The company that provides remote conferencing services using cloud computing, and offers communications software that combines video conferencing, online meetings, chat, and mobile collaborations, Zoom Video Communications Inc. (NASDAQ: ZM) seems to be getting ready for a price bump according to the charts.
Bullish Move – Chart Indications
#1 Channel Breakout: As you can see from the daily chart of ZM, the stock was trading within a channel for the past several weeks. This channel is marked as purple color lines. The stock had typically taken support at the lower rail of the channel before bouncing back again. The stock has currently broken out of the channel, which is a possible bullish sign.
Daily Chart – ZM
#2 Trading Above MA: The stock is currently trading above its 50-day SMA, which implies that the bulls are currently gaining control.
#3 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), ADX and (+DI) are above (-DI), and ADX is currently rising from below both (+DI) and (-DI).
All these points to a possible upmove in the near-term.
#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 Stoch: The %K line is presently about to move above the %D line in stochastic. This is a possible bullish sign.
#6 Double Bottom Pattern Breakout: As seen in the weekly chart, the stock had recently broken out of a double bottom pattern. This pattern is marked in pink color. A double bottom pattern is a strong bullish pattern. A breakout from the pattern usually foretells the possibility of an upmove in the short term.
Weekly Chart – ZM
#7 %K above %D: The stochastics reveal that the %K line is currently above the %D line in the weekly chart as well. This is a possible bullish sign.
#8 MACD Above Signal Line: In the weekly chart as well, the MACD line (light blue color) is currently above the MACD signal line (orange color). This is also a possible bullish sign.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ZM is above the upper wick of the latest candle in the daily chart. This translates to a price of around $89.
TP: Our target prices are $100 and $110 in the next 3-6 months.
SL: To limit risk, place a stop loss below $82.30. Note that the stop loss is on a closing basis.
Our target potential upside is nearly 12% to 24% in the next 3-6 months.
For a risk of $6.70, our target rewards are $11.00 and $21.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers almost 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the channel and goes below it. 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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