In this report we analyze: Fiverr, CrowdStrike, Shopify, DocuSign, Zoom, Nvidia

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

You can access our portfolio here. You can also track in real time our Buyshere. You can also track in real time our Buys/SellsSells/Portfolio Activity in the forum.Portfolio Activity in the forum.

If you want to track us in real time, we recommend that you set up alerts to these 3 topics “Portfolio Activity”, “Buys,” and “Sells” which can be done by clicking on their icon/image, or search for their name in the search bar. Then, click the follow button and it will turn red like the image below.

Positions we Closed Last Week

Fiverr (FVRR)

Summary

• We logged a 17% gain in FVRR last week, after buying the move off the prior breakout around $125.
• FVRR has a completed 5 wave pattern, and is finding resistance in a very concentrated zone of resistance around $176-$181.
• We also got 3 sell signals at this area, causing us to log the gain and step out of the way for now.
• We will look to re-enter when the risk in FVRR subsides.

Last week we closed our position in FVRR, logging a 17% gain in less than 2 weeks. Fiverr had a solid breakout in the $125 region, which continued into the mid $140s region, where we initiated our position. The price gave us no indication of weakness until it approached the $176-$181 region.

As a momentum position, we are looking to sell into strength, while at the same time protecting our hard earned gains. Fiverr’s inability to break through the heavy concentration of important price clusters (shown in the chart) was one reason that we looked to take gains at this price. This was further confirmed by 3 sell signals (also listed on the chart), all of which are signaling buying exhaustion and weakening momentum.

If FVRR does correct at this region, we don’t expect a deep correction due to its positioning in the new COVID economy, as well as its relative strength. The areas we will look to potentially re-enter, assuming we get a buy signal, will be at $162 or $151. If we get a clear break below $151, it’s a signal that a deeper correction could be unfolding.

On the other hand, if FVRR can break above the $181 level on elevated volume, we will consider that a breakout, and look to re-enter this position.

 

CrowdStrike (CRWD)

Summary

• CrowdStrike is forming a classic technical pattern known as a double top (In Elliott Wave this is simply an extended B wave).
• The price structure of this rally supports the double top scenario, as of now.
• A break below $141 will confirm this scenario, which will put us in the final leg of this correction.
• A break above $154-$155 will support the correction being over, and we will likely take that position in our momentum portfolio.

Due to the number of warnings we were seeing in various positions we cover (some of which are outlined below), we decided to raise our stop to the breakeven price in CRWD in an attempt to protect our portfolio from incurring a loss.

Internally, I highlighted on the right of the chart the 161.8% extension of the 1st wave. More times than not, this is the spot where the 3rd wave in a standard 5 wave pattern will end, leading to the 4th wave drawdown. This is exactly where CRWD’s recent drawdown began, putting us in the 4th wave correction.

One reason I am not convinced the 4th wave is over is based on how shallow and quick the 2nd wave was (in blue). If the 2nd wave is quick and shallow, we tend to see the 4th wave be complex and long. In short, the 4th wave, so far, is too simple and sharp to likely be complete.

The second reason I am cautious is the structure of the recent uptrend from the $115 low.

It is hard to count this structure as anything but a corrective B wave within an ongoing correction. For the reasons above, we decided to step aside, and wait for the risks developing to work themselves out.

We are agnostic, and hold no opinion on what should happen. We simply analyze price action to give us increased probabilities to profit and manage risk. So, if CRWD does breakout to new highs, we will not hesitate to re-load our position for the next leg up.

To keep things simple, if the price breaks below the $141 region, it will help confirm that the final leg in the 4th wave is active, and the most common 4th wave targets, for CRWD, are either the $120 region or the $102 region. 

However, if CRWD can break above the $154 region, it will signal that the 4th wave is likely over, at which point we will re-assess getting back into this stock.

Potential Setups Going Forward

Shopify (SHOP)

Summary

• Shopify is struggling to breakout of the $1100-$1110 price region.
• Like CrowdStrike, there is a potential that the uptrend from the recent low is a B wave, forming what appears to be a triple top pattern.
• If price breaks below $950, it will help confirm this scenario, at which point we will track the downtrend, looking for a reasonable place to add to our position.
• However, if SHOP break above the $1110 region with force, it will be a nice setup for a continuation of this rally.

Shopify has been chopping around in a relatively tight range for about 4 months. Three times the price has attempt to breakout of the $1110 region – twice, so far, it has failed. We are at the same resistance today, and the internal indicators, along with the price structure are suggesting another potential fail at this crucial region.

The CCI is showing a significant divergence as it is decreasing while price is increasing. Also, the MACD is trending down and just crossed over, suggesting a momentum trend change is likely, at least in the short-term.

As long as the $950 region holds, this could be just a brief dip before we get a clean breakout above $1110. However, below $950 will help confirm that, at minimum, a retest of the recent low will be likely.

Docusign (DOCU)

Summary

• After an extended rally, DocuSign corrected ~35%.
• We grabbed shares of DocuSign at the $188 region, which was about 2% short of our target at $185.
• The $185 region was the shallow target for the 4th wave decline we outlined; however, the bounce off this low appears to be corrective, making the probability of a new low a scenario that we are now taking into account.
• As long as DOCU holds above the $218 support, this scenario will be unlikely. Below $218, and the probability of a new low increases.

We patiently waited to enter DocuSign while it was in its extended 3rd wave rally. Once we saw key supports break, we targeted the $185 region as an area of interest. We ended up buying at $204 and again at $188.

Since then, DOCU seems to be in a new uptrend, and destined for all new highs. However, like many other stocks we have tracked, this uptrend appears to be corrective, and could simply just be a B wave within an A,B,C correction, where the C wave will have us, at minimum, retest the $188 low.

If price breaks below $218, this scenario will become a higher probability, at which point we will open up our targets for more shares at a lower price. On the other hand, if price holds this level and breaks above the $265 region, it will support that the bottom is likely in, and new highs will be in our near future.

Zoom (ZM)

Summary

• Zoom’s large degree 3rd wave (in blue), has extended to regions that is rare to see.
• Of course, we can see further extensions, but the upside before we see a 4th wave drawdown is limited.
• Furthermore, the internal indicators are suggesting that the recent breakout to new highs is not being supported by either smart money, or strong momentum at the moment.

Last Friday on the forum, we warned our readers that Zoom below the $502 resistance was risky. After Ark Investment Management announced their first entry into Zoom, which was followed by a rush of buyers to push prices to all new highs.

Why we are skeptical of this breakout is for a few reasons: For one, in my history of studying price structures amongst various asset classes, I can’t remember the last time I saw a stock’s 3rd wave extend as far as Zoom’s current has. For example, the internal structure of Zoom’s 3rd wave is in red on the chart, and the 5th wave is currently at the 1000% extension of the first wave. Keep in mind, that we typically see the 5th wave terminate at the 200% extension.

Furthermore, for the first time in Zoom’s epic uptrend, we are seeing smart money not supporting a new high. This is evidenced by the Accumulation/Distribution line, which implies smart money flow within a stock. More times than not, this indicator will lead price, and the fact that it is not making new highs with the price is a warning.

Furthermore, the momentum indicators are showing signs of a slowdown under the hood. The MACD is not making a new high with price, which is a very common pattern we see towards the end of a move. Also, the RSI is clearly diverging, as well, suggesting that this move up is not being supported with an increase in buying momentum.

I would never bet against Zoom. In fact, it is our largest holding for a reason. At some point, momentum shifts even in the best stocks and allows for a healthy correction. We think this could be the case in the coming weeks and we will look to add to our position.

Nvidia (NVDA)

Summary

• The weekly chart that we have discussed for several months is continuing to deteriorate.
• Nvidia appears to be forming a double top, like several other stocks we are tracking.
• If it can break to new highs and hold, we can likely see a continued extension of the uptrend.
• We placed a stop on our most recent tranche ONLY – $541.5 with a stop at $537.9 (closing price).
• Based on the fundamental story with AI, we are comfortable withstanding any volatility with the remainder of our position.

We believe the long-term outlook of Nvidia is bright. However, the intermediate to short term outlook could have some bumps, which is healthy and normal.

The price action and signals I’m seeing warrant caution. That being said, Nvidia has broken out of two bases lately, which is usually bullish, and we took one of them around $540. We will be placing a stop on that tranche ONLY. The stop will be a close below the 20-day EMA ($537.90), which has held it up in this rally predominantly.

The chart attached is showing the weekly trend. I’ve been tracking the divergences with the MFI and CCI for months, which is present in my past market reports. These weekly divergences can last for months to even a year-plus before we see a correction, which is why I continued to play the breakouts with Nvidia.

Also, the bigger the time frame, the more significant the pattern is. This is why I always start my analysis with the weekly chart. The long-term trend in Nvidia is up, but the warnings are also getting stronger as well. They warrant caution and should be watched, but until you start seeing multiple timeframes lining up (monthly, weekly, daily, hourly), I find it better to stay in the trend even with the warnings.

Furthermore, I’m starting to see exhaustion in Nvidia on the daily chart, as well. The same overbought conditions and divergences are finally starting to develop. Because of this, I’m being cautious until Nvidia can break out to new highs.

As long as we can hold $520, I believe we can see new highs soon. However, below $520, and it opens the door to the pullback scenario outlined in the above chart. This is where we complete the final leg of the large degree 4th wave correction, which as of now, has standard targets between $415-$395. This will set us up for the final move in the decade-long 5-wave pattern, which should be a fun a ride and also line up well with the AI trend.

In this report we analyze: Roku, Bandwidth, Marvell, Nvidia

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

You can access our portfolio here. You can also track in real time our Buyshere. You can also track in real time our Buys/SellsSells/Portfolio Activity in the forum.Portfolio Activity in the forum.

If you want to track us in real time, we recommend that you set up alerts to these 3 topics “Portfolio Activity”, “Buys,” and “Sells” which can be done by clicking on their icon/image, or search for their name in the search bar. Then, click the follow button and it will turn red like the image below.

Please note that we have provided a number of setups in stocks we are targeting in this correction. All of these setups are still active and they include: Netflix, AMD and Teladoc, which you can access here. The setups in Microsoft and Docusign are also active, which you can access here. The setups in Inphi, Shopify, Datadog, Twilio and Okta can be found here.Please note that we have provided a number of setups in stocks we are targeting in this correction. All of these setups are still active and they include: Netflix, AMD and Teladoc, which you can access here. The setups in Microsoft and Docusign are also active, which you can access here. The setups in Inphi, Shopify, Datadog, Twilio and Okta can be found here.here. The setups in Microsoft and Docusign are also active, which you can access here. The setups in Inphi, Shopify, Datadog, Twilio and Okta can be found here.

 

Roku (ROKU)

Summary

• On heavy volume, Roku has broken out to new highs. Roku has been kept under the $176-$178 resistance zone for just over a year.
• After receiving a buy signal, we bought a new tranche of Roku as it retested and held the breakout price. 
• Roku’s relative strength compared to its peers has been very strong during the correction and especially the bounce last week. Signs like this are typically positive for stocks when the correction ends.

Since September of 2019, Roku has been in a relative downtrend, making a series of lower highs and lower lows. After bottoming in March of 2020, the price has steadily been climbing to retest the $176-$178 region, in an attempt to breakout to new highs.

After several failed attempts, not only did Roku’s price breakout to new highs this prior week, but it closed the week above this breakout zone on elevated volume. This is a promising sign that the trend in Roku is shifting.

The above chart shows the weekly candles for Roku. The long-term trend has been tracking a trend channel (in gray) almost perfectly. I have been expecting Roku to eventually make an attempt at the upper region of this channel. However, it needed to breakout of its base first. This recently happened, which triggered a new buy signal in our portfolio.

When a stock makes a noticeable breakout, like Roku just did, out of a large base, I will usually wait for the price to retest the breakout zone. This is exactly what happened on Roku, as shown by the hourly chart below.

After the breakout, the $176-$178 region became support. What made me believe this is not another false breakout in Roku was the movement in the momentum indicator as the price tested the breakout zone.

As price was bouncing along this region, notice how the CCI started trending up, while price kept trending down towards the support region. It was making higher lows as price was making lower lows. This kind of positive divergence is an excellent signal that the selling pressure is giving way to buying pressure.

As a result, we executed a buy at $178.4. We are holding without stops, for now, and believe Roku will be a leader out of this correction.

Bandwidth (BAND)

Summary

• Bandwidth made new highs while the rest of the market is struggling to breakout of a downtrend.
• However, the internal indicators are showing more weakness than price is leading on, which I believe can lead to one more retest of the 55-day EMA around $145-$155.
• This area is also the price that we spotted an institution make a big position in BAND, which should further support a floor at this region.
• If we do get a retest of this region, we will consider that a buy signal.

In technical analysis, there is a saying that is a basic principle – “price is king.” If you ignore price because the momentum indicators are saying something different, you could miss out on a great run. This saying couldn’t be truer than with Bandwidth right now. The price is undeniably resilient and strong with BAND, while the rest of the market is struggling. Like Roku, it was going down less than the broad market on down days and up more on rebound days.

However, if we look at the internal indicators, they tell a different story.

Internal Indicators

For one, the Accumulation/Distribution (A/D) lines signals what smart money/institutions are usually doing. More times than not, it acts as a leading indicator to price, so divergences are something to pay close attention to here.

Notice how the A/D line has been making lower highs while price continued to make higher highs. The A/D line has been in a downtrend for months while price is still moving up, which is not what we want to see.

We are starting to see a small change in trend with the A/D line last week. For the first time in a while, the A/D line is starting to make a higher high. It’s too soon to tell, if this indicator starts leading price to new highs, it’s a great sign that more smart money is starting to see what we have seen for some time.

Regardless, the price trend is up, and anyone who invested with us when Beth first announced this relatively unknown stock, is up over 40%. We believe that even though the internal signals are weaker than we’d like to see, that BAND’s performance during this correction will attract new buyers, which should propel it higher when this correction ends.

Marvell (MRVL)

Summary

• Marvell has followed our count almost perfectly so far, allowing us to grab shares last month at $33.
• However, price is stuck in a symmetrical triangle pattern that can break either way.
• If it breaks out to the upside (above $39.20), that would be a buy signal. If it breaks to the downside (below $37), we will need to track the following downtrend before issuing a new buy signal.

Marvell is one of our 5G plays. It’s current performance is nothing special, but its positioning for the coming hype cycle in 5G should create alpha in the coming years. So far, it has tracked the count we laid out months ago almost perfectly.

We were expecting a correction around the $36 region, which was supported by a decreasing RSI. We then targeted the $33 range, which we grabbed just a few pennies away from the bottom. If you followed us into this entry, you should be up about 17%. The fact that we were able to grab shares so close to an expected bottom, helps confirm that the count we are tracking is likely correct.

What concerns me is the symmetrical triangle pattern (bull pennant) in blue on the chart. This pattern can go either way. However, the count we used to get shares at $33, is suggesting that it should break to the upside. If this happens, we will consider that a buy signal. If price breaks to the downside, it could suggest a retest of the $33-$32 region, which we would consider a buy signal, as well.

Also, it’s worth pointing out that the daily RSI has not broken 50 the entire correction. This is a strong statement that helps support an upside break, and it’s also rare to see this right now. It’s worth mentioning that any stock in September that has held the 50 line on their daily RSI is worth serious consideration.

Nvidia (NVDA)

Summary

• Nvidia is consolidating between $530 and $475.
• The weekly chart as well as the daily chart suggest Nvidia has at least one more leg lower to travel before this correction is over.
• However, the daily RSI never decisively broke below 50, suggesting unusual strength in light of broad market weakness.
• If price instead breaks above $530, we will consider that a breakout and signal that its correction/pullback is likely over.

The above image is the weekly chart of Nvidia, which includes over 20 years of weekly price information. Interestingly, the price has been tracking a multi-decade trend channel (in gray). We have seen several significant bottoms and tops at the very edges of this channel, which tells me that it is an important piece to Nvidia’s price movements.

So, seeing price break out of this channel recently is a bullish move. Nvidia is our highest conviction idea. We’ve guided numerous entries in this gem, and recently added at $479. We believe that a new entry should happen soon.

Note the Money Flow Index below the weekly chart. It is quite rare to ever seen then MFI hit 90, and when it does, it signals an extreme overbought condition. Historically, the indicator doesn’t stay in this position long, and has led to a variety of corrections. I believe the likely correction we see in Nvidia is a retest of the trend channel breakout, which is around the $435-$405 level.

This region is further confirmed by a number of signals that are visible in the daily chart below.

For one, the symmetrical, 3-leg correction, would suggest that price tags the $425 region, which coincides with the edge of the trend channel we just discussed. This region also houses many other important price clusters between $435-$405. If price hits this level, we consider it a buy.

Nvidia’s price is currently consolidating between the $530 and $475 region. A break of either of these levels will signal Nvidia’s next move. The weekly and daily chat are suggesting a break below $475; however, just because the downside setup is there, doesn’t mean it will manifest. So, if price breaks back above $530, we would consider that a breakout.

It’s also worth noting how well NVDA has held the 50 line in the RSI. Once again, any stock that has held this level during September in the daily RSI is worth consideration in this market. The strength in this stock is strong, and we only expect it to increase as AI unfolds.

In this report we analyze: Roku, Microsoft, Docusign and BigCommerce

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

You can access our portfolio here. You can also track in real time our Buyshere. You can also track in real time our Buys/SellsSells/Portfolio Activity in the Portfolio Activity in the forum.

If you want to track us in real time, we recommend that you set up alerts to these 3 topics “Portfolio Activity”, “Buys,”  and “Sells” which can be done by clicking on their icon/image, or search for their name in the search bar. Then, click the follow button and it will turn red like the image below.

The setups we outlined in Netflix, AMD and Teladoc last week are still active. You can access them here.here.

Roku (ROKU)

SummarySummary

• Even though Roku is 16% off its high, the force behind the drawdown is not strong. Volume is light, and smart money is not selling.
• If $150 breaks, we will target the $144-$140 region.
• We will also look for the 37 mark on the RSI for a bottom, as well.

After breaking out at the $175-$176 region, Roku fell back below this major resistance, confirming a false breakout. We stopped out of our recent tranche in an attempt to play this breakout, and currently setting up our next plan to buy more shares for our long-term position.

Roku is currently down 16% from its highs and found support at the $151-$150 price range. Also, note the blue trendlines. These are Anchored Volume Weighted Average Prices (AVWAP)that are tied to the major swing lows within the recent uptrend. This tool helps determine the health of a trend and also determines key supports for when that trend changes.

Roku found support at the June 29th AVWAP and is currently holding this price. Even with a 16% correction, these AVWAPs show we are still in a healthy uptrend.

Further signs of strength can be found in the volume. Notice how the volume trend has been decreasing with the selling. This is telling me that the drawdown is not backed by excessive selling, but more of a lack of buyers.

The Accumulation/Distribution line supports this. Note the lower lows while ROKU’s price makes higher highs. This is not what you want to see prior to a breakout; however, note how that lows in the A/D are moving higher. This is confirming that even though “smart money” is not buying, they are also not selling.

For the sake of simplicity, if Roku breaks the $150 support, it will confirm a downtrend is in place. If this happens, my targets are from $144 – $140. The question will be – how low does price have to go before the smart money steps back in? It’s not at $150, so we will likely look lower for a bottom.

The RSI will also be key for finding a buying spot. With no positive divergences showing up on the daily chart (or hourly), we will look to the 37 mark for a bottom. This has been major support in the RSI throughout Roku’s history. If the RSI finds this support while price is also on a key support, that will be a buy for us.

The long-term chart lines up with the fundamental thesis here. We are long-term bulls, and will use this period to further accumulate shares in one of our favorite stocks.

Microsoft (MSFT)

SummarySummary

• After crossing the $220 resistance, Microsoft invalidated the possibility for a large degree downtrend that we have been tracking for several weeks.
• This is great news for the long-term outlook for MSFT and the market. However, the chart suggests we are now in the 2nd wave, which could be rough in the short-term.
• We will be buyer in the $192-$185 region.

We’ve been tracking Microsoft extensively this year. I suggest you look at my deep dive into the long-term chart to get an idea of the trends at play. You can access that here. We’ve held off on buying MSFT into this rally because of the risks we outlined below the $218-$220 price. Below here the slight possibility for a larger than normal downside setup was on the table.

As of now, there is good news and bad news with Microsoft from a technical perspective. The good news is that this large downside setup has been invalidated once MSFT crossed the $220 mark. For the long-term prospects of Microsoft (and the market), we are expecting higher levels once this correction plays out.

Furthermore, the 5 wave move off the March low is arguably the most classic example of a standard 5 wave pattern that I’ve ever seen. For example, the most common extension for the 3rd wave to end is the 161.8% extension, which for MSFT was around $213. We then look for the 4th wave to end around the 23.6% or 38.2% retrace of the 3rd wave. Microsoft’s 4th wave ended at the 23.6% retrace exactly. We then look for the 5th wave to end at the 200% extension with the MACD showing negative divergence. For Microsoft, the 200% extension was $232 with the MACD diverging. If I was going to teach someone how Elliott Wave mapping works, I’d start with this 5 wave pattern because of how text book it is.

Now for the bad news – what follows the 1st wave is the 2nd wave drawdown, which we have been planning for. If you look at the downtrend in MSFT, we have a clear A wave with a B wave that followed. It then gave way to price just briefly making a lower low, which is key. If the downtrend was over, we would’ve looked for a retest of the recent low and a hold above it, setting up for a move up. Once Microsoft breaks the $201 region, the C wave will be in play.

I’ll target the $192-$185 region for entry. This is a heavy confluence of important prices as well as the symmetrical move for this correction, which we’ve used successfully to get shares of many stocks in corrections close to their lows. There is also an open gap at $192, which should lead to a bounce.

Also, the Anchored Volume Weighted Average, which I anchored to the low in March, will be in this region this week. This is the best gauge for testing the health of an uptrend, and even with this pullback, the bulls are still in control according to this indicator. Expect heavy buying in this region, which we will participate in.

Docusign (DOCU)

SummarySummary

• DocuSign is down 35% from its all-time high, and just broke another key support at $205.
• The largest volume spike in its history happened at all-time highs, setting off a wave of selling.
• The structure suggests that the large degree 3rd wave is over, which puts the 4th wave targets at $185 – $140.

We outlined our plan for buying DocuSign in the forum last week, which you can access in the DOCU topic. Since the March low DocuSign has been in a clear 3rd wave. Third waves are powerful trends, which anyone invested in DocuSign since March is aware of. It has returned nearly 350% since the March low before hitting a top $6 below our target price at $298.50.

Confirmation that the 3rd wave is over and that we are now in the large degree 4th wave (in red) comes from a few signals:

• Notice the massive volume spike. This is the largest move in volume in DocuSign’s history, and it’s predominantly selling. This means a large number of buyers have sold in unison, reducing the demand for shares. We will need buyers to step back in to stop the correction, which hasn’t happened even after a 35% drawdown.
• Price has closed below the 55-day EMA
• The RSI is clearly below 50 and holding, indicating that momentum has shifted to the downside.
• Price closed below the key support of $205.

For DocuSign, the most common targets for 4th wave supports are at the $185 for a shallow 4th wave and $140 on the deep side. The AVWAP, tied to the March low in blue, appears to be moving into the $185 region while the 200-day SMA is moving into the $140 region. The momentum indicators will be crucial for determining supports. They have their own support regions that I will be following, as well. We’ll be looking for signs of a bottom while both are hovering around key supports.

We started buying at $205 of Friday, and will be heavy buyers at the $185 region if we get there.

BigCommerce (BIGC)

SummarySummary

• BIGC is in a deep drawdown.
• It broke the $80.60 support, and thus means there is likely more downside ahead.
• Until price gets into the mid-$70s, the valuations are just too rich compared to other fast-growing stocks we own.
• The structure is unfortunately setting up for two extreme scenarios – either we are in a deep 2nd wave, which will give way to a strong 3rd wave to new highs. Or, we break to all new lows (below $64), at which point the price structure could be setting up for an even deeper drawdown.

We’ve been tracking BigCommerce since it topped a few weeks back. So far, it has been in a complex series of symmetrical corrections. My chart above outlines this path, and it assumes that BIGC is in a 2nd wave correction. This implies that the recent uptrend was it wave 1, which actually lines up well.

The problem with BIGC is that there is no indication that the correction is done. The second wave can go as low as the all-time low and still be valid, but this is an additional 25% from current prices. Furthermore, until it gets into the mid $70s, from a P/S standpoint in the E-commerce space, it’s not worth the risk.

Also, note the AVWAP, which I tied to important swing highs in the downtrend. Until BIGC stops making new lower highs, and starts taking back some of these AVWAPs in blue, the trend will remain down.

If BIGC can continue into the $70s and show some sign of bottoming, then we may take another shot at BIGC with stop just below the all-time low. If the price breaks to new lows, we will step away.

In this report we take a look at AMD, MRVL, LRCX, QCOM, NVDA

Please note the glossary of terms and techniques here and herehere 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, which can be done by clicking the link in the top corner of each chat room called, “subscribe for new topics.”  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, which can be done by clicking the link in the top corner of each chat room called, “subscribe for new topics.”  

In 2019, cloud was the best performing sector before it began to show weakness in July. Cloud stocks led the market out of the December 2018 selloff, providing sizable outperformance for just over seven months in the first part of the year. Then, with no exogenous catalyst, a rotation began out of cloud/SaaS names and into underperforming value names.

This rotation saw the average cloud stock drop around 35-40%. Mega cap names in this space that were not pure plays, like Microsoft and Salesforce, stayed flat during this rotation. However, pure plays, such as Zoom and Twilio, saw drawdowns greater than 40%, while other names, like Crowdstrike and Zscaler, saw drawdowns greater than 50%. The value rotation, as it was called in 2019, took about three months to bottom. During this three month span, the S&P 500 gained about 2%.

Last week, on August 5th, the market began a new rotation out of cloud stocks and into value oriented sectors. Since the rotation began, the average cloud stock is down approximately 8-10%, while financials are up 3.5%, industrials are up 5.8% and transports are up 6.5%. Just like in 2019, this rotation is hardly noticeable in the broad market, with the NASDAQ100 being up 0.3% and the S&P 500 being up 1.4% over the same period.

No one knows how this year’s rotation will play out – whether it will bottom this Monday or be as deep as the rotation in 2019. Regardless, the cloud microtrend still has a few years to play out, so, if this rotation continues to deeper levels, we view it as a buying opportunity regardless of the prevailing sentiment at the time.

However, instead of focusing on the popular stocks that are taking a breather, I’d like to focus on a theme we began working towards prior to this rotation: semiconductors.

The two cloud ETFs, SKYY and CLOU, are a reasonable gauge for the cloud sub-sector. The ETF, SKYY, has an overweight to mega cap names like Amazon, Microsoft and Alibaba, while CLOU is focused on the small to medium sized pure plays, like Twilio, Zoom and Zscaler. Since the market bottomed on March 23 and began a new uptrend this year, the top performing sub-sector within tech is semiconductors.

Furthermore, if we look at our active portfolio, we can see being diversified by including semiconductors, as well as chainlink and bitcoin, has put us in a relatively stronger position than if we were solely focused on the momentum cloud names.

The above graph is our active portfolio, broken down into sub-sectors of tech. Most importantly, we show the current moving average that each position is testing. We currently have seven positions above their 8-day moving average in green – 1 in cloud, 2 cryptos, and 4 semis.

Furthermore, you’ll notice that we have five positions testing their 55-day moving average in red are all cloud names, with one semi. The vast majority of cloud names are testing their 55-day moving average right now. This is evident by the two cloud ETFs, SKYY and CLOU, which are both below their 20-day moving averages and testing the upper bounds of their 55-day moving averages.

In this report, we will focus on the sector that is not only holding up, but showing unnoticed strength behind the noise in the market. Semiconductors will likely never be as buzzworthy because you can’t directly use the products, like you can with Zoom, Netflix, and Shopify. They are also much more complicated to understand, which is why so few analysts cover them relative to other areas of tech.

However, as Beth has laid out over the last two years, semis will likely be the primary beneficiary of the upcoming microtrends in 5G and AI. For this reason, we have been positioning for this transition when very few were talking about it because of the cloud frenzy between April-June.

Immediate Setups

Advanced Micro Device (AMD)

SummarySummary

• If price falls into the $73-$70 range, we will look to buy.
• If price breaks out above the $88-$91 price range, we will also buy with tight stops.

So far, we guided three entries around AMD – two below the breakout zone at $48 and $55, and one on the retest of the breakout zone around $61. I believe the stock is setting up to provide another entry, which we will look to take today.

The Long-Term Trend (Weekly Chart)The Long-Term Trend (Weekly Chart)

Since bottoming in 2015, AMD has been in a strong uptrend, returning over 5000% from its low at $1.61. Even after such impressive gains, according to Beth’s fundamental theses (here and here), the future growth in AMD is something we want to continue participate in.

By analyzing the structure of uptrend in the weekly chart above, we can get an idea of the long-term trend in play from a technical perspective. For one, the trend appears to be healthy and is confirming Beth’s fundamental theses. Over a long-term timeframe, both the fundamentals and technicals are suggesting higher prices, which is always encouraging. However, over the short to intermediate term time frame, the technicals are seeing some apparent risk in AMD at current prices.

This is evident not only by the price failing to breakout of the $88-$91 price range, which is where an important cluster of prices is acting as resistance, but also by the internal momentum indicators. The MACD is at peak levels on the weekly chart, which usually accompanies a 3rd wave top, and on the daily chart that is discussed below, the MACD has already turned down. Also, notice the negative divergence on the MFI and RSI. This may take weeks to play out, but as long as this divergence is forming, there is risk of a correction.

The Setup (Daily Chart)The Setup (Daily Chart)

By looking at AMD on a shorter time frame, there appears to be 2 potential buying zones, if the price continues to show weakness.

The above chart is a close-up of the recent daily moves in AMD. Note the strength of the uptrend after breaking out of the $58-$59 resistance region – the price went nearly parabolic, with two large gaps in the chart.

After such a move, it is not uncommon for the stock to correct before the next leg higher. With the divergences in the weekly chart, which we just pointed out, coupled with the MACD rolling over in the daily chart above, it appears that AMD is setting up for one more leg lower.

If this is the case, there are two forces at play that should create strong support between the $73-$70 region:

Gaps – Gaps are powerful forces in technical analysis. Once a gap is made, it is likely that it will be filled in the future. In short, these are areas of intense buying/selling. I’ve outlined the two gaps in blue with the prices on the right.

Symmetry – Corrections typically unfold in three legs. The length of the 3rd and final leg is usually the length of the first leg down. The first leg down for AMD fell – 12.8%. If we track – 12.8% from the top of the most recent top, or the beginning of a potential 3rd leg down, it falls right in the middle of the first gap at $73.25.

We want to be fully allocated to AMD sooner rather than later. Therefore, if AMD falls between $73-$70, I will add. If AMD falls to the lower gap at $64-$62, I will also look to add. Also, if price pushes higher, never touching the $73 target, and instead breaks out above the $90-$91 region, I will look to add.

Marvell (MRVL)

Summary

• If price falls at or below the $33 in the current correction, we will look to buy.
• If the correction is over and price instead breaks out above $38 on elevated volume, we will look to buy.

Since bottoming in March, Marvell has been in, what appears to be, the middle of a standard 5-wave uptrend to all new highs. One of the key tells is that the 3rd wave in this pattern has topped exactly at the price extension we most commonly see 3rd waves top. For MRVL, this level is the $38 resistance.

Since Marvell topped  at this region, it has been in a standard 3-wave correction, as shown by the blue letters. Like with AMD, we can use symmetry to help gauge a buying zone. For the first leg down in MRVL, price dropped -13% from the all time high. After the bounce, price then began another decline, stopping just short of another -13% drop and just above the $33.

Also, note the internal signals, as well. We are seeig positive divergence on the A/D line as well as the MFI. Also, we have a positive RSI reversal pattern, where the RSI makes a lower low and price makes a higher high. This is a rare signal that suggests the uptrend will likely continue.

With so many buying signals in the internals, there is a good chance that the correction for MRVL is either over, or will catch a nice bounce. If Marvell trades into the $33 region (or close to it), I will add to our positon. Also, if price continues higher from here, we will look into adding on the breakout above $38. Either way, we are looking to add to our position in Marvell.

Lam Research (LRCX)

SummarySummary

• If the price continues to correct into the $355-$337 price range, we will look to buy.$355-$337 price range, we will look to buy.
• We will not buy if price breaks out above the $388.50 resistance.

Like Marvell, Lam Research has provided what appears to be a standard 5-wave uptrend off the March lows, as outlined by the red count on the chart above. Also, like MRVL, Lam Research recently stalled at the exact extension where 3rd waves typically end, which for LRCX is the $388.50 resistence.

Also, with the CCI and MFI showing strong signs of negative divergence, it is likely that LRCX further corrects before completing the 5-wave pattern to new highs. The most likely regions of support for a 4th wave, which also coincides with the 55-day EMA in red and a number of important price clusters, is between the $355 and $337 region. This will be the region I will look to add to our position

Adversely, if LAM does find the momentum to break to new highs above $388.50, then its 3rd wave can extend further. We will likely wait for a pullback to add to this position if the breakout scenario does happen.

Waiting for a Setup

Qualcomm (QCOM)

Summary

• There is no immediate buy setup I’m seeing at current prices.
• The charts are suggesting the QCOM is likely to correct soon, which we will use to add to our position.

If you haven’t read Beth’s recent analysis on Qualcomm, you can do so here. We recently bought a new position for our long-term portfolio on the breakout above the $93-$100 resistance zone that has kept Qualcomm bottled up for two decades.

Like Microsoft, Qualcomm has over two decades of price data to analyze. With that comes multiple trends on very large timescales at play. With that in mind, we will focus on the trend that is governing the short to intermediate timeframe, which is outlined in the chart below.

The above uptrend started in early 2016, which is around the same time that AMD began the long-term trend that we point out above. If we compare the structure of Qualcomm’s trend to AMD, you should notice a stark difference. Note the very choppy/overlapping pattern in Qualcomm compared to AMD’s near parabolic trend that has very little overlap.

With QCOM, even though the pattern is choppy, it has technically been in an uptrend, making a series of higher highs and lower lows. The structure appears to be a large degree leading diagonal pattern, which is a series of 5 overlapping waves that usually tracks a trendline. When the 5th wave in the structure completes, we usually see a correction.

Keep in mind, this is over the short to intermediate time-frame. Regarding the long-term trend, once again, the fundamentals and technicals are lining up. Technically, this large degree leading diagonal is likely the first wave in a large 5-wave uptrend. That being said, the next correction will likely be a fantastic buying opportunity.

What makes me cautious on adding at current levels and instead waiting for a pullback is:

• Qualcomm is stalling at the $114-$116 price region, which is an important zone to clear if QCOM will resume its uptrend.
• The price has an established 5-waves where the 5th wave is at the upper boundary of the trend channel.
• The MFI is at an extreme overbought condition, while showing slight negative divergence.
• The CCI and Accumulation/Distribution line are also diverging from price, suggesting weakness.

If we do get a drawdown, the likely target for retrace will be a retest of the breakout zone between $93-$100. Coincidentally, this area lines up with two important retrace levels. If price does pullback to this region, we will add to QCOM in our long-term portfolio. However, if the current uptrend decides to breakout to new highs – above $114-$116, we will continue to buy into the strength with tight stops to protect us. But for now, we will remain patient for the next setup.

Nvidia (NVDA)

SummarySummary

• With a long-term timeframe, we are not conservative with adding to our position in Nvidia, taking every buying setup that forms.
• There is no clear buy setup right now in Nvidia.
• Nvidia is showing considerable strength going into earnings this week, while at all-time highs, and trading above its 8-day EMA.
• However, the weekly chart, which tracks the long-term trend, is suggesting Nvidia could see a pullback in the short to intermediate timeframe, which, if happens, we will use to add to our position.

Nvidia is one of our favorite stories over the next 5+ years. As long-term investors, we are taking every setup we see in Nvidia. However, eventually, Nvidia will have to take a breather, which we will use to add to our position.

The above chart tracks the weekly moves in NVDA since it first started trading in 1999. Note the trend channel in gray. Rarely, do we see a stock successfully trading within, and respecting the boundaries of, a trend channel for so long. Notice the significant bottoms that occurred at the base of the channel, and also how price topped out when touching the top of the channel.

Today, Nvidia has successfully broken out of the upper boundaries of the channel, which is typically a very bullish sign. We added two new entries on this breakout for our long-term portfolio.

However, for anyone with a short to intermediate time frame, what gives me slight pause are the internal signals flashing. Note the negative divergence in the weekly CCI while the weekly MFI is at overbought conditions.

If you look back throughout the history of Nvidia’s price action, when you see these two patterns in unison on a weekly chart (marked by the horizontal red dotted lines), it always preceded a pullback of some degree. Some of these pullbacks were large and some were quite small, but it has been a solid indicator with Nvidia’s price action so far.

Keep in mind, the above chart is tracking the weekly moves in Nvidia. So, we could see higher levels from here before any pullback develops. We do not expect any weakness in Nvidia to be deep. Likely, we will get a retest of the upper trend channel. We will take any opportunity to add to this company.

Pullbacks are inevitable, and we will take any pullback from current prices as a gift with a long-term time frame in mind. In the meantime, we will keep tracking Nvidia for more break outs.

In this report we analyze: Teladoc, Twilio, Zoom, Roku, Dynatrace, Docusign, Inseego, Shopify, Microsoft, Slack  

Please note the glossary of terms and techniques here and herehere 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, which can be done by clicking the link in the top corner of each chat room called, “subscribe for new topics.”  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, which can be done by clicking the link in the top corner of each chat room called, “subscribe for new topics.”  

In this week’s report, we look at the number of buys/sells we made in our active portfolio. There were more breakouts last week than usual, setting up for a potential next leg higher. We added to ZM, ROKU, DT and began positions in DOCU and SHOP based on this trend following strategy.

Taking trend following setups has treated us well over the last 4 months. In light of our emotions, talking heads and public fund managers, to the contrary, we’ve taken bullish setups as they’ve formed. Because of this, we’ve locked in a solid long-term cost basis in WORK, DT, DDOG, MRVL, AMD, ZM, to name a few. We’ve also been stopped out of some positions with reasonable gains and some minimal losses along the way.

However, when we start seeing leaders in an uptrend provide setups and then fail all at once, it tells me that we should be a little cautious moving forward. Trend following works, until it doesn’t for a period of time, and for this reason we use stops on recent positions so that we can step aside if sentiment shifts.  

So far, all but Shopify have failed or are on the verge of failing. We explain how we will manage risk in these new positions, just in case we are on the verge of a deeper correction.

We also take a deeper dive into Roku, Teladoc, and Zoom, explain why we are looking to pick up more shares at lower levels.

We then explain why we sold out positions in Twilio and half our position in Inseego, as well as outline a potential plan to pick up shares at lower prices.

Finally, we outline two potential setups with Microsoft and Slack

Last Week’s Portfolio Activity

Breakout Buys

Roku (ROKU)

Summary

• Roku broke out of a clear bull flag pattern on elevated volume.
• Like all setups over the last several months, we bought into this rally.
• It appears to be breaking down; however, based on our analysis of the price structure, we have decided to hold Roku without stops, and look to enter if price continues to slide.

Key Price Levels

• A break above $169.15 will signal that the correction is over, and the uptrend will likely resume.
• A break below the 20-day SMA, which is currently around $151.50, will be the first warning of a trend change.
• A break below $142 will confirm this trend change.

Last week, we had a beautiful setup in Roku. A base was forming on decreasing volume, with a clear breakout price above $158. On elevated volume, we bought shares into this breakout around $160.

After Roku reported their earnings, which were quite strong on revenue compared to other ad-tech companies, shares broke down below $158. Now, they are threatening to break below the base created around $142.

After further analysis over the weekend, I have concluded that it is likely Roku is in the 2nd wave within a new uptrend. In other words, after a correction, we will likely see price break to new highs.

The above chart lays out this path. First off, the Accumulation/Distribution Line (A/D) is suggesting that more downside is likely.  A clean break of the 20-day EMA (in blue) will be the first confirmation. A break below the base at $142 will be the final confirmation that we are in the 2nd wave, which will lead to a trend change.

The targets are between $137 – $121 (~15% – ~25% drawdown from our cost basis). It is possible that the 2nd wave can retrace the entirety of the 1st wave, which would put our current position at a ~35% drawdown. I find this unlikely, considering the ignored growth Roku continues to produce. Relative to other ad tech names, Roku’s runway and positioning is much stronger, yet the relative price has been mostly subdued (read Beth’s recent blog on Q2 Earnings)

We are removing the stop from this recent open-trade, because we can take the worst case scenario of a 35% drawdown on such a small piece of our portfolio. However, the likely targets will be a 15% – 25% drawdown, if the $142 region breaks and we enter a confirmed second wave.

For anyone that wants to use a stop, the 20-day EMA is the most conservative, and more liberal stop would be at the $141.40 closing price.

Dynatrace (DT)

Summary

• Dynatrace had a solid setup, with two internal buy signals and price tracing a bull flag.
• It broke down, invalidating the setup, and found support of the $37 region.
• Our stop is placed just below this zone.
• I believe DT is in a 4th wave pullback, which can be as shallow as $37 or as deep as $27. We consider any price below $33 to be a strong buy.
• Dynatrace is relatively undervalued compared to many of the SaaS names, so we do not expect the correction in DT to be as deep.

Key Price Levels

• Below $37 will confirm the $32 level is in play.
• A break above $45 will signal the 4th wave is over and the uptrend will resume.

Dynatrace is another stock we bought on a potential breakout. The Accumulation/Distribution line was making new highs, suggesting that smart money was heavily buying the correction. Also, there was a positive divergence signal in the CCI.

These 2 buy signals, when coupled with price tracking a noticeable bull flag pattern, more times than not, it leads to the beginning of the next leg up. Unfortunately, Dynatrace fell after Datadog reported their earnings. This move invalidated the buy setup we were following.

Dynatrace has, once again, found support on the $37 region. As you can see in the chart above, this price region has a tight cluster of important prices and has held up DT for 2 months. For this reason, we placed our stop just under it at $36.70 (closing price). If this level breaks, and we get stopped out, the next likely target will be the $32 region.

My count suggests that we are entering the 4th wave in red on the chart. The green box represents the most likely targets for a 4th wave correction.  The blue box represents a deep 4th wave pullback.

I find the blue targets unlikely considering that DT is largely unknown and has escaped some of the stretched valuations we’ve seen in the more popular names. However, if the price does retrace into this region, we consider it a steal and will likely buy in volume.

Shopify (SHOP)

Summary

• Shopify broke out of a solid base on elevated volume.
• Unlike many of the SaaS names, it is holding up above the breakout zone.
• This is a company we want to own for the long-term; however, we do not want to overpay.
• Our stop on this attempt to participate in the uptrend is set at $969.80 (closing price).

Key Price Level

• A break above $1105 will signal the that the uptrend will continue.
• $987 will close the first gap – first level of support.
• $929 will close the second gap – second level of support.
• Below $920 is a failed base, and will signal the likelihood of a trend change.

Shopify has formed a classic base with decreasing volume leading into the breakout zone at $1023. It gaped up through this zone on heavy volume, which was our signal to buy.

Even in light of Friday’s SaaS selloff, Shopify held up relatively well. It has not broken back down below $1023, so the breakout is still valid. If we are at the beginning of a deeper selloff, our stop will protect us, and we can hopefully pick up long-term shares at lower prices.

Docusign (DOCU)

Summary

• Like Shopify, Docusign formed a solid base and price broke out on elevated volume.
• After three consecutive days of selling, DOCU has found support at the $200 region.
• Our stop is placed just below this level.

Key Price Levels

• Above $230 will signal that the uptrend has more room to run.
• Below $190 signals a failed base and the likelihood of a trend change.

Docusign, like Shopify, was developing a solid base with a clear breakout price. After breaking out, we bought a small amount of a starter position. Like many SaaS names, it sold off sharply, with three consecutive days selling.

We have raised our stop to just under the $200-$199 support region. There is a large amount of volume at this support zone. If DOCU breaks it and closes below $198.50, we will log ~10% loss and look for the next setup.

Keep in mind, like Shopify and Zoom, this stock is overpriced for a reason. We want to own this stock and forget about it; however, we don’t want to overpay. I

For those that want a wider stop, $189.90 (closing price), Below that is the $161.80 price (closing).

Zoom Video (ZM)

Summary

• Zoom is on the verge of confirming a failed breakout.
• The correction could be shallow or deep, based on the 2 counts I believe are potentially active.
• Regardless, we are taking the stops off Zoom, and will look to keep adding in any further weakness.

Key Price Levels

• Above $281 will signal that the uptrend is still intact.
• A break below $240 will put the two correction scenarios in place.

Zoom is another stock that was providing a breakout buy. Note the pennant forming in blue – a classic trend continuation pattern. This was confirmed with decreasing volume, then a breakout on elevated buying volume.

However, like almost every bullish setup we took this week, it appears to be in the early stages of breaking down. The below chart provides my analysis on the two paths Zoom can take if the price breaks below the $240 line.

Below $240, and there are two scenarios that could play out:

• Zoom has a shallow correction, likely finding support between the $242 – $220 region.
• Zoom has a deep correction, which can take us as low as $205-$196.

The Accumulation/Distribution line is suggesting that smart money is buying into this correction, as are we. We put Zoom in a high conviction category along with Roku, Nvidia and AMD. These are stocks we want to own with a long-term frame of mind. If the market does give us a deeper correction than we think possible, we will buy more.

Closed Positions

Teladoc (TDOC) and Livongo (LVGO)

Summary

• We closed our positions in LVGO for two very nice gains.
• Teladoc has confirmed a trend change with a clean 5 wave drop from all-time highs.
• We closed our position in TDOC around the breakeven point.
• There are 3 scenarios for where this correction will likely find a bottom.
• If TDOC bottoms at the $192 region and makes new highs, we will look to continue our trend following strategy, buying in on a new breakout.

Key Price Levels

• Above $240 signals the uptrend will likely resume.
• A break below $192 will put a correction scenario in play.

Because TDOC is purchasing LVGO, and the payment to shareholders will be in TDOC shares (plus cash), we will focus our attention mostly on TDOC going forward.

After announcing the buyout of Livongo, Teladoc shares fell nearly 20% in 1 day while Livongo fell about 11%. The following day, price recovered slightly, only to make a lower low, which completed a symmetrical 5 waves down from their all-time high.

The above chart is a close up of this pattern. Seeing a clean 5 waves down from an all-time high, more times than not, signals a trend change, the extent of which is yet to be known.

After a discussion, we decided to close our position in TDOC on the 4th wave bounce, which ended up being around the breakeven point of our cost basis. We also closed our combined positions in LVGO – one for 81% gain and the other for a 19% gain.

We don’t believe that this sentiment shift in Teladoc is over. As of now, we still believe it will be the primary beneficiary in the telehealth microtrend. However, once sentiment shifts, it can move much farther than most realize, which governed our decision to not ride it out while we could still avoid logging a loss.

The below chart is our current game plan for picking up shares at a lower cost basis.

After completing 5 waves down, note the CCI and the MACD histogram. Both are showing positive divergence. This is also present on the RSI as well. Also, the price has tagged a key Fibonacci extension at $192. I believe this will be the end of the A wave, and the B wave retrace will likely test the 200-hour SMA in black, which happens to fall in line with the 50% retrace of the A wave.

If price breaks below the $192 level, the next supports that could be potential bottoms for the C-wave:

• The $174-$172 support.  A large amount of volume has accumulated in this region. This will be a tough area for price to break through, and we will first look to this area for a buying opportunity (~30% drawdown).
• $155 is an area that has a tight cluster of key Fibonacci prices. It’s also the 14.6% retrace of the entire uptrend that started in 2016 (~38% drawdown).

Since Teladoc has been trading, we have seen a drawdown greater than 75%, one around 54%, and 3 drawdowns greater than 30%.

Also, there is a chance the bottom is in at $192 and the uptrend resumes. If this is the case, we will treat TDOC like our other trend following stocks – look for a base, buy in with a stop and ride the trend.

Inseego (INSG)

Summary

• Inseego failed breaking out to all new highs, confirming a double top.
• The extent of the correction is yet to be seen.
• We closed our open-trade in INSG on the bounce, logging an 8% gain.
• We still own a position without stops because we like the 5G story for last mile connectivity

Key Price Levels

• Above $15 will confirm a breakout, and the uptrend can resume.
• A break below $11 puts the $9 support in play.

Inseego was another position we closed for a slight gain of 8% last week. As you can see, the price built a solid, multi-month base leading up to the breakout zone around $14 – $15. There were warning signs present as price approached the $15 breakout zone, as evidenced by the negative divergence in the MACD and RSI.

However, the increased buying pressure, coupled with a strong report can negate these signs, resetting the internals for a new leg. This was the bet we took going into earnings.

Inseego’s report did not impress, it gapped down below the 20-day EMA (blue), and found strong support on the 55-day EMA (red). This is shown by the two daily hammer patterns.

There are two obvious paths Inseego can take, of which we will add some detail:

• INSG holds support and builds a new base back up to the $15 resistance, followed by a break out. This would look like a Cup & Handle Pattern. If this happens, the large degree 5-wave pattern that started off the March low will extend further to new highs, and we will participate in this breakout.
• Price breaks down below $11, which is the 23.6% retrace of the uptrend off the March low. If this happens, it will signal the first wave is over, and we are in the larger degree 2nd wave. If this is the case, we could see price hit the $9 region.

We are holding the position we acquired at $9.70 without stops. We do believe it’s only a matter of time before INSG moves to new highs while riding the 5G microtrend and we are comfortable riding out the volatility present in the small cap space.

Twilio (TWLO)

Summary

• We closed our position in TWLO for a 17% gain.
• So far, it is tracking our Elliott Wave count perfectly.
• We will look to lower levels to re-enter TWLO, while it plays out a 4th wave decline.

Key Price Levels

• A break above $290 will confirm that the uptrend can resume.
• Below $252 will confirm a trend change.
• Potential 4th Wave target/bottoms are $217, $203, $170.

On Friday, Twilio closed below the 20-day EMA (in blue), which was our stop for this position. We logged a 17% gain and raised some cash going into the potential SaaS sell off. However, anyone following us in this trade noticed that we raised our stop two weeks ago. The reason we raised our stop is due to how closely TWLO was tracking the Elliott Wave count we believe is active. In short, after completing an ending diagonal with negative divergence in all the major momentum indicators, we believe that the 3rd wave off the March low has completed.

Regarding the standard targets for a 4th wave, we should see TWLO trade into the $217 – $170 region. We will look to this region, or evidence of a bottom forming around this region, to get back in.

Like Teladoc, there is the potential that we find a quick bottom and start trading back into new highs. If this happens, like with TDOC, we will look to re-enter on the next breakout. However, we will do so with 17% more capital to invest.

Potential Setups

Microsoft (MSFT)

Summary

• Microsoft is the canary in the coal mine regarding the broad market.
• The weight of evidence supports a relatively shallow 4th wave.
• However, a deeper correction cannot be ruled out as long as MSFT stays below the $218-$220 price zone.

Key Price Levels

• Above $220 confirms the low is in for this correction, and the uptrend can resume.
• Below $205 puts the $198 and $187 price regions in play.
• Below $180 and the deep correction scenario becomes a real possibility.

Microsoft is an interesting case. We did a deep dive into the technicals last week, which you can review here.  As of today, the direction Microsoft goes is the way the market goes. For this reason, I keep this chart active on a daily basis and have put more thought into this chart than almost any other that we track.

I believe MSFT is actually in its 4th wave off the March lows. It’s setting up for a buy between $205, which will close the gap, and $187, which is the lower target for a 4th wave.  Note the heavy confluence of important price clusters on the chart, one of which the price is currently trading within – $218-$211. These zones will be likely bottoming areas that we will analyze for entries in real time.

If you read my report last week, you’ll remember that as long as price remains below the $218-$220 mark, there is the slim possibility for a deeper pullback on the table. This level is the 138.2% extension of the March selloff (or, in the bearish count, the A wave). That would make the current uptrend the B wave.

The limit a B wave can stretch beyond an A wave, in my experience, is the 138.2% extension. For MSFT, this is the $218-$220 level. I find it interesting that this is the very level that MSFT stalled and cannot break through. For this reason, we will use stops with our new position in Microsoft, until it clears the $218-$220 price point.

Slack (WORK)

Summary

• Slack is a high conviction play that we are eagerly waiting to grab more shares of for our long-term portfolio.
• The evidence suggests that Slack is in a wave 2 off the March lows.
• The likely targets are between $27.50 – $24.50. However, we could be in for a correction as deep as $21.

Key Price Levels

• A break above $31 on elevated volume suggests that Slack may have found a bottom in this correction off the highs.
• Below $24 puts the $21 level in play.
• The two levels of volume that are keeping the price range bound are between $31-$30 and $21-$20.

Slack has moved below the wall of volume between the $31-$30 price range. Based on the structure, I believe Slack is in the stage of its 2nd wave in a 5-wave uptrend that started off the March lows.

We believe this stock is undervalued, and we will look to grab shares for our long-term portfolio between $27.50 and $24.50. This region has a number of symmetrical price points, the 200-day SMA as well as the most common retrace levels for a 2nd wave. It is possible that this correction tags the $21 region; however, we find this to be unlikely. Regardless, we will look to re-enter our position in Slack without stops soon.

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.

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.  

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.

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.

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.