In this report we analyze: FFIV, NVDA, MRVL, WORK, BAND, DT, LVGO, LRCX
Please note the glossary of terms and techniques here and here.here and here.
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Last week, we sold our position in FFIV and shifted those funds into MRVL and NVDA. We are buying into strength, and the semiconductor sector had a large breakout signal last week. This will likely be the focus of our attention in the coming weeks.
Also, in this report, we take a look at three potential buy setups forming in DT, WORK and LRCX. We then analyze the uptrend in BAND and LVGO.
New Trades from Last Week
F5 Network (FFIV)
SummarySummary
- We sold our position in F5 last week.
- The technicals are not as strong as we’d like to see in a tech driven bull market.
- We believe we are early to the fundamental story, as well, so will keep this stock on our radar.
Key Price LevelsKey Price Levels
- Above $153.50 signals a large breakout to the upside.
- Below $120 signals a breakdown of the recent uptrend off the March lows.
We closed our position in FFIV for two reasons: 1) we believe we are early to the fundamental thesis playing out – perhaps a year or more; 2) the technicals are not as strong as other names we track. Overall, other tech names are much more attractive to us right now.
Regarding the technicals, FFIV is struggling to make much progress above the 200-day SMA in black. Also, the Accumulation/Distribution line is still trending down, which signals that smart money is not yet buying into FFIV at current prices.
However, and most importantly, the relative strength indicator is the key tell. This indicator is comparing the price of FFIV to the price of the NASADQ 100. Notice how much stronger the NASDAQ is to FFIV. The same is true of the S&P 500. We simply aren’t seeing the kind of reaction I was hoping to see in such a heavy tech driven uptrend.
For these reasons, we decided to sell out position for a small gain and deploy our capital elsewhere. We will keep an eye on FFIV going forward. If price does break out in a meaningful way, we’ll look to get back in.
Marvell (MRVL)
SummarySummary
- Marvell broke out of its base on strong internals.
- Smart Money seems to be buying this semiconductor play and so are we.
- A retest of the recent breakout zone around $36 would be a healthy move before the next leg up.
Key Price LevelsKey Price Levels
- $36 support is key for the recent breakout to hold. Below here and we will have a false breakout.
- Below $33 will signal a larger correction could play out.
- We placed our stop at $32.60.
Last week, our system flashed a breakout in the semiconductor sector. This had us on the lookout for a similar move in a solid semi choice given infrastructure challenges right now. We added to MRVL just before it broke to the upside because the internals were suggesting this.
The selling volume was drying up as the price made a nice cup pattern up to the breakout price at $36.40. The Accumulation/Distribution line confirmed this move as did the MACD.
We could see a false breakout below $36. To be safe, we placed our stop below the base at $32.60.
Nvidia (NVDA)
SummarySummary
- Like MRVL, Nvidia recently broke out from another base.
- The MACD flipped to a buy signal.
- Considering we are long-term investors and NVDA is one of our favorite stocks, we want to take every opportunity to own this position.
Key Price LevelsKey Price Levels
- Below the $380 region signals a false breakout.
- We placed our stop for this attempt below the recent base at $355.10.
Nvidia is without question the stock we are most excited about. Our aim is to make this our largest holding, and we began that process last week. There was a small base and breakout at the $380 region. We took this trade with a wider stop just under the base at $355.10.
Potential Buying Opportunities
Slack (WORK)
SummarySummary
- Slack is holding the key support level at $31-$30.
- There are three buy signals flashing, which support higher prices.
Key Price LevelsKey Price Levels
- Staying above $31-$30 is crucial
- Above $34.50 will signal a breakout.
- Above $40 will signal a large breakout.
Slack is probably my favorite setup going into next week. Notice how the price has respected the $31-$30 region. This level is incredibly important for WORK to hold. Below here, and Slack will have to start over in building a breakout move.
However, for those looking to go long, WORK is providing us with one of my favorite setups – buying just above a key support and placing a stop underneath that support, with internals giving us positive buy signals.
Regarding the positive buy signals, there are currently three signaling within the internals. For one, the RSI is signaling a positive RSI reversal pattern. This signal typically appears in an uptrend, and tells us that the uptrend is not over. Since the March low, we are technically in an uptrend. Furthermore, the MFI is showing positive divergence while the Accumulation/Distribution line is making new highs.
The internals are strong and price is just above a key support. Going long at Friday’s closing prices and placing a stop just below the $30 region will put about 11% at risk.
Dynatrace (DT)
SummarySummary
- DT has created a small base, which is setting up for a low risk buying opportunity.
- A stop just below the base at $38.90 risks about 10% in case our timing is wrong.
- The momentum seems to be diverging from price, but smart money is buying this stock.
Key Price LevelsKey Price Levels
- Above $44-$45 signals a breakout of the recent base.
- Below $37.90 and the base fails.
- $34.50 is the line in the sand for the uptrend.
The above count shown in the chart is the most probable scenario that DT is playing out. If so, it is quite bullish and I believe it is giving us an opportunity to buy more shares. Notice how the price on the daily chart has created a base just below two key Fibonacci levels – around the $43.50-$44.50 region. A break above these levels will signal that the 3rd wave is not over, which is providing us a reasonable risk/reward setup.
This is backed up by the Accumulation/Distribution line making new highs before price. This is a sign that smart money is buying into DT at current prices, and is almost always a great leading indicator.
The only points of concern are the diverging momentum indicators. The MACD is trending slightly down, which is the opposite direction of price. I’m not too concerned about this, because it is not a large divergence. However, we do see a concerning divergence in the MFI. Because the MFI factors in volume, it also can act as a leading indicator.
When the internal signals I use give mixed signals, I tend to focus on price. For those looking to go long, if we get a break out, I’d place a stop at $37.90. If DT hits this level, which is just below the base it created, it could be the beginning of a larger correction. However, a breakout helps confirm the bullish count outlined on the chart.
Lam Research (LRCX)
Summary:Summary:
- Lam Research is close to confirming a large breakout.
- If the price does break out to new highs at $344.50, we will look to add to our current position.
- However, I’m expecting a pullback first, considering the patterns we are seeing within the internals of the stock.
Key Price Levels:Key Price Levels:
- $344.50 will be a breakout to new highs.
- The below support to monitor is $309.
LRCX has been tracking a trend channel since the March lows. Today, LRCX is sandwiched between the 8-day EMA in green and the $344.50 breakout price to new highs, which also coincides with the upper region of the trend channel. We are at a tight inflection point where price will break out, signaling a buy, or we will get a correction before this breakout occurs.
There are notable divergences within the internals. The CCI is making lower highs while price makes higher highs. Also, the RSI cannot breakout above the 70 line as price keeps rising.
If we look at our volume indicators, the buy volume is decreasing as prices rise, which is telling us that buyers are drying up at current prices. Also, the Accumulation/Distribution line is signaling that smart money has moved on from LRCX at current prices, based on the participation at the February highs.
We love LRCX, and expect big things from this semi in the future. However, based on what the internals are telling us, I’d expect LRCX to pullback, creating a nice cup and handle pattern before giving a clear buy signal above new highs. However, if we do get a clear breakout above $344.50, we will happily take that signal to buy, as well.
Analyzing the Trends
Bandwidth (BAND)
Summary:Summary:
- There are numerous signals flashing warning signs for Bandwidth right now.
- The one bullish signal is how price has broken above the upper trend channel.
- Until we see the internals reset or price breakout with force, I will be hesitant to add.
Key Price Levels:Key Price Levels:
- Resistance levels to track: $145, $167
- Key support that must hold for a continued uptrend is $124
We initiated our first entry with Bandwidth last month. Since then it has been in a steady climb in the right direction, returning a little over 10%. However, it’s been doing so on weakening internals, which gives me pause to add until we see a pullback.
First off, BAND is tracking a clear trend channel in gray. Notice how succinctly the price has tracked this channel. After bouncing along the upper range of this channel, BAND has briefly broken out.
A breakout of a trend channel can go two ways: 1) it can be a brief spill over just before a notable correction. Or, like Docusign, it can move parabolically above the channel, making a new trend channel to track. I’m leaning towards the former simply because of the internals flashing weakness.
For one, the Accumulation/Distribution line is not making new highs with Bandwidth. In fact, it is trending down. Volume patterns along with the MACD and MFI are providing strong negative divergence signals. This suggests that the price at current levels is on weak ground.
Anything is possible in this market, and if we see, for example, BAND gap up from current levels, resetting the internals, we will buy into that strength. But, until this signal, or one similar in strength occurs, I’d look to lower levels to either add.
Livongo (LVGO)
SummarySummary
- We are up 40% in one week on LVGO.
- We are taking the stops off this position and looking to build.
- There are several warning signs that are giving me pause to add more right now.
Key Price LevelsKey Price Levels
- $110-$111 is the resistance level that is bottling up LVGO right now.
- A break above here and we will look for the $120 then $131 region for the next resistance zones.
- The recent gap between $85.50-$82.30 will be the key support for a continued uptrend.
Last week, Livongo was flashing a number of buy signals. We used these signals to go long just before LVGO jumped 40% to the upside. We are now using this cost basis to build a long-term position. This is a stock that we want own going forward and we will use our recent entry to build this position. That means we are removing the stops on LVGO, and will look to build into strength or on the next pullback.
This week, I am not seeing an entry worth the risk. In fact, there are a number of warning signs that we could be close to peaking. For one, notice the three gaps within the uptrend off the lows. In technical analysis, we regularly see patterns occur in 3’s. Regarding Gaps, there are three types of gaps: the breakaway gap, which happens at the beginning of the uptrend, the runaway gap, which happens around the middle of the move, and the exhaustion gap, which happens around the end of the move.
We definitely have a breakaway gap and a runaway gap with LVGO. The question remains, did we just see the exhaustion gap? I never bet against strength, but seeing these three gaps, symmetrically shown on the chart does give me pause.
Secondly, LVGO is clearly in a 3rd wave, hence the strength of the move, on peak technical strength with very few places for entry. This is the key sentiment of a 3rd wave move – and it’s what we always want to participate in. Another key feature of 3rd waves is that they typically peak between the 138.2 – 176.4% extension of wave 1.
Today, LVGO has stretched to the 238.2%, which is not uncommon in high flying tech stocks, but it is worth noting how stretched it is. If price does break above this extension at $111, the above resistance to note above is first the $120 region and then the $131 region.
However, price has struggled for two days to break above this extension at $111. If we do get a pullback at this point, the $82-$83 region will be the crucial line in the sand for a continued uptrend. Below this level will signal that we are in a 4th wave, which we will use to load up on LVGO.