Broad Market Levels

The broad market is currently range bound between 2900 and 2700. The last couple of weeks has been a notable back and forth between the bulls and bears in an attempt to breakthrough this range. From a purely technical perspective, this is what I’d want to see before saying which way this will go:

• For a bullish trend to resume, I want to see the S&P 500 break above 2950 and then finally 3150 for me to believe that we are in a new bull market. If this is the case, that will likely be the end of 1 of 5 large degree waves off the March low. So, I will look to add to my longs in the wave-2 drawdown, which I see taking us back to the 2800-2600.

Wealth is built in bull market, and if this scenario plays out, we will likely have several years of an uptrend to profit from.

• For the bears, they will need to break below 2630 for me to believe that what we have witnessed over the last month was in fact a bear market rally. If this is the case, my initial target will be between 2250 – 2050. If 2050 breaks, expect a prolonged bear market.

If 2630 is broken, expect tech to be the leaders down this time around. There has been an extraordinary concentration of new assets both directly from retail as well as in passive strategies in tech, which has made the top 6 mega-cap tech names account for over 20% of the S&P 500. With such narrow leadership, the direction of these names will lead the market. As of now, we are positioned for both scenarios.

The below chart offers a visual of the above outlook

Stock Updates

Roku (ROKU)

The above chart shows the long-term structure of Roku since its IPO. It has clearly been trading in a larger degree “leading diagonal” pattern. This pattern is a 5-wave pattern that travels within a trend channel (in gray). Furthermore, each of the 5 waves has an internal structure of 3-waves (A, B, C).

With Roku’s fall in March, it tagged the bottom of the lower channel, and began a 3-wave move up. Once it broke above the 200-day SMA (in red), the probability shifted that the low is in for Roku.

If this is true, it should give way to a B-wave correction back to the $102-$86 region. If the correction holds above this region, and begins a 5-wave pattern up, it is likely that we will no longer see this price range again with Roku. However, if Roku breaks below the $86 region, we will retest the lower end of the gray trend channel and possibly the lows from March.

This chart shows a close-up of where we are. The price is currently at an inflection point. It’s trading at the 200-day SMA, bouncing below a trend line and also trading between key Fibonacci price clusters.

If Roku can break above this region with heavy volume, I’d consider it a buy with a stop just below the $120 region. However, the internals are suggesting that the momentum is weakening while at this key level. I will look to add to Roku on the next pullback if it can hold the blue price box between $102-$86.

One final note – the Accumulation/Distribution line tracks, loosely, what “smart money” is doing. In other words, it factors in the closing price vs. the highs, assuming that the smart money makes allocations in the final hour of trading. As Roku’s price collapsed, notice how the Accumulation/Distribution line held up. The $102-$86 price region seems to be an area that smart money is accumulating, so it should act as strong support.  

Slack (WORK)

Slack is forming a head and shoulders pattern as it continues to attempt a breakout above $30.50. However, until this is confirmed with a breakout on heavy volume, the pressure is still down.

The above structure is suggesting that two scenarios could be playing out:

Red count: WORK is stopping out in a B-wave, and about to give way to the final C-wave down, which should take us to the $17-$14 region. I will want to see the RSI break below 35 and price break below the $19.50 region with force, before making this scenario the most probable. Regardless, we consider Slack within this target zone a buy and hold for many years to come.

Green count: This count has Slack pulling back to the $24-$20 region, holding and then breaking through the $31.50 region to confirm the head and shoulders pattern. If this is confirmed, Slack will be in a larger degree wave-3, which I will target between $60-$70 before completing. We will want to see the RSI break above the 50 line to suggest this scenario is in play.

As of now, if the green count is active, we are in a wave-2, which could be shallow like Zoom’s wave 2 before breaking out over $70. So, if you want to go long, a good stop would be under the $19.50 region. If price closes below $19.50, the red count is in play.

Zoom (ZM)

Zoom has clearly bottomed in its wave-4 and is actively in the final 5th wave (in blue).

Considering this 5-wave impulse has been a textbook impulse, I’m expecting the 5th wave to top out between $195-$225.

We’re starting to see some divergences in the MACD histogram, which is very common in the 5th wave. The MFI, on the other hand, still has room to go and is not showing overbought conditions yet. So, even though we have enough in place for the final 5th wave to be complete, I think it’s likely we tag at least the $195 region.

This will complete the large degree wave 1, and give way to a large degree 2nd wave pullback, which I believe should hold the $100 region. We are now holding our position with no stops.

Datadog (DDOG)

Our trade, so far in Datadog is up about 20%. The structure of DDOG is suggesting that we are in a corrective, larger degree B-wave (in green on the chart). If the price can break above $44.50 on heavy volume, I will be leaning towards the low being in for DDOG and scrap the B-wave count for a more bullish one.

The momentum in the MACD histogram is weakening as price increases. It will be difficult for Datadog to break this resistance on the current attempt with weak momentum. The RSI is also showing a clear trend in green. If this trend fails, and falls below 39, we will likely hit the $37 region.

If price breaks below the $37 region, the green box will be in play, and we will look to add to our position between the $32-$22 region.

Okta (OKTA)

Okta’s price has broken out to new highs. However, we have not initiated on this move. The reason being is that the internal indicators are suggesting a false breakout.

The divergence in the MFI, and MACD are quite large. These 2 indicators act as leading indicators for price on the hourly chart. Also, the volume is not increasing with price, so there is low participation at current prices.  I’m expecting price to either retest the $146 region, hold and then move up with more healthy internals, or it will breakdown, beginning a new downtrend.

If price breaks below $138, the green target boxes will be in play.

We have Okta as a high conviction play, so we will not be too picky with the price we get. However, we do believe that a breakout is premature right now.

Inseego (INSG)

Inseego has had a tremendous run off the March low. The March low tagged the lower level of the wave 4 target we were tracking prior to the sell-off in prior market updates. It has now moved rapidly into the final 5th wave. I can see this 5th wave topping anywhere between $14-$23 before we see the larger degree wave-2 pullback. This pullback should respect the March lows when it plays out.

Dynatrace (DT)

Our position in Dynatrace is currently up 25%. Like Datadog, DT is moving in a clearly corrective pattern. The internals on the hourly chart are diverging sharply as it approaches the $30 resistance region.  If DT breaks below the $23.20 support in red, the (C) wave target boxes will be in play.

On the other hand, if DT can close above $34 with heavy volume, it will signal that the bottom is likely in for this stock. As of now, we are holding our position without a stop, and will look to add in strength or weakness.

Shopify (SHOP)

Shopify is in an interesting position. After falling back to the $296-$280 support zone in March, a region that has held 3 major tests over the last year, it has moved in what appears to be a clear corrective uptrend – i.e., 3-waves and overlapping. However, a 3-wave pattern can turn into a 5-wave pattern, especially when the 3-wave tags the 161.8% extension of wave-1, like Shopify has done. So, to keep it simple, there are two scenarios I see playing out:

Green count: SHOP pulls back to $517-$460 region and holds. It will then move up in a 5-wave pattern to new highs. If this happens, we will be in a renewed 5-wave uptrend, and it will signal that the lows will likely be in.

Red count: if Shop breaks down below the $460 region and holds below this price. Then the prior uptrend to new highs was a very large B-wave, and the C-wave should take down to the prior target box.

The internals on the hourly chart are suggesting weakness, so we should know what count we are in within the next week or two.

Lyft (LYFT)

There is nothing encouraging about Lyft’s chart if you are long. Each up move in the 3-leg uptrend off the bottom is clearly corrective – i.e., overlapping and 3 waves. 

The internals are mixed. For one, the MACD is forming a coiling pattern, which is typically what we see prior to a breakout. It’s building strength for a move up. It’s not always a bullish pattern, but it’s worth noting. The MACD histogram is showing a notable divergence with price. Each time price makes a new highs, it’s doing so with less force.

I see the $33 resistance as the main resistance overhead, and it will also be where we are placing a reduced stop. We’ve made a combined 70% in our two Lyft shorts, so far, and I want to protect those gains. The easy money in shorting is over, so if we get stopped out with a small loss, we will look to reload at higher levels or when the downtrend commences.

Snap (SNAP)

Our short in Snap is currently down about 15% as we speak. We are early to what we believe will be a reset of the ad-tech market’s valuations, but we do believe this will play out. Snap traded just below our stop and then began to trade down. If our stop is triggered, we will close this position and look to reload with further confirmation. I will want to see Snap close above $17.50 before stopping out the following day.

What’s interesting is the symmetry of Snap’s move up. Corrections are counter moves in a larger trend. What we know about corrections is that they tend to be symmetrical in nature, and move in a 3-wave with overlapping pattern. Look at the 3-wave move in Snap’s move off the low. The first leg went up 58.8%. The 3rd leg, or final move up, went up 58%. It doesn’t get more symmetrical than this.

The same trading plan is in place as we last outlined. But, we believe it is likely Snap has topped, and the final C-wave down has just begun.