I love writing analysis when people are making tons of money and everything points to them making even more money. Unfortunately, that’s not the case with ZM and I feel bad writing this, but these things need to be said.
This latest episode of weakness started back in early December when the stock tumbled 15% following robust revenue growth. As I wrote back then:
There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.
December’s initial breakdown paused near $400 for a few weeks, but as is often the case, when something refuses to bounce, that usually means lower prices are ahead. And today’s 6% tumble was the day. The stock violated $400 support, unleashing a torrent of defensive selling. The stock closed just a hair under recent lows but we should expect this to only get worse from here.
I’d love to be proven wrong and see this stock bounce decisively, but this price action is dreadful and we should be prepared for the worst. If a person still believes in this name, take profits with a plan to jump back in after the stock retakes $400. As I often say, it is better to be a little safe than a lot sorry.
On the other side, this looks like a great short entry with a stop just above $400 support.
If you find these posts useful, please return the favor by liking and sharing them!
Sign up for FREE Email Alerts to get profitable insights like these delivered to your inbox every evening.
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, receive actionable analysis and a trading plan every day during market hours
Follow Jani on Twitter @crackedmarket
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.