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Buy the Dip in Zynga Stock After the Earnings? Use Caution

Zynga stock is getting smoked after its earnings report. But bulls are likely looking to buy the dip. Here are the levels to know.

It’s a sleepy day in the market despite the monthly jobs report. If only Zynga  (ZNGA) - Get Zynga Inc. Class A Report bulls could be saying the same thing.

The San Francisco social-games developer's shares are getting slugged, down almost 20% after its earnings report.

The results and outlook weren’t enough to inspire the bulls, while analysts have reduced their price targets in response.

It’s not a great showing, particularly as one analyst cited Apple’s  (AAPL) - Get Apple Inc. Report recent privacy changes as one of the negative catalysts for Zynga.  

It wasn’t long ago that the shares were trading north of $12. Now that they're down about 35% from those highs, is Zynga worth another look?

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Trading Zynga Stock

Daily chart of ZNGA stock.

Daily chart of ZNGA stock.

Coming into Friday, there were already concerns about Zynga from a technical analysis perspective.

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Granted, the shares were mostly range-bound between $10 on the downside and $11 to $11.50 on the upside. But they'd recently broken below the 200-day moving average, which had been support, as well as the 50-week moving average.

A bullish reaction would have sent the shares back over the 200-day and, preferably, back over some of its short-term moving average.

Instead, Zynga is plunging, leaving one heck of a gap in its wake. It doesn’t help that the stock is fading from where it opened, rather than rallying off the lows.

The $8 level was a key support area in November. Watch this area for a potential bounce zone. Aggressive bulls may already be long against Friday's low, but they need to use caution. 

The low from November was $7.77, which investors should keep on their radar moving forward.

A close below $7.77 that’s not quickly reclaimed could push Zynga stock down to the prior breakout zone, near $7.25.

Watch for a possible “look below and fail” of $7.77, where the shares dip below this mark — or “look below” $7.77 — and “fail” to close below it. That could be a reversal sign for longs.

On the upside, a move above Friday’s high at $8.26 and the stock can start filling in some of this massive gap, which goes all the way up to $9.64.

No matter how one cuts it, they should use caution with Zynga or consider avoiding it all together.