In this report we analyze: Zoom, Slack, Marvell, Teladoc, Bitcoin and Chainlink
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 we’ve made over the recent correction. Almost all of the positions we bought corrected in a symmetrical, 3-wave pattern, which we used to our advantage.
We also take a look at our two cryptocurrency plays – Bitcoin and Chainlink. From a long term perspective, both are setting up for extended uptrends. However, in the short to intermediate-term basis, there could be some volatility ahead. We outline the path we are taking with both.
Zoom (ZM)
On August 10th, as it appeared to be setting up for a pullback, we laid out two potential paths that Zoom could take. The red path assumed that the large degree 3rd wave had topped. This was setting up for a relatively deep pullback. The green path assumed that we were only going to see a minor pullback and that the large degree 3rd wave had more room to run.
Based on where Zoom bottomed, and how it broke out to new highs, it appears that the probabilities have shifted towards the green path. The below chart outlines this path.
We will want to see Zoom’s recent breakout zone between $280-$285 hold. So far, it has closed 2 days above this zone and it did so on heavy volume, which is an encouraging sign. The Accumulation/Distribution line (A/D line) is also encouraging. It’s suggesting that smart money was buying into the correction as it continues to make new highs with the price.
By focusing on the green count in the above chart, we can get an idea of why it is likely this will be the path Zoom will take going forward.
Since bottoming in April, ZM appears to be tracing an ending diagonal pattern. This is a series of 5 waves that tracks a trend channel (in gray). That would make the recent downtrend the 4th wave, and setting us up for the final 5th wave in this move. The evidence that the 4th wave in this pattern is over is:
- Note how correction unfolded in three legs (blue a,b,c). The length of the first leg (blue a), fell 15.6%. The length of the 3rd leg (blue c), fell 16.2%. We commonly see corrections unfold in a symmetrical fashion, where the length of the 3rd leg down (C) is within a few percentages away from the length of the first leg down (A).
- The correction tagged a common retrace level for 4th wave corrections, which for Zoom is around $235.
- The correction found support on the outer regions of the trend channel.
- The price has made new highs.
This would put us in the final 5th wave, which is targeting the upper region of the trend channel. There is still a chance that Zoom could fail this breakout and make a lower low; however, the probabilities are not in favor of this scenario as of now. We have guided five successful entries with Zoom so far. We believe that when this move completes, we will have an opportunity for the 6th.
Slack (WORK)
Slack is a position we recently added to, as well. Like Zoom, note the three leg correction (blue A,B,C). Though it’s not perfect symmetry, the length of the C wave came within 2% of the length of the A wave.
The price found strong support on the 38.2% retrace level of the 1st wave from the March low. This was confirmed by the positive divergence we saw in the CCI.
Because of these signs, we added to our WORK position.
The confirmation we have received so far is in the MACD crossing over, for one. The second confirmation comes from classic technical analysis in the image below.
Slack has traced a classic continuation pattern known as a pennant. The price has zig-zagged within this pattern on decreasing volume, then broke out, followed by a retest of the breakout zone.
The only concern here is the lack of volume confirming the breakout. This isn’t as crucial as some might think. It’s always a great confirmation, but price can increase simply by sellers drying up. We will want to see the price hold above the breakout zone, and move higher, or else the correction may not be over.
Marvell (MRVL)
So far, Marvell has played out exactly as we planned from last week’s analysis. It appears to be in a 4th wave correction, which we typically see bottom at or between 2 specific regions. For MRVL, these regions are $34 and $31 regions.
Within this region, you’ll notice symmetry at work again. The length of the first leg down (blue a) is -13%. Then, the length of the 3rd leg down (blue b) is -14%. This, coupled with two buy signals that formed in the internals, had us add to our current position in MRVL.
We are expecting a bounce from current levels. We will want to see this bounce unfold in a 5 wave pattern on a smaller timeframe chart, like the 30 minute or hourly chart. If this does not happen, and instead gives way to another leg lower, we will happily add again to this position as long-term investors.
Teladoc (TDOC)
Teladoc had a sharp drawdown after announcing the acquisition of LVGO. Based on the information given to us in the structure of the drawdown, we identified two support regions in prior reports, the first of which is around the $174-$173 region. It seemed probable that we would see the price hit this level. However, in technical analysis, you have to be prepared to change your thesis in real time if evidence begins to suggest otherwise.
This, we believe, is what happened with Teladoc last week. If Teladoc was to hit the $174 region, it would have to do so in a C-wave. That would make the current uptrend the B wave. What we know about B waves is that they unfold into 3 wave patterns, symmetrical fashions. This, as of now, is not what we are seeing.
Instead, what we have in blue is a 5 wave pattern pointing up. If this is the case, we have just completed the first wave of 5 to new highs. As long as the 2nd wave holds the $197 region, I will look to add as TDOC begins a new leg higher.
If $197 breaks, the probabilities shift that we may have another leg lower before finding a bottom. This is why I always start small when building a position. If this is the case, we will continue to add in tranches as we approach below support levels.
Bitcoin (BTCUSD)
In June, we announced that we are shifting our strategy with Bitcoin from a more active approach to buy and hold. The reasons for this shift was, for one, Bitcoin trades 24/7, which makes executing on identified setups quite challenging. We also believe in the long-term story to an extent that we are OK with the volatility.
Furthermore, from the perspective of technical analysis, the below chart is a rare gem that also bolsters our decision to buy and hold the asset.
This chart is the percentage growth of Bitcoin from its inception. Using classic technical analysis, there are two continuation patterns highlighted in blue. These are periods of consolidation that follow strong uptrends, and precede the next leg in the trend. The bigger the pattern, the more meaningful it is, and both of these patterns took years to play out.
Where we are today is in the breakout of the second, multi-year continuation pattern, also known as a pennant. The weekly MACD supports this move with a classic coiling pattern following by a steep uptrend. This is the kind of long-term pattern that I search for.
In short, the technicals are aligned with the fundamentals. We will continue to seek out entries with stops for our members who are looking for a position and may not already have one.
Chainlink (LINKUSD)
Chainlink recently became the 5th largest crypto currency in terms of market cap, taking over Bitcoin Cash. Since we covered the coin in August, editorially, LINK is up over 500%. After navigating 2 entries below $1.80, we stopped out of both trades for greater than 40% gains each time. On this last entry, we began a buy and hold position at $4.
Chainlink is not just another alt coin. Instead, it fulfills a unique and needed role within the blockchain stack regarding smart contracts. We encourage you to read Beth’s analysis on it here.
Technically, Chainlink’s price structure is quite complex. It is trending up; however, with numerous drawdowns, the overlapping structure appears to be in a large degree leading diagonal pattern. The below chart outlines the count that LINK appears to be following.
The only question to answer is the end of the 3rd wave. We typically see the MACD hit peak levels on the 3rd wave. The fact that it has rolled over hard supports that the 3rd wave may be over and we are in the early stages of a deeper pullback.
However, Link is finding support on the 20-day EMA in blue and holding (look at the chart below). If Link can hold, then break above $20, it supports that the 3rd wave can extend further, which we will want to be part of.
So, we have created a basic plan of action, outlined below.
- If LINK cannot hold the 20-day EMA in blue, the final level the 3rd wave must hold is the $12.50-$11.80 support. If these levels hold, and we then break above $20, the 3rd wave has more room to run.
- However, if the $12.50-$11.80 region breaks, we are in the 4th wave correction and should expect a deeper pullback. The first area of support in this scenario is the $9.80
For those that may think a drawdown of this magnitude is extreme, I encourage you to look at LINK’s relatively short history. In less than three years, there have been 21 drawdowns greater than 30%. Of those 21, eight are greater than 45%, five have been greater than 70%, and one was an 89% drawdown.
Chainlink is a volatile asset. Furthermore, it’s contribution to the blockchain microtrend is necessary, but still early. We consider this a long-term hold and expect a choppy ride. We do not believe that anyone has missed the uptrend, and that there will be many opportunities for entry. We will continue to add to this position when we see the setups forming.