NEW YORK (TheStreet) - Finding desirable stocks that are bullish based on technical analysis and fundamentals isn't as common as one may expect. Online game maker Zynga (ZNGA) is currently in an investing sweet spot with outstanding monthly, weekly and daily chart patterns and an equally strong balance sheet.
The company is a turn-around story that changed my opinion from completely bearish (I thought it was destined for the dust bin), to one that I anticipate will reward shareholders in the near future with meaningful profits. Not everyone is buying the story though, and as a result, shares are trading near several key technical support levels.
Chart reading may appear confusing, intimidating and mysterious, akin to reading tea leafs for some, but when properly and mechanically analyzed, offers an unbiased opinion on any given stock. I take an entirely mechanical approach, eliminating all subjectivity. It's the only way I know of to get consistent results.
The reason technical analysis or market timing works is that it's actually measuring investor behavior. At the most simplistic level, technical analysis is about people. It doesn't take long for investors to figure out that on any given day emotion is the dominant influence on any given share price.Because people tend to react in a predictable manner given a known situation, we can reasonably expect some pattern repeat with predictability. We can profit by exploiting the tendency of investors to continue/stop buying or selling as the price action changes.
In the above Zynga monthly chart, the lines on the bottom extending to the right are support lines. Since the start of 2013, we could buy shares anytime at the support lines and profit. Zynga's shares are once again near the monthly support level.
The daily chart has another bullish characteristic that I use to time entries. The number 13 under Monday's bar is similar to a Tom DeMark TD13. It's beyond the scope of this article to detail DeMark indicators, but you can perform a Google (GOOG) search or go to DeMark's Web site to learn more. There are no sure ways to make money on Wall Street with any given trade, but over time, in the same method casinos use, investors can shift the odds into their favor. In a nutshell, I like the like this pattern for an entry. For my exact entry, profit target and stop loss recommendation, I created a Real Money Pro post that includes the use of options for risk mitigation. If you don't have a subscription (and you should if you're investing on your own), you can still read it with a free trial. I am equally excited about Zynga's prospects from a fundamental view. Unlike King Digital (KING) with one hit game, Zynga has a strong portfolio of games. More importantly, Zynga managed to dig its way out of a horribly destructive co-dependency Facebook (FB) relationship. At one time, Facebook held a firm grasp on Zynga's leash, but thankfully those days are over. Zynga is now free to conduct business without Facebook via its own Web site and mobile apps. Analysts estimate 2014 will generate a profit of 2 cents. I think 2 cents is a little light for 2014. I get extremely excited about 2015 because I think the 5 cent consensus estimated per share earnings is way below the potential. Zynga has the number one play money poker site in the world. Zynga also offers real money poker and casino games through its license in the U.K. If and when Zynga expands real money gaming into other markets, all bets are off on how far the stock may go. At the time of publication, Weinstein had no positions in securities mentioned. Follow @RobertWeinstein This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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