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Zoom Video Chart Shows Surprising Long Setup After Earnings Tumble

Zoom Video stock is getting crushed after reporting an earnings and revenue beat. Here's how investors could buy the dip.

Investors looking for Zoom Video  (ZM) - Get Zoom Video Communications (ZM) Report to turn around its woes on Tuesday must be quite disappointed with today’s action.

Shares of the San Jose, Calif., videoconferencing specialist are down more than 16% after the company reported earnings, sending the stock to multimonth lows.

On the plus side, Zoom Video has yet to take out its low from the bear market bottom that growth stocks endured in May. But that’s not much of a silver lining for investors.

The reaction is unfortunate, given that Zoom Video beat on earnings and revenue estimates while delivering record sales results.

The problem? Guidance, as management said that growth would slow significantly from pandemic-peak levels. That’s even as COVID cases continue to climb.

In response to the quarter, a number of analysts are already cutting their price targets.

However, it seems fair to pose this question: Is the reaction an overreaction?

Trading Zoom Video Stock

Daily chart of Zoom Video stock.

Daily chart of Zoom Video stock.

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A few observations are important in the above chart, starting with the fact that Zoom Video stock has been putting in a series of lower highs (blue arrows).

Aside from that, the shares were essentially sitting in a wide $100 range, between $300 and $400, while chopping near a vital range around $340. That makes it hard to discern a bias — bullish or bearish — and that task became even harder ahead of earnings.

But the scales tipped to the bears’ favor because Zoom wasn’t below just a few of its major daily moving averages. It was below all of them.

With that said, the bulls may have an opportunity on their hands.

Zoom Video stock was already down 41% from its highs before it reported. Then the company delivered a top- and bottom-line beat and issued guidance that was — despite what the price action and the analysts suggest — in line with consensus expectations.

Dipping to the 21-month moving average now, aggressive bulls may consider a long position now. Those buyers can consider a stop-loss near $271 or just below the May low.

More conservative buyers may wait for a dip down to the $270 to $281 area before getting long. Another consideration would be waiting for Zoom Video stock to break below $273, then reclaiming this level on a rebound — if it breaks it in the first place.

Back above $300 and it’s possible for Zoom Video to fill in some of this gap back toward $340 and potentially retest the 10-day moving average at some point in the near future.

I understand the setup is not picture-perfect, but this is a big move and volatility is high. Keep that in mind if you plan to trade this stock.