Category: Market Updates

Market Update: January 31st

Posted on by io-fund

Microsoft (MSFT)

Microsoft has been a long-term position, which we have been covering since it was priced in the low $90s. For our newer readers, we recommended considering a position on any pullbacks and breakouts. The most recent breakout, which we pointed out in update, occurred last November and MSFT has gained about 20% since then.

Ever since, the uptrend has not spent more than 2 days below the 10-day EMA, while staying mostly above the upper band of the Keltner Channel, which is an incredible show of strength. However, the RSI is fading while the price is rising, suggesting the momentum may not be enough to support the price as it approaches a key resistance area between $178-$182.

 At some point, Microsoft will pull back and likely test the 55 EMA (in Red). With the negative divergence between the RSI and price as MSFT approaches the above resistance, it’s probable that we could get this pullback for entries or additions to any current position. As long as the market trend is up, MSFT is a buy on any pullback. For a core position like MSFT, I am holding with a 25% trailing stop for now.

Dynatrace (DT)

Dynatrace has held strong this week while the market pulled back slightly. I’m expecting a pullback in the near future (perhaps due to IPO lock-up expiring?). We have negative divergence within the internals and price – momentum indicators are making lower highs while Dynatrace is making higher highs. Note the MFI (money flow index). This index is basically the RSI with volume factored in and is usually a great leading indicator. When I see negative divergence developing in the MFI, it holds more weight.

Furthemore, there appears to be some notable bearish candlestick patterns on the chart. For one, there is a bearish spinning top as well as a possible island reversal pattern. These patterns commonly precede a reversal, and indicate that the buyers are having second thoughts at current levels. Dynatrace will need to break to new highs to invalidate these patterns. For those looking to go long, patience should provide better entries. We entered DT and continue to consider DT a buy on any pullback.

Zoom (ZM)

Like Netflix last week, Zoom is developing into a very bullish structure, which suggests we could be in the early stages of its wave 3 upwards. In Elliott Wave, this is called a 1-2,i-ii setup. This means waves 1 and 2 for a large degree upward move are in place (in green on the chart), and we are in the early stages of wave 3 pointing up.

I’m expecting ZM to pullback into the high to mid-$60s as we progress in this pattern. As long as ZM holds the $62 line, this bullish pattern will remain valid. We recently stated on the forum that the bottom could be in the low $60s and a good stop is at the all-time low – $59.94. As long as ZM holds $62, the bullish setup is still valid. However, below $59.94, and we could see a deeper drawdown.

Boingo (WIFI)

Like Zoom, Boingo is showing us a potential 1-2, i-ii set-up as well on the hourly chart. This is also showing up as a cup & handle pattern, which is a bullish pattern in technical analysis that usually leads to an exciting move up.

If Boingo breaks the $13.40-$13.50 region, expect a strong move, which would coincide with the potential 3rd wave the current structure is suggesting. As long as Boingo holds $9.55 this potential bullish setup is still valid. Below $9.55 and I will hit my stop.

Marvell

Marvel appears to be on the verge of a pullback that should take us to the outward bounds of the bottom Keltner Channel. The momentum is fading, while price and momentum is testing the current uptrend lines. Price is currently below its 55 EMA (red), so the pressure is down.

Marvel, like a lot of the stocks we are monitoring, appears to also be in the early stages of a wave 3. My target for entry is between $22.25 – $18.75, with a hard stop just below $15.90

Bitcoin (BTCUSA)

Ever since topping out last June at $13,868, Bitcoin completed the first leg in a renewed uptrend. This first leg, from Elliott Wave Theory, would be called the first wave in a 5-wave uptrend that is projected to take us to new highs. As long as we hold $4300, this renewed uptrend, which began early last year around $3,000, will be valid. 

With the first wave in place, we have been dealing with the 2nd wave correction, waiting for a bottom to be in place, which would put us in the early stages of an exciting 3rd wave up. Based on the structure, it appears that we have a potential bottom for this wave 2, which landed in the upper boundary of the green target box we were projecting in prior market updates.

Since this bottom, Bitcoin has given us a series of positive signs that the bottom could be in. First off, we have on a micro structure, 5-3-5-3-5 waves in place off the bottom, which on a larger degree, gives us a clear larger degree wave 1. That would put us in the early stages of wave 2 within the larger degree 3rd wave that we are after.

From a more basic technical analysis perspective, the above chart is showing a classic inverse head and shoulders pattern. Note the right shoulder is very small. This has historically been an encouraging sign for a significant move.

Based on the current projections, I’m expecting a pullback around $8,800-7800. Below $6975 is my current stop for this uptrend to protect gains. For long term buyers, a hard stop at $4300 is a good place to exit.

Market Update: January 23rd

Posted on by io-fund

Hope everyone is having a good week. You can find some of these updates on the forum. I’ve put together a few notable charts for you to consider.

Twilio

Twilio (TWLO) is currently above its 8-day EMA (in green), which is holding the price as support, as it tests the 61.8% retrace level around $123.50. This level coincides with a number of price clusters, so breaking through it would indicate that the likelihood of a new uptrend is high.

  • I want to see it take break above the 61.8% retrace level around $132/$133 before initiating a position. Once in, I will use the 200-day MA as my stop.
  • I am leaving a count up that suggests another leg down until these levels are taken back.

It’s also worth noting that the RSI is at an extreme overbought point. The internals will need to reset to continue the climb up, or it’s reached exhaustion.

Alteryx

Alteryx (AYX), like Twilio, appears to be corrective. The structure of the uptrend appears to be a 3-wave move, were the final leg extends to the 127.2% extension of the first leg around $132.60. This is a significant point in Fibonacci trading, where we see prices usually hault and reverse. With Twilio, this level is currently acting as resistence. The RSI is also at overbought levels, showing negative divergence (higher highs in the RSI compared to lower highs in the price), which is also suggesting a needed pullback, so the internals can reset.

  • Above the $132.60 level and I will go long with a very tight stop, which I will place just below the 20-day EMA (in blue). I will keep this stop until we break out to new highs, at which point I will look to widen the stop.
  • If AYX continues to stall, look to the 200-day MA for the next support level (in red).
  • If the 200-day MA does not hold, expect AYX to test the prior bottom.

Slack

Slack (WORK), also saw a new uptrend, but terminated around the same region it has failed since bottoming in November of 2019. Slack has been trading in this range between $23/$24 – $21/$20, showing no sign of making a decision yet.

It’s worth pointing out the symmetry in Slack’s recent failure to breakout. Symmetry is an important tool in Technical Analysis, which can be used to establish game plans. The last move up failed at 20.53%. So, for this move up, the 20% range was an important pivot point, which I was watching for a confirmed breakout, or a retest of the lows.

Notice The current uptrend failed at 20.23%. This is not coincidental, and a phenomenon we see time and time again.

  • Slack has been range bound between $19.50/$20.00 and $23/$24 for a few months. I’ve been able to predictably trade this range.
  • If Slack breaks through the new 78.6% retrace level at $21, while breaking the noticeable uptrend in the MACD, we can expect a retest of $19.50.
  • When Slack breaks $24, that’s a sign of a renewed uptrend and will be with the trend. Or, attempt to catch the bottom with a buy and hold in the $20-21 range with a stop at $19.50. We believe the sentiment around Slack could lead to a surprise this year. Beth believes timing could be somewhat painful for Slack, but the engagement is too high to ignore. The noise about Microsoft is valid yet there is easily room for two workplace messaging apps and this shouldn’t deter Slack’s user base from growing.

Netflix

Netflix is showing a classic (1)-(2), 1-2 structure. In other words, in Elliott Wave Theory, the 5-wave move is comprised of smaller degree 5-waves and is part of larger degree 5 waves. So, in the chart, we have a clear wave (1) and then a (2) in red. That would potentially put us in the first wave of the wave (3). This will be confirmed if we get a corrective pull back, which bottoms around the target box in the graph.

  • If Netflix pulls back to the $250 level, then I will look to go long and lean towards the next leg up being the early stages of a 3rd wave.  
  • I understand I could miss an upward trend if Netflix breaks $385 on high volume. Due to risk/reward, I’m favoring the pullback.

Zoom Video

Zoom (ZM) cannot break above the volume weighted moving average, which is anchored at the all-time high in blue. These levels show who is in control of the current trend, and breaking above these levels is both a sign of strength and also needed to confirm a continued uptrend.

However, the structure of ZM is suggesting more downside before we get a confirmed breakout. The internals have broken their trend, and the uptrend in ZM is too overlapping to be anything but corrective. For anyone looking to go long, I think you will get better price. For any positions, I recommend placing a tight stop at the all-time low of $59.90.

We recently suggested buying ZM in the low $60, and as long as ZM holds the all-time low, we are expecting new highs in the coming months.

Beth is putting out a conviction list soon. She likes Zoom’s fundamentals quite a bit including the viral mechanics of the product.

Market Update – January 16th

Posted on by io-fund

As we have referenced in the past, we are not a research site that attempts to predict the market. We think that’s a nearly impossible task. We simply keep an eye on various, opposing scenarios while providing stock tips we think are relevant in the current environment.

Bull Count

The level I’ve been watching is the S&P 500 at 3200. The market powered through this and has overtaken 3300. This means the bull market could take us up to 3800-4000 region. This is based on basic Elliott Wave analysis where the 5th wave, more times than not, reaches the length of the 1st wave, or an extension of that wave, which we see time and time again.

My rational for such a position is based on the global loose monetary policy seen by central banks. Not only are dozens of central banks cutting rates, but the Federal Reserve publicly said the goal is to keep the expansion alive, and they are using tools used to re-stimulate an economy from a recessionary position. In other words, they are going all-in on keeping the expansion going.

Also, it’s worth noting that an accommodative Fed has historically been great for MOMO stocks. As long as inflation stays muted according to the CPI, and central banks stay accommodative, I will stay long tech with rising stops to match rising gains.

Another point of encouragement is that a record level of cash is still on the sidelines, waiting to come back in. Furthermore, one trading platform shows 69% of clients are short the S&P 500 today. As these shorts cover their losses, it will force more buying, which will force more covers. Massive levels of shorts can propel a market, and this pattern will continue until the shorts give up, which can be propelled forward if cash on the sidelines moves in because of FOMO.

So, long term, I am bullish and slow-tilting my portfolio towards a more aggressive stance. However, in the medium term – i.e., a few weeks to a month out – I am expecting a local top to take us back at minimum 3%-5%, at which point I’ll look to allocate more of my cash. Tech has led this market and I believe it will continue to lead throughout the expansion.

Flashing Bear Signals

I’m going to expand on this more next week, but the current market environment is not without some flashing signals. It’s important to understand the backdrop in which we are investing and also where we are in the current market cycle. 

 In a nutshell, these are:

  • The yield on the 2-year treasury and on the 10-year treasury have inverted. The inversion occurred in August of 2019 and the average time period before a recession following an inverted yield curve is 18.5 months.
  • According to the ISM, manufacturing peaked and has been in a steady decline since late 2019. Once again, this trend has preceded every recession, and about 31 months after the cycle peak, on average, a recession follows. So far, the ISM peaked in summer of 2018.
  • The Conference Board Leading Economic Index (LEI) is at the zero line. This is at its lowest level in over a decade. To be clear, it has not crossed yet, so it’s worth watching. I’ll expand more on this next week.
  • After several years of zero percent interest rates, corporate debt is at historic and unsustainable levels totaling over $10 trillion total, or 47% of our national GDP. Fifty percent of investment grade debt is in the BBB ratings.

I’ll go more in-depth next week on those signals. The way that I protect my gains is to have trailing stops between 10-30%. If I hit my stop on a stock that I like, I will re-enter once the price has stabilized. A recent example is when I exited Zoom at $68 and got back in at $62. This is a small-scale exit, whereas Nvidia’s crypto bust was a larger-scale exit. My gains were protected and I simply re-entered once the price stabilized again. This is the only way I’ve found that I can stay in the market when there is a lot of noise towards the end of a market cycle.

Technical Analysis:

By Knox Ridley

Alteryx (AYX)

After about a 40% drawdown, Alteryx has dragged along the bottom of the long-term trend channel, which is highlighted by the blue dotted lines. The move up appears to be overlapping, and therefore corrective in nature, with the final C-wave unfolding in a 5-wave pattern, which I’m targeting the 127.2% extension around $133. I’m treating this as a corrective move, and holding off on adding to my current position until:

(1) we break $133 with heavy volume, at which point I’ll hold this position with a very tight stop until we clear new highs. If this happens, we will be in the heart of a 3rd wave, and the bottom for wave-2 will be in.

(2) AYX stalls in the coming days/weeks, and retests the $100 level. If this support doesn’t hold, I’ll look to pick up more shares as we approach the C-wave target box that I outlined in the chart above.

Roku (ROKU)

I’ve been patiently waiting to pick up more Roku sub-$100, and the set-up is in place for this to happen. Roku has tested the $127 support level 3 times, and each time it has corrected from $127 with less momentum and lower highs.

It’s currently trading just under the Volume Weighted Moving Average, which I anchored at the all-time high (in red). This average factors in volume from a critical moment. This week, the bears are in control. Furthermore, the price is below the 55-day exponential average, which is a great measurement of the overall trend.

Also, look at the internals (MACD, RSI). They have both broken their respective trendlines and are heading lower. I take this as a warning.

But, most importantly, the final C-wave set up is intact. Corrective waves (second waves and 4th waves) unfold in 2 moves (A down, B up, C down). There are several rules patterns that we see over and over. One of the most notable is that the C wave will almost always unfold in an impulsive, 5-wave structure, which on lower time frames will have its own smaller degree 5-wave structure.

We have a 1-2, (i)-(ii), i-ii setup right at the $127 support. If $127 is broken, we will be in the 3rd wave lower. Based on basic Elliot Wave, I’m expecting this move to terminate around $100-$95, at which point, I’ll look to add to my long-term position. Just to be clear, I’m still expecting Roku to reach $200 by 2021. 

However, it’s worth noting that Roku has held the $127 support, and though the signals are suggesting that it could head lower, Roku has a tendency to move fast against bears. On a long-term basis, $127 is not a bad price to pay for this stock, based on what we are projecting for 2020.

Also, if Roku can break out on heavy volume in a 5-wave move up from $127 upwards, while the internal indicators break their downtrend (look at the green arrows), I’ll scrap this bearish set-up, and look to go long from higher levels.

Qualcomm (QCOM)

QCOM is approaching a cluster of resistance. The red box highlights a strong concentration of significant Fibonacci prices. Rarely do you see a concentration like this. QCOM will either break through on heavy volume, which would be an indication to go long, or it will break down from current levels. If we break down, I’ll be looking to add to my position in the green target box between $80 and $62.

Alibaba (BABA)

Since Alibaba broke out, we have clearly been in a 3rd wave uptrend. For anyone curious what a 3rd wave feels like, this is it – an uninterrupted bull train, where the price stays above the 10 and 20-day EMA. I’ve put my targets in the chart above as well as significant resistance zones as we continue upwards. We should have pullbacks along the way.

Twilio (TWLO)

Twilio has shot straight through the 200-day SMA and found resistance at the 61.8% retrace level around $123. If Twilio can break this region, I will likely begin layering into Twilio. I will want to see it break through the $135 region for a final confirmation that the 2nd wave is over. However, a move up like we’ve seen in Twilio, breaking the 61.8% retrace is worth noting.

Zoom (ZM)

So far, Zoom is playing out as planned. After topping out in its first wave, it retraced nearly the entirety of that move in a very deep second wave. Since then, it’s provided us with a 1-2 setup, and is now powering up towards its AVWAPS. We picked up shares in the low $60s with a stop at all-time lows. As long as this level holds, I’m expecting new highs this year for ZM. If it can power through the above AVWAP in blue, that will be a strong showing of strength, at which point I’ll add more to my position.

General Market Update: October 3rd

Posted on by io-fund

It’s my prediction, that no matter what the broader market does, that tech will no longer be seen as a cyclical high-growth play – and rather, as more secular. The market is not ready to accept this yet but I believe they will be proven wrong as tech no longer needs a strong economy to push forward. Some tech companies will continue to report strong earnings, even when safe value stocks do not. I am not sure how the market will react exactly to positive tech earnings, as liquidity tends to trump earnings. But, in the last two major pullbacks, of the dot-com bust and the 2008 loan crisis, technology was not in a position of strength. Many of the internet companies were superfluous. They did not solve a pain, and global economies were not built on them. By 2008, the tech hype cycle had not begun, and in fact, mobile had its start six months prior with the iPhone launch.

You can basically say, at this point, that the most technologically advanced country is the most powerful country. That became more of a reality with cloud computing.

With tech, I’ve stated in previous market updates, that I follow trailing stops. This is a personal decision as the losses on tech growth (even great companies) can happen swiftly. I used Nvidia as an example of why a trailing stop is a great idea – you can always get back in once the stock stabilizes.

Today, nothing happened to the stocks we’ve covered in the PDFs that would be cause for alarm. If you’re new to Roku, then the pullback was alarming, but we had stated many times to not buy at its peak because this stock has a predictable pattern of dropping 50% off competitor announcements (these announcements are immaterial – Comcast -are you kidding me? And Apple is not a competitor as Roku is free ad-supported; not a subscription service. I’ll write some thoughts in the forum on this). 

Of the industry verticals across tech, I want to emphasize that connected TV advertising will be a safe haven in the short-term. Brands are allocating budgets to CTV ads and that’s not going to change anytime soon. Roku, Trade Desk and a small cap Telaria was discussed on the forum. My goal is to dig up a few more options here for you to consider. As you know, Roku is my favorite and it’s due to product-market fit – but by all means, choose the CTV ad products/companies that you think fits your portfolio the best. I don’t think you can go wrong.

Cloud stocks will continue to report growth, as well. If I were to rank them, I continue to believe Zoom is the most insulated from a global slowdown. They solve a real problem and they do it cheaper and easier than the competitors. With that said, Workday, Slack and MongoDB should also remain insulated.

I do hedge and have short positions and puts. I do well with these and so do many of my readers. I hear from subscribers frequently on the Uber and Lyft analysis as I’ve always had high conviction here.

I have medium to high conviction on semis being in a similar place. I’m personally a fan of making money on the way down, and if this market is going to be volatile, I don’t see the semiconductors being an exception. We already saw that with Micron dropping 11% in one day. We had covered this via technical analysis, as well.

Snap should have had another announcement on Audience Network by now.  I am confident institutions were expecting this announcement, as well. This one needs to be looked again, as it’s been six months and no further word on this.

Below, we have a technical update for you to help guide entries and exits. There was some good discussion on the forum about technical analysis being especially helpful on knowing when to exit to protect gains. We may not control the market, but we can at least use probabilities to manage risk and formulate a game plan.

Technical Analysis

by Knox Ridley

Aerial View

What we are looking at is the weekly chart in the S&P 500 going back to 2012. As some of you know, the RSI measures the internal momentum/strength of the price trend.

When the RSI oscillates above 50 and into oversold levels around 70, this is a healthy uptrend. An example of this is the RSI uptrend from 2014 to 2015, which is highlighted in green arrows.

On the flip side, when the momentum and strength is failing, it can warn us of a trend change. You can see this between 2015-2016. This is a similar pattern to what we are seeing today. The RSI is failing to break through the downtrend resistance. I’ve marked this with red arrows where it is making lower lows while the price is making higher highs and is now approaching the 50-day moving average, which is highlighted in orange.

Close Up View

The market has been trading in an expanding wedge for the last couple of years, which is outlined in the expanding black trend lines. The price has tested the upper trend channel multiple times, and each time has failed to break out.

The important levels that I am watching are the 2725 region. If we break that region, marking a lower low in the 2019 corrections, that will be a major warning.  We have one last level to test, which will be 2600. If we break 2600, then we will likely test new December lows. By this level, my stops would have been hit and I’ll wait for things to stabilize.

Past Expanding Wedge Pattern (1990)

The last time we saw an expanding wedge pattern play out on a similar time frame was in late 1990. The yellow section highlighted indicates a 20% drawdown in less than 3 months.  So, these moves can be swift once the pressure builds. 

Conclusion

When you factor in that the Manufacturing Index reported its first contraction since 2009, coupled with weakening global production, it’s obvious why sentiment is at heightened fear levels. Pundits will claim that manufacturing doesn’t matter in America; that the consumer is all that matters. However, manufacturing mattered in 2008 as it did in 2011 and it matters today.

The reverse side of the argument is that bull markets don’t usually end in a whimper. There have been some theories that October will be painful with the year ending with new highs. For me, the 2725 level and 2600 level are the levels when we will be heading towards a bear market. As of now, I am leaning into caution while holding high conviction tech names with tight stops.

Tech Sector

Like the S&P 500, the tech sector has broken the uptrend started from the 2018 December lows. Tech led the charge up, so will likely lead any charge down. The next support level will be the 50-day moving average, which is highlighted in orange.  This is not a good sign and an indication that more downside is likely ahead. 

Rotation is underway

The Fifty index tracks and rebalances for the stocks with the most momentum in the market.  Technology and Consumer Discretionary takes up over 50% of the total allocation.  Notice the rotation out of momentum and into the safe, defensive staples names. 

As many of you know, we’ve been discussing the shift in cloud stocks. According to SentimenTrader.com, September 9th marked the biggest one-day shift in momentum since 2009. On this day, value outperformed the best performing stocks YTD – mainly tech momentum stocks. You can read our blogs here and here on similar topics.

Workday – If we break $163.75, we will likely find support around the $141-140 region. This region coincides with the 38.2% retrace and the 168% extension. These are significant Fibonacci levels that will act as strong support. I will look to be a buyer around this region regardless of broad market sentiment.  If we break this level, the 50% retrace around $123 will be the next support region.

Roku – We’ve updated you recently on Roku in a separate technical analysis.  

Snap – Suggested stop at $14.

Work –A safe stop is at $20.  If we close at or below $20, something else is playing out.

Zoom – ZM held support around $80-$78, which was the ideal target for a base.  However, it has broken this support and currently broke through the 61.8% retrace level around $74.80. Below the 78.6% retrace and we are dealing with something other than a pause in a major uptrend. Stop at $67.75

Chainlink – So far, Link has followed our game plan perfectly. It broke down below the $2 line, and traded down to the $1.70 and $1.50 range, which was dead center in the middle of our target box. Hopefully you layered in some buys at this range. We are currently back above $2.  Link below $2 is a buy.

Bitcoin – Bitcoin has been trading within my target range for the last week – between the low $8,000s and high $7,000s.  So far, the price action hasn’t confirmed a bottom. Bitcoin below $8,500 is a buy.