It's hard to deny that Software has been a strong performer out of the March lows. It hit some doldrums in July and into August, but it is beginning to come back to life. I've included a few software stocks today and in yesterday's Diamonds report.
What I see is a bull flag that is ready to execute. Notice that the last two times price fell, it reversed before having to test strong support at the July low. The PMO for the industry group is flat right now, but I am looking for some outperformance given the positive RSI and rising bottoms.
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Welcome to DecisionPoint Daily Diamonds, wherein I highlight five "diamonds in the rough." These are selected from the results of my DecisionPoint scans, which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!
ARK Innovation ETF (ARKK) - Earnings: N/A
ARKK is an actively managed fund that targets companies poised to benefit from disruptive innovation in one of three areas: industrial innovation, genomics or Web x.0.
The strength of this ETF is clear given the solid rising trend from the March lows. The pullbacks have been few and far between, but ultimately, the rising trend and 20-EMA have held up well. The RSI is positive above net neutral (50) and the PMO is nearing a crossover BUY signal. The OBV is confirming the current breakout rally. 99.6 is a very very strong SCTR rank. I'd set a stop below the rising trendline as I wouldn't want it if that were broken.
As you can see, the rising trend has been steady, not parabolic which protects us somewhat from a price shock decline. The weekly PMO is rising strongly.
Five9 Inc (FIVN) - Earnings: 11/5/2020 (AMC)
Five9, Inc. engages in the provision of cloud software for contact centers. It specializes in omnichannel routing, analytics, workforce organization, and reporting.
Here's our first software stock. I like the breakout above the early July top. This is accompanied by a change in direction to the upside for the PMO. The RSI went positive shortly after the bounce off the 50-EMA. The OBV has rising bottoms in line with rally bottoms. The SCTR is very strong which suggests internal and relative strength. Setting a stop here is a bit tricky. I would set mine just below the 50-EMA as I wouldn't want to see it close below that level. Back in June it punctured the 50-EMA, but managed to close above it. That's why I'd be watching that 50-EMA.
Fairly positive weekly chart. The PMO has begun to falter and appear ready to turn over, but for now, it is traveling in the right direction. If price can get to the previous all-time high that would be a 6%+ gain, but I expect it to go higher.
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GrubHub Inc (GRUB) - Earnings: 10/28/2020 (BMO)
Grubhub, Inc. operates as an online and mobile food-ordering company, which connects diners with local takeout restaurants. Its online and mobile ordering platforms allow diners and corporate businesses to order directly from takeout restaurants in the United States and London. The firm's products and services include Grubhub, Seamless and Eat24 Mobile Apps and Mobile Website, Grubhub, Seamless, Eat24 and MenuPages Websites, Corporate Program, Delivery Services, Grubhub for Restaurants, Technology and Fulfillment Services, Point of Sale Integration, Restaurant Websites and Mobile Applications and Allmenus.
This one isn't in the software space, but it stood out to me as a very bullish chart right now. The PMO is bottoming and getting a BUY signal ready above the zero line. Volume is steadily rising with price and we have a strong SCTR. The RSI is getting overbought, but still has room to move higher.
The weekly chart shows a very strong PMO and a bullish double-bottom pattern. We are sitting against what could prove to be tough overhead resistance, but if it can get past it, I see at least a 14%+ gain and if it gets up to the early 2018 high, that would be a substantial gain.
Teladoc Health Inc (TDOC) - Earnings: 10/28/2020 (AMC)
Teladoc Health, Inc. engages in the provision of telehealthcare services using a technology platform via mobile devices, the Internet, video and phone. Its portfolio of services and solutions covers medical subspecialties from non-urgent, episodic needs like flu and upper respiratory infections, to chronic, complicated medical conditions like cancer and congestive heart failure.
Today I presented at the MoneyShow virtually and ran through a sample Diamond PMO scan and then sifted and selected stocks live. This was the standout to me this morning. The 5-EMA is about to cross above the 20-EMA for a ST Trend Model BUY signal. This could be a trading range play, but I am looking for it to overcome resistance at the top of this range. The RSI just went positive and the PMO is rising nicely. I see a positive divergence with the OBV and a very strong SCTR. Last I looked, this one was down in after hours trading so I'd watch the intraday chart for possible entry.
If TDOC can get to its all-time high that was set just last month, that would be a 16%+ gain. Granted the weekly PMO looks troublesome, but when you take into account the deep decline of the last two week, that would do it. At this point it is decelerating which is positive.
Zoom Video Comm Inc (ZM) - Earnings: 8/31/2020 (AMC)
Zoom Video Communications, Inc. engages in the provision of video-first communications platform. It connects people through frictionless video, voice, chat and content sharing, and enable face-to-face video experiences for thousands of people in a single meeting across disparate devices and locations. It focuses on customer and employee happiness, a video-first cloud architecture, recognized market leadership, viral demand, an efficient go-to-market strategy, and robust customer support.
Yesterday I presented Citrix (CTXS) the purveyor of "GoToMeeting" and today I have one of its competitors, Zoom Communications. This chart looks very similar to the one I opened with of $DJUSSW. We have a possible flag formation that is ready to execute. The PMO has turned up and it looks like ZM may breakout of this trading range. I would set my stop around the 20-EMA as I don't think I'd want to ride it down to support at $225. There is a slight negative divergence between OBV tops and price tops right now which is another reason I really would want to wait on it if it starts to drop below the 20-EMA. They do report earnings soon, so keep that in mind.
We don't see much more on the weekly chart as Zoom is very young and doesn't have a lot of data. I do think the flag is very clear in the thumbnail.
Current Market Outlook:
Market Environment: It is important to consider the odds for success by assessing the market tides. The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA)
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA)
- The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
Don't forget that as a "Diamonds" member, you have access to our GCI/SCI curated ChartList on DecisionPoint.com. You'll find it under "Members Only" links on the left side on the Blogs and Links Page.
Here is the current chart:
- Diamond Scan Results: 3
- Diamond Dog Scan Results: 32
- Diamond Bull/Bear Ratio: 0.09
Full Disclosure: I'm about 65% invested right now and 35% is in 'cash', meaning in money markets and readily available to trade with.
Technical Analysis is a windsock, not a crystal ball.
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NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "diamonds in the rough."
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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