Last week was eventful. Unemployment rose by another 6 million claims on Friday bringing the estimated unemployment rate anywhere between 10-14%. The Federal Reserve announced an unprecedented program, which included shoring up the high yield bond market. Standard & Poor’s is projecting a default rate in this cycle to be around 10% by year end, with some estimates approaching 13%. This is higher than what we saw in 2008. The SPX also broke the 2750 level, an important level we have been tracking since the expected bounce off the March lows.

We have been tracking a 5-wave pattern down, where the current bounce was the 4th wave bounce. This would eventually lead the final 5th wave to new lows. This was the game plan, as long as the market stayed below the 2750 mark, which failed on Friday.

Please note, we have been discussing more on this topic in the forum under predicting bottoms. predicting bottoms. 

The 4th wave scenario topping out from current levels, and thus taking us down to the 2100 region in a quick fashion is still technically valid below the next resistance price of 2855; however, the probability of this has become much lower than the other potential scenarios at this point, one of which is now the possibility of a renewed bull market.

I find this scenario has low probability as long as we stay below 3150 on SPX. And if we do confirm this pattern, it will not be a straight shot, so there will be plenty of time and room to adjust. However, any responsible technician has to acknowledge this potential.

For one, it can’t be understated the amount of stimulus thrown at this market. Both the treasury and the Fed have and will continue to unload as much stimulus into this event. This event will be the ultimate test for the popular phrase, “don’t fight the FED.”

Considering the record breaking outflows from equities, the large short interest in the market, coupled with the elevated put/call ratio being tilted towards purchasing more puts right now, the “pain trade” for the larger market would be a continued move upward.

We will monitor the market this week and release an update on the technicals once we have more information. However, the scenario I am now tracking has us in a more complex bear market and I personally believe there will be a re-test of the lows. Of course, feel free to invest as you see fit and what matches your investment thesis for this market.

A few things Beth has been watching and wants to make you aware of:

• She wrote an article for Forbes on weakening ad demand that has similar information that she had published prior on the premium site. Recently, there was a report by Gupta Media that she did not include in the editorial. The report states, “As of data available Tuesday, Facebook’s worldwide CPM fell an all-time low of $1.95, according to data analyzed by Boston-based agency Gupta Media.data analyzed by Boston-based agency Gupta Media.The article comes from MediaPost, a reliable source. Keep in mind, Facebook usage is up so this should help some. However, her concern is for the smaller players in ad-tech, notably TTD, RUBI, PINS, SNAP and perhaps Roku although Roku has licensing fees/commissions from content apps.
• May is going to be a pivotal month for the tech industry. As of now, we saw startup layoffs increase 4X from 4,000 to 16,000. Per RBC Capital, “We view May as a critical month – if the majority of the workforce is not back to business as usual, we believe significant cuts (of people, not just numbers) are increasingly likely in software.”
• If the shelter in place continues into May, net bookings for Q2 and Q3 could be cut between 20-50% on average.

As of now, these are the major points to acknowledge:

• Now that we have closed above 2750, The next major resistance level will be the 2855.
• If we clear this zone, look for a topping pattern between 2950 -3100. The 2950 resistance will be the price region that I will look to build up my short positions (if we reach it), with a stop at the 3130 area.
• If we close above 3130, the probability that we are in a new bull market shifts.
• If the market closes below 2500, the bear market will continue.
• The bear market targets are still the same as of now.
• A final leg in this bear market is still the higher probability outcome.

Stock Updates

Dynatrace (DT)

Dynatrace is a position we recently started to build out along with our hedge in a Lyft short. The structure still suggests that the target box we outlined will likely be hit. We are witnessing weakening internals as outlined by the MFI and RSI, which are both making higher highs while price makes a lower high. We like this company and are raising the price range.

Datadog (DDOG)

We recently went long on Datadog, as posted on the forum. Per reader feedback, we are working on a system that differentiates between trades and buy and holds. Our targets on the spreadsheet are our buy and hold targets.

Like DT, we like this stock for the long haul. The structure of the stock is suggesting that we will retest the lows, after likely failing to close the gap above around $40. We are raising our target entry for DDOG to $30.

Chainlink (LINK)

Chainlink has had another impressive run recently. I offered my recent chart in terms of Elliott Wave analysis, which is still expecting the opportunity to pick up shares sub-$2 once the corrective move we are in completes. However, I wanted to show you what my Gann analysis is suggesting, as well.

Notice how the price reacts to the Gann ratios. We have several tops at various ratios as well as supports. We bottomed on the 8/1 in red, and pushed through the 4/1 in purple. I believe we will test the 3/1 in gold, which will likely mark a top to this move. If we can close above the 3/1 in gold, I will likely look to go long with tight stops.

Snap – short position

On weakening momentum and volume, Snap keeps pushing higher in a clear corrective pattern. It has found resistance at the 61.8% retrace level from the entire drawdown. This level also coincides with the 50% extension of the A wave within the corrective move off the March lows. Another Fibonacci confluence zone is the 100% extension of the C-wave equaling the length of the A-wave, which will also coincide with the 85.4% retrace level around $17.25.

We believe that Snap will find a top within this range, and give way to the final C-wave down. The first target for this drawdown will be $11. Below $11, and the $8 region comes into play. I will look to hold a stop at $17.50. If we close above this level, I will close my position the next day.

With shorts, I target between 20% – 40% as the target gain. Shorts gains can turn into losses in a matter of days while the VIX is this elevated.

Lyft – short position

The setup with Lyft is very similar to Snap. We are in an even more clearly recognized corrective structure, which I believe could push as high as $45 before finally giving way to a new downtrend.

The internals are supporting a weakening uptrend, with less participation as noted by the volume. Like with Snap, once we hit the $23 range, I will look to cover some of the position. If we break below $22, expect the recent lows to come back into play. If we close above $45, the next day I’ll close my position.