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One of the Tech Sector's Top Dogs (w/ Patrick Dunuwila) | Trade Ideas | Real Vision™ - YouTube
Channel: Real Vision Finance
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Welcome to Real Vision's Trade Ideas.
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Today, we're sitting down with Patrick Dunuwila
of The Chart Report.
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Great to have you here.
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Thank you.
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So this is your first time on Trade Ideas.
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Can you give us a little bit of your background
and what you do?
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Sure.
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I'm a trader, technician, and editor-in-chief
of The Chart Report.
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The Chart Report is a website that aggregates
and curates the best technical analysis from
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the smartest analysts out there, and it was
kind of born out of the idea that we think
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there's a lot of bad technical analysis out
there and just overall market analysis in
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general.
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And what we do with the chart report is we
separate the bad from the good, and we find
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common themes that people are talking about,
and we try to connect those themes, and find
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threads, and pull them together so that our
readers have actionable ideas and have a better
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chance of navigating the market.
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So with that, what sort of themes or ideas
do you see going on in the markets right now?
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Sure.
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Well, the trade idea I brought for you today
is Visa.
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That's ticker symbol V. And we think it's
really a story of relative outperformance.
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And before I get into Visa I want to touch
on the overall market real quick.
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And one theme that we've been talking about
a lot on the chart report and hearing a lot
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of technicians talk about is this flat 200-day
moving average.
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And what that means, what that's indicating
is that there's no clear trend in place.
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There's not a good way to have clear conviction,
bullish or bearish, one way or the other,
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right now.
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It's what that flat 200-day moving average
is suggesting is that all we can anticipate
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here is choppy, sideways, messy price action.
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And in that sort of environment, it's all
the more reason to be long the strongest quality
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names.
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And we think a large cap name like Visa presents
a great opportunity right now.
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The first chart I want to look at is large
caps versus small caps.
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And we have the Dow Jones relative to the
IWM, which is the small cap Russell 2000 ETF.
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And you can see that it's outperforming here,
and we expect large cap to continue to outperform
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in this environment.
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This is really top-down technical analysis,
and so you want to be in the strongest names
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in the strongest areas of the market.
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And as far as sectors go, it might surprise
some people to learn that this is actually
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a technology stock.
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It strikes a lot of people as a financial
stock understandably, but it's actually the
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third largest component in the XLK, the tech
sector SPDRs ETF, behind Apple and Microsoft.
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So when you take a look at how tech has fared
relative to the overall market, the S&P, we
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have a chart here of XLK relative to the S&P
500.
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You can see that relative to the S&P 500,
tech is hitting all-time highs, certainly
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a bullish thing.
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Now, tech has really been outperforming since
going back to pre-financial crisis.
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It's been the best performing sector year-to-date.
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Not only that, going back 5 years, it's been
the best performing sector of the S&P 500
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sectors.
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So again, it's an area of the market that
you want to be in.
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And we're just trying to find ways that you
can swim with the trend here.
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And that top-down approach helps you nail
down to the strongest names within the strongest
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sectors.
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So then if you look at Visa relative to the
overall tech sector, you find that it's been
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outperforming the tech sector.
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This is going back to 2011.
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So that's certainly another bullish thing,
and we think that trend will continue.
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It's more likely to continue than to reverse.
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So what levels are you looking at for Visa?
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Sure.
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Let's take a look at the daily candlestick
chart of Visa for a more tactical approach
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to this trade, and we'll talk about some specific
levels here.
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On this chart, you can see that Visa's broken
out to all-time highs, and it's reached those
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highs that it previously had made in October
of last year.
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And since then, that previous resistance level
from the October highs is now acting as support.
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And that goes along with classic technical
analysis and the principle of polarity, whereas
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when resistance is broken to the upside, it
then tends to act as a floor.
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It tends to act as support.
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And you can even see on that chart, once it
broke out, it threw back.
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we call that a throwback.
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When it revisits that support level, it threw
back to support, and that level has been holding
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pretty well.
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So we think that that presents a good clear
level to trade against and shows you a good
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risk and reward opportunity.
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It clearly defines where your risk level is.
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So how high do you see the stock potentially
going?
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Yeah.
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So as we've mentioned, it's at all-time highs.
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It's very close.
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I mean, it's trading a little off them.
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But in uncharted territory like that, one
of the tools we use is the Fibonacci extension.
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So we took the Fibonacci extension from the
October to December 2018 decline, and that
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projected up to the $170 level.
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We took the 161.8% Fibonacci extension, and
that brings you to the $170 level almost exactly.
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And that represents about 10% upside from
current prices.
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If you use 149 as a stop, we think that's
the more conservative stop.
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But you could go all the way down to 144 with
your stop.
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I wouldn't put it any lower than that.
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And as an entry, an ideal entry would be around
151.50, so $151.50.
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And we think that you could be buying any
weakness adding on dips here.
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And what's the time horizon on this trade?
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Sure we think it's good for the next quarter,
really.
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Again, as long as you stick to those risk
management levels, we see plenty of reason
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to be buying as long as it's above that, call
it 150 level, that zone.
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We draw support and resistance with a crayon,
not a pen or a pencil, because you want to
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have it be more of a zone than a specific
hairline level, if that makes sense.
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And another thing is back to what I was talking
about the broader market environment right
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now being a little bit choppy, this trade's
very prone to whipsaws, meaning you could
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get stopped out, and just to have price return
back above your level.
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Very frustrating kind of environment.
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But we see no shame in getting back long as
long as it's above that level.
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Those former highs from October present a
clear now support level.
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And yeah, we think you can be buying on dips
here.
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Do you see market volatility as the potential
biggest risks of this trade?
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Potentially.
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But we think that's all the more reason you
want to be-- if you have to be long stocks,
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you want to be in the strongest names in the
strongest areas of the market.
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So it's all the more reason to be in these,
so we think.
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Do you see any major risks here?
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None other than the broader market risk.
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And as long as you stick to your stock levels,
we think it presents a good risk and reward
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opportunity.
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Great.
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Can you summarize this Visa trade in 30 seconds?
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Yes.
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I would point to the specific levels.
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First of all, again, story of relative outperformance.
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The trend is up.
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That's the principal reason.
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And 149 would be your stop.
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Again, you can go all the way to 144.
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Obviously, position size accordingly.
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And you would use 170 as your target price.
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Be taking profits on the way up and be buying
on dips.
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151 would be an ideal entry.
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Great.
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Patrick, thank you so much.
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Thank you.
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So Patrick is bullish on technology.
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Specifically, he likes buying Visa, ticker
symbol V, between 149 and 151.50, with a stop
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loss of 144 and a target of 170 over the next
3 months.
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Just remember that this is a trade idea and
not investment advice.
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You should do your own research, consider
your risk tolerance, and invest accordingly.
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For Real Vision, I'm Justine Underhill.
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