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.