It's not surprising that we're seeing the exact same price action in Zynga (ZNGA) right now. The online social game maker ebbs and flows with Facebook, where most its games are played. In a sense, ZNGA is just high-beta Facebook: a more volatile way to bet on the social networking giant. And like FB, Zynga looks "toppy" right now.
Zynga is forming a head and shoulders top with a neckline at $3. A breakdown through that price signals that it's time to sell before buyers completely evaporate. You see, with any technical pattern, it's critical to think in terms of buyers and sellers, not shapes. After all, rectangles, head and shoulders patterns, and the like are a good way of describing what's happening on a chart, but they're not the reason that it's tradable. Instead, that all comes down to the supply and demand caused by those buyers and sellers.
The neckline at $3 is a place where a glut of buyers has been willing to step in and put a floor in the stock up until now. A breakdown means that increasingly eager sellers have absorbed all of the excess demand for shares sitting at that level -- and without that barrier in place, shares have room to drop.To see this week's trades in action, check out this week's Must-See Charts portfolio on Stockpickr.-- Written by Jonas Elmerraji in Baltimore.
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