Chart Of The Day: Why Zoom Stock Could Retest All-Time Lows
Pinchas Cohen | Oct 11, 2022 19:24
J.P. Morgan characterizes Zoom Video Communications (NASDAQ:ZM) as "washed out" as a video conference provider in the short term. However, the bank believes in the company's underlying technology and market penetration in the long term. J.P. Morgan sees the company's stock rising more than 15% to $85. While that's possible in the long run, I expect the stock will first dip to $62 within the next six months.
Here's why:
Zoom stock has been developing an H&S bottom since Mar. 14. However, after lowering its full-year profit and sales forecast, the company's stock plummeted 16.5%, blowing out the reversal pattern. On Sept. 16, the stock took another turn lower, falling below the would-be reversal pattern's head, and registering a new low. On Oct. 6, the stock attempted the $79 level, where the head's low was, and failed, falling back to its recent lows.
An H&S failure results from misplaced optimism, jiving with J.P. Morgan's pessimistic view regarding the firm's short-term performance due to increased competition from Microsoft (NASDAQ:MSFT) and others. Disappointed longs closed position, reducing demand, allowing supply to drive prices lower. This development increases the risk of attracting short sellers, increasing the cost. A technician measures the distance between the head and the right shoulder to reach a downward target. The length of $17.08 between the May 12 low of the head and the July 15 shoulder low of $96.11 is then assumed to repeat from $79.03 of the pattern's head to the downside.
h2 Trading Strategies/h2Conservative traders should wait for the price to break the $70 round number and rally to confirm the resistance before risking a short position.
Moderate traders would wait for the throwback for a better entry if not for added confirmation.
Aggressive traders can short according to their personal strategy. If you don't have one, here are generic examples for educational purposes:
Trade Sample 1 - Aggressive Short Position
- Entry: $76
- Stop-Loss $80
- Risk: $4
- Target: $64
- Reward: $12
- Risk-Reward Ratio: 1:3
Trade Sample 2 - Moderate Short Position
- Entry: $79
- Stop-Loss: $80
- Risk: $1
- Target: $72
- Reward: $7
- Risk-Reward Ratio: 1:7
Get The App
Trade Sample 3 - Conservative Short Position
- Entry: $79 (if found resistance, after falling below $70)
- Stop-loss: $80
- Risk: $1
- Target: $72
- Reward: $7
- Risk-Reward Ratio: 1:7
Disclaimer: The author has no positions in any securities mentioned in this article.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.