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

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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.