Zoom Video Communications
Zoom Video Communications (NASDAQ:ZM) has been consolidating in a massive rounded bottom pattern since October of last year with price slipping deep into a bear market. Prices have been down -42.12% since its respective 52 week high made last October.
Institutional Pricing models suggest that ZM is a sell because the 3 week moving average has crossed below the weekly chandelier which identifies buy and sell signals using volatility metrics. Since the sell signal that triggered last November when ZM was trading at $486, the stock has shed -213 points to a low of $273.20 before price found support at a key technical level of the 61.8% Fibonacci confluence, with a successful bounce in May.
It is now testing the high volume profile, a key level that if lost, would increase the vulnerability of prices to slip into the "speed zone" where there is a noticeable gap in the volume profile. This is where price has an increased tendency to rapidly rise (or fall) using historical volume metrics at those levels.
Conversely, should the (incomplete) rounded bottom pattern hold true, price could firm at this level and increase the likelihood of a re-test of the next resistance confluence near the 361.5 or +6.1% higher with the 38.2% Fibonacci confluence at 382.3 or +12.3% higher.
The rounded Bottom pattern is a bullish pattern, but it hasn't really completed yet so we're watching to see if this level (50% Fibonacci level) can hold, or whether the 61.8% Fibonacci level get tested again during the historically weak seasonality in September.
With price re-testing the key 50% Fibonacci level (near $335), price needs to hold last week's swing low of $331 to increase the likelihood of higher prices in the short term. The price closed on Friday at $340.81 filling a gap in price leaving short sellers holding the proverbial bag on last Thursday morning when ZM opened up $11 dollars up at $350.75 squeezing as high as $257,93 before succumbing to heavy selling with volume nearly twice the average daily trading volume.
On the Daily chart ZM has confirmed a classic Double Top pattern by closing below the "neckline" this past Friday. Double top patterns by nature aren't a confirmed "valid" pattern until price closes below the "neckline." ZM price did that on Friday so technicals watchers will be looking to see if price can reclaim the neckline and close back above that key level to invalidate that bearish pattern.
That having been said, one could say that price has already closed back below the "neckline" and if prices are unable to recapture the 50% Fibonacci that would increase the probability of a measured move that would take price back near the $313 level. Interestingly as well is that the right side of the double top pattern also looks like a bear flag which would give the same target on a confirmed close below $331.
ZM price historically underperforms in August.
Using historical seasonality metrics, the trend suggests that after a challenging August performance, ZM does usually improve somewhat in September, only to struggle even more so in October. While history doesn't always repeat, it is usually a good idea to check seasonal historical price action for certain months in stocks you plan on owning or trading.
Last week, Morgan Stanley did upgrade ZM to overweight from equal weight and raised the price target to $400, while the average Wall Street consensus has ZM's average price target near $415. This may have contributed to the 11 point gap up we saw last week on Thursday. Click here to get options trading signals for ZM.