.

The internals are all weak and hanging right above support. Once these supports break, we could get a sharp move down. The MFI is showing positive divergence, which is usually a sign of an impending reversal. If this plays out, I will view it as the b-wave within the larger B-wave, and it should halt below the upper trend line on the chart before reversing to the C-wave down.

If Roku breaks above this trendline as well as the 200-Day SMA, which is around $125, we will look to add into strength. If Roku breaks down further into our target region, we will look to add into weakness slowly.

Atomera (ATOM)

SummarySummary

  • ATOM is completing a corrective (A,B,C) uptrend.
  • It can extend if we break above $10.
  • The internal indicators are all diverging, suggesting a pullback.

Key Price Levels to WatchKey Price Levels to Watch

  • Above $10 and we can extend the uptrend.
  • Below $7.80 and the green target box comes into play.

Atomera is a small cap that needs one or two deals in the pipeline to close in order to be a viable product. Initiating once a deal is announced may leave some gains on the table, but this scenario also carries less risk.

The structure appears to be tracing an A,B,C uptrend, which is close to completion. This has kept us on the sidelines for now. Also, notice the trend of the indictors from the March low compared to the trend in price. Note how they were in lockstep, increasing with price. Then, at different times, the indicators began trending down as price continued up. These divergences are also suggesting that price is close to topping.

Furthermore, on Friday, we got a bearish engulfing candlestick pattern, which usually precedes some level of correction. If we do break down below $7.80, my targets are in the green box. These targets are based off of Fibonacci ratios and common targets for a pullback following a C-wave uptrend.

However, ATOM still hasn’t broken its 8-day EMA (in green). So, even with divergences showing and the structure suggesting a pullback, it can still extend further to higher levels. If we do get a break above $10, we could easily extend to $10.35, $11.50, $13.50 before getting a notable pullback. We will keep updating you with any changes.

Mongo DB (MDB)

SummarySummary

  • It appears that MDB is in a 4th wave consolidation.
  • We will use the outlined supports coupled with the RSI hitting the 40-35 region for an entry.
  • We will look to go long with a relatively wider stop just in case we get a break below $144.50.
  • As long as the $144.50 holds, we expect the final 5th wave to take us to new highs.

Key Price Levels to WatchKey Price Levels to Watch

  • Supports levels for a likely bottom of a 4th wave:  55-Day EMA + $185 (likely target), $170, $155.
  • Key support for a continued uptrend: $144.50

The price structure suggests that we just completed the 3rd wave off the March low. The standard retraces for a 4th wave pull back is in the green target box, ranging between $185-$155.

There has been a sharp trend change as noted by the MACD cross over as well as Friday’s price gapping down below the 20-day EMA in blue. I would look the 55-day EMA in red as support, which will coincide with the 38.2% retrace level of the entire 3rd wave for a potential buy.

If we do go long, we will place a stop just under the 1st wave at $144.80 (closing price). Below this level and things get complicated. However, as long as this level holds, we project new highs for the 5th wave completion.

Another clue will be the RSI. The green line indicates a likely bottom for price, which is around $40-$35.

Qualcomm (QCOM)

SummarySummary

  • QCOM had a strong breakout in price with mixed internals supporting the move.
  • If this is a 5-wave move off the lows, we should see a healthy pullback in a 4th wave consolidation between $82-$76.
  • Below $72 is bad.
  • Above $98 is really good.

Price Levels to WatchPrice Levels to Watch

  • Support levels for possible 4th wave bottom: $83, $97, $76.
  • Key support for a continued uptrend: $72.
  • 5th wave top (projected): $95 region.
  • Multi-decade resistance zone: $93-$98.

Qualcomm is a 5G play on the semi-conductor side of the equation. This is a well-known thesis, which has accounted for the stock’s rise in price over the years. We have moved away from it as a 5G play and instead put our allocation for this trend into Marvell, Boingo, Inseego. However, Qualcomm is a solid company that we have been tracking for an entry.

It’s worth noting for anyone watching this stock that we have a clear breakout. The 200-day SMA (in black) has kept this stock in check until recently. Note the strong break above the black moving average, which is the 200-Day. Furthermore, QCOM closed the downward gap from March by gapping up above it. This is also a strong sign that should be encouraging to anyone long QCOM.

The internals are mixed, so price is king for now. The structure suggests that QCOM is completing or will soon complete a 3rd wave off the March lows. There should be a retrace, assuming price has topped on Friday into the green target box between $83-$76.

A break below $72 complicates the picture. Furthermore, QCOM has a lot of work to do overhead. The red band highlights a resistance region that has halted QCOM going back decades (yes, decades). This will be a tough challenge for QCOM to overcome; however, a break above $98 and we could see the price really take off.

Docusign (DOCU)

SummarySummary

  • DOCU is tracing a large degree leading diagonal pattern.
  • It is due for a 4th wave consolidation.
  • The internals are fading and price has reached the upper end of the channel.
  • The $112-$107 region is a likely target. However, $126 would be a shallow consolidation while $94 would be a deep one.
  • Above the recent high, and DOCU can continue to extend to higher levels, which would change the targets for a pullback.

Key Price Levels to WatchKey Price Levels to Watch

  • Above $153 and DOCU can extend to higher levels: $162 and $173 will be resistance levels to watch.
  • A break below $126 and the $112-$107 region will be a reasonable target.
  • Below $107 and $94 comes into play.

The above chart shows the weekly candlesticks of Docusign since it went public. The weekly trend cuts through a lot of the daily/hourly noise to help gauge what’s really going on. The color of the bars are based off a momentum indicator I like to use on weekly charts: red indicating a period of weakness, blue being neutral and green being a notable uptrend. The lack of red bars is what’s intriguing. Docusign is an incredibly strong stock right now, and as long as their growth remains intact, this trend should continue.

Like many high-flying stocks, its structure is tracking a leading diagonal, which we’ve talked about several times in relation to other stocks, like Roku, for example. This pattern is a 5-wave pattern that tracks a trend channel. Each wave is comprised of an internal 3-wave pattern.

This would put DOCU at the peak of its 3rd wave. We will look to pick up shares on the 4th wave pullback.

Now, if we zoom in to the daily chart, we can get a more granular idea of what price is doing. The internals are all diverging from price, suggesting that the momentum is fading.

DOCU has broken its 8-day EMA in green and found strong support on the 20-day EMA in blue. A break below $126 will confirm a likely top for the 3rd wave, and we will watch for the target areas for entry. A shallow B-wave correction would be between $126-$112. A deep B-wave would be between $110-$94. However, there is a notable cluster of Fibonacci levels between the $112-$107 region.