The global cloud-based information security company that provides Internet security, web security, firewalls, sandboxing, SSL inspection, antivirus, vulnerability management and granular control of user activity in cloud computing, mobile and Internet of things environments, Zscaler Inc. (NASDAQ: ZS) seem to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Symmetrical Triangle Pattern Breakout: The daily chart shows that the stock was forming a symmetrical triangle pattern. This pattern is shown as purple lines. A symmetrical triangle pattern represents a period of consolidation before the price breaks out.
This is typically formed when there is indecision in the price movements and uncertainty among the buyers and sellers. Once a breakout from the upper line occurs, it usually signifies the start of a new bullish trend. Currently, the stock has broken out of the symmetrical triangle pattern, which is a possible bullish sign.
Daily Chart – ZS
#2 Price above MA: The price is currently above the short-term moving average of 50-day SMA. This is a possible bullish sign.
[hana-code-insert name=’adsense-article’ /]#3 Bullish Aroon: The value of Aroon Up (orange line) is above 70 while Aroon Down (blue line) is below 30 in the daily chart.
This indicates possible bullishness.
#4 MACD above Signal Line: The MACD (light blue color) is currently above the MACD signal line (orange color) in the daily chart.
This typically indicates a bullish setup.
#5 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX has moved up from below (-DI).
#6 Fibonacci Support: Usually, after an up-move, stocks typically retrace to any of the key Fibonacci levels before surging back again. ZS had taken support at the 23.6% Fibonacci support level before moving higher, as seen in the weekly chart. So, this seems like a strong support area for the stock.
Weekly Chart – ZS
#8 Bullish Stoch: The %K line is above the %D line of the stochastic in the weekly chart. It is also moving up from oversold levels. All these indicate possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, you can purchase half the intended quantity of shares of ZS if it trades above yesterday’s close, at around $50.40. The rest of the shares can be purchased above the gap resistance level of $60.
TP: Our target prices are $60 and $70 in the next 4-6 months.
SL: To limit risk, place stop-loss at $44.60. Note that the stop-loss is on a closing basis.
Our target potential upside is 19% to 39% in the next 4 to 6 months.
When entering near $50.40; for a risk of $5.80, our target rewards are $9.60 and $19.60. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the symmetrical triangle breakout level with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara
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