๐ป Zoom: Technical Buy, Fundamental Sell ๐ป
ZM (Zoom Video Communications Inc) was one of the companies that benefited most from the Covid pandemic. Revenue literally quintupled during one year and stock prices soared up to all time highs of $588.84 in October last year. Buying interest has faded since then, stocks currently trading 27% below these highs. The local low on 12 January was almost 44% below the all time highs, so a rather significant pullback during a 3 month period.
I have recently gotten back into Zoom and I explain my rationale below. Please note my core strategy is swing trading utilizing price action, volume and order flow.
๐ Technicals ๐
Since the all time highs in October last year, a wedge pattern with accompanying volatility contraction has developed on higher timeframes. We got an upside break on 15 January, when prices gapped up, followed by 13 days of sideways movement. That's when I started watching closely and mapped out several scenarios for a potential entry. I wanted to see the wedge resistance turned support holding and moving average to carry the price. We got both of these. Next step, I wanted to see a defined local resistance breaking to the upside on a pick up in relative volume. We saw that as well and you can see on the chart below exactly when and where I entered.
My first reference point was the $427.76 pivot level, which we cleared with a close above. This sets up my trade for a first profit target at the $485 level and second target being the all time highs at $588. In other words, still significant upside potential for anyone considering a buy at this point in time.
๐ Fundamentals ๐
Now important to note that my trade is based solely on the technical factors in this case. Fundamental analysis is not so encouraging with the projected growth being conditional on the world transitioning fully to a working from home environment.
But not only that, Zoom needs to be the best virtual conferencing platform out there. Which won't be easy to say the least with significant competition from Microsoft, Cisco, Google, Amazon, Apple, etc. The increasing competition will put pressure on growth and profit margins. And the sooner we start transitioning into a post-pandemic environment, the worse for the company as the growth we have seen is solely due to this external factor.
๐ Summary ๐
I'm currently long Zoom stock based on price action and order flow. My profit targets are defined for the short to mid-term. I do not recommend a long term hold for reasons explained in the above paragraph on fundamentals.
I have recently gotten back into Zoom and I explain my rationale below. Please note my core strategy is swing trading utilizing price action, volume and order flow.
๐ Technicals ๐
Since the all time highs in October last year, a wedge pattern with accompanying volatility contraction has developed on higher timeframes. We got an upside break on 15 January, when prices gapped up, followed by 13 days of sideways movement. That's when I started watching closely and mapped out several scenarios for a potential entry. I wanted to see the wedge resistance turned support holding and moving average to carry the price. We got both of these. Next step, I wanted to see a defined local resistance breaking to the upside on a pick up in relative volume. We saw that as well and you can see on the chart below exactly when and where I entered.
My first reference point was the $427.76 pivot level, which we cleared with a close above. This sets up my trade for a first profit target at the $485 level and second target being the all time highs at $588. In other words, still significant upside potential for anyone considering a buy at this point in time.
๐ Fundamentals ๐
Now important to note that my trade is based solely on the technical factors in this case. Fundamental analysis is not so encouraging with the projected growth being conditional on the world transitioning fully to a working from home environment.
But not only that, Zoom needs to be the best virtual conferencing platform out there. Which won't be easy to say the least with significant competition from Microsoft, Cisco, Google, Amazon, Apple, etc. The increasing competition will put pressure on growth and profit margins. And the sooner we start transitioning into a post-pandemic environment, the worse for the company as the growth we have seen is solely due to this external factor.
๐ Summary ๐
I'm currently long Zoom stock based on price action and order flow. My profit targets are defined for the short to mid-term. I do not recommend a long term hold for reasons explained in the above paragraph on fundamentals.
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