Investors expecting Zoom Video (ZM) to turn things around on Tuesday must be disappointed with today’s performance. After the firm announced profits, shares of the videoconferencing expert in San Jose, Calif., were down more than 16 percent, bringing the stock to multimonth lows.
Zoom Video, on the other hand, has failed to break through its low from the bear market bottom that growth stocks experienced in May. However, for investors, this isn’t much of a silver lining. Zoom Video exceeded profit and revenue forecasts while achieving record sales results, therefore the reaction is disappointing.
What is the issue? Management provided guidance, stating that growth would moderate considerably from pandemic-peak levels. This is despite the fact that COVID cases are on the rise. A handful of analysts have already lowered their price estimates in response to the quarter. However, it seems reasonable to ask if the reaction is an overreaction.
The fact that Zoom Video stock has been putting up a succession of lower highs is one of the most noteworthy findings in the preceding chart (blue arrows). Aside from that, the stock was largely trading in a $100 range, between $300 and $400, while chopping around a crucial $340 area. This makes determining a bias — optimistic or bearish — difficult, and the process grew considerably more difficult ahead of results.
However, because Zoom was not below only a couple of its key daily moving averages, the scales shifted in favor of the bears. It was beneath them all.
As a result, the bulls may have a chance on their hands. Before it was reported, Zoom Video’s stock was already down 41% from its highs. The business then produced a top-and bottom-line beat, as well as guidance that was in line with consensus expectations, despite what the market action and analysts imply.
Aggressive bulls may take a long position now that the price has dipped to the 21-month moving average. Those interested in buying should set their stop-loss at $271, or just below the May low.
Before getting long, more cautious purchasers may want to wait for a fall down to $270 to $281. Another option is to wait for Zoom Video stock to fall below $273, then regain this level on a comeback – if it breaks it at all. With the price back over $300, Zoom Video may be able to close part of the gap and retest the 10-day moving average at some time in the near future. I recognize the setup isn’t great, but this is a major move with a lot of volatility. If you plan to trade this stock, keep that in mind.