I will be offline for a few days. The website and responses may be a little slower prior to earnings coming in at the end of April. Pablo is our admin and will be checking email if there are any technical concerns. He can be reached: pablo@beth.technology. Knox will continue to be available on the forum and email knox@beth.technology . There will be premium blog updates as we go through earnings and updates on technicals if the market makes any major moves.
The blog post I published for the April spreadsheet sums up my fundamental thesis for Q2.
As published in January, one major thesis for 2020 has been hybrid cloud and and the migration of larger enterprise and B2B budgets. This thesis hasn’t changed and the work-from-home trend will support the growth already being predicted in this category. Behind every Docusign, Slack, Zoom Video, Netflix, Ring Central, etcetra is cloud infrastructure and cloud monitoring. You’ll notice the top 7 or so stocks on the April conviction list are at the cloud infrastructure/data center level. We also added Okta to this coverage recently.
I believe ad-tech has an adjustment in its future. You’ve seen me cover this quite extensively. The current ad demand is highly unusual and with sports, live events, and travel being slow to comeback, advertising companies have a long year ahead of them. Typically, in the past, ad exchanges feel a lull in ad demand the most (i.e. The Trade Desk and Rubicon). We could get some positive spins on Q1 but look for a withdrawal of guidance as these companies try to get a handle on the situation. I’ve asked Knox to hold out longer on these companies for any new positions and I know he discussed a Snap short. We think Snapchat is particularly weak. We may look at hedging with The Trade Desk.
Regarding tech growth valuations, I would be cautious in thinking that tech will be immune to the current situation. We are seeing significant layoffs across startups. Also, institutional investors who perform channel checks are forecasting for higher software churn rates. Estimates right now are higher churn rates from enterprises of 3%-5% and higher churn rates of SMBs of 20%. Blended would be about 10%-12% higher churn rates. Effects from enterprises will be felt in the cross-sell and up-sell. Net new bookings may see a softening of 30% or more. Here’s some more information from Gainsight about the expected increase in churn. The companies who use Gainsight include Anaplan, Tableau, VMWare, Splunk, RingCentral, Yext, SailPoint, MuleSoft, Workday and Citrix.
Our Coronavirus picks are Zoom Video, Slack and DocuSign for their strength over the long haul. Institutional and funds also like Smartsheets, Ring Central, and Teladoc.
In the most recent April update, we did indicate that Inseego was getting positive press. It’s due to 4G hotspot demand from governments and schools.
We’ve seen reports that Twilio and ServiceNow are continuing to hire. Zoom Video and DocuSign are hiring, as well. This may be an indication of strength in these companies.
Knox’s technical analysis of Okta is below. Thanks, Beth
Okta Technical Analysis
By Knox Ridley
Looking at the daily chart, Okta has been trading within a range for several months. The $140 range and the $95 range is where the price is bound. The volume spikes give a clear sign at the price at which institutions are liquidating shares and also accumulating shares.
So far, between $100-$90, we see heavy volume spikes, indicating that institutional money is defending this level. On the sell side, we see heavy volume spikes between $120-$145. Until we can get volume spikes breaking through one of these 2 ranges, we will stay range bound.
From the prior lows, we see weaker volume push the stock back up to the upper end of this range. This indicates potential retail investors bidding the stock back up.
Over the last several months, this range has formed a cup & handle pattern. If we can see a breakout above the $146 on heavy volume, followed by a retest and hold of that level, that would be an indication that institutions are willing to pay higher prices and we will initiate a long position.
Furthermore, the RSI is showing weakness. We are approaching oversold levels. If you track where the RSI was last time the price was this high, it was at a lower level. This means that we needed more buying pressure to reach the same price level. Also, notice the RSI trend outlined by the green dashed line. If this breaks, that will be an early tell that we may get a local top and continued drawdown.
As of now, my primary count is that we are in a B-wave, within a larger A,B,C pattern. It would be rare to see a larger degree 2nd wave only tag the 23.6% retrace level off the all-time lows. It usually targets the 50% – 61.8% retrace levels. But, with the potential for growth being minimal in this market, coupled with the runway in front of Okta, we believe a retest of the 23.6% retrace level, which is around the $95 region, is a strong buy.
Weekly Chart
The bigger the pattern, the more significance it holds. The weekly trend is much more ominous than the daily trend, and because it’s a longer length of time, it holds more weight than the daily patterns.
We can see the clear uptrends noted by the green dashed lines on all of the momentum indicators – MFI, MACD.
At the same time, we can see large negative divergences on the MFI and MACD. As the price is making higher highs, the momentum indicators are making lower highs. This is also confirmed by the lack of volume in the current uptrend and shows that the current rise in price is being built on shaky ground.
This does not support a breakout. In fact, it tends to support a breakdown. I’d be careful buying around the highs as long as we stay below the $146 region without a breakout on heavy volume.
My Elliott Wave count is also present from the all-time low. I see us topping out and completing the larger degree first wave in red. This would put us in the 2nd wave as discussed prior. The price regions I’d look to begin layering in are colored on this chart: $105 (yellow), $96-$90 (red), $72-$67 (green). We do not see the green zone coming into play, but think it likely we see the yellow and red.