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.