The software company that provides videotelephony and online chat services through a cloud-based peer-to-peer software platform and is used for teleconferencing, telecommuting, distance education, and social relations, Zoom Video Communications Inc. (NASDAQ: ZM) seems to be getting ready for a surge as per its latest charts.
Bullish Indications
#1 Flag Pattern: As seen from the daily chart, the stock was in a strong uptrend after which it started consolidating and was in a narrowing range. This is a classic flag pattern and is marked in the chart in purple color. A flag is a continuation pattern. Whenever a stock breaks out of this pattern, it typically continues its previous trend (uptrend in this case).
Daily Chart – ZM
#2 Trading Above MA: The stock is currently trading above its long-term moving average of 200-day SMA, which implies that the bulls are still in control.
#3 Bullish Stoch: The %K line is above the %D line of the stochastic in the daily chart, indicating possible bullishness.
#4 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is currently greater than (-DI), and ADX has started to move up from below (-DI) and (+DI).
#5 Bullish MACD: The daily chart shows that the MACD line is currently above the MACD signal line. This indicates possible bullishness.
#6 Fibonacci Support: Usually, after an up-move, stocks retrace to any of the key Fibonacci levels before surging back again. ZM’s weekly chart shows that the stock has taken support at the 50% Fibonacci support level of the upmove and started to move higher. This is a possible bullish indication.
Weekly Chart – ZM
#7 Bullish Stoch: In the weekly chart, the %K line (light blue color) has currently crossed above the %D line (orange color). This is also a possible bullish sign.
#8 Bullish RSI: In the weekly chart, the RSI is currently above 50 and moving higher after reaching oversold levels. This indicates possible bullishness.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for ZM is if it breaks out of the flag pattern and closes above the resistance level of $415.00.
TP: Our target prices are $435 and $450 in the next 3-5 months.
SL: To limit risk, place a stop loss near $404.00. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 5% to 8% in the next 3-5 months.
For a risk of $11.00, the target rewards are $20.00 and $35.00. 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 with high volume from the flag pattern and the Fibonacci support level. 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 its sector.
Happy Trading!
— Tara
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