Zoom Video (ZM) - Get Zoom Video Communications, Inc. Class A Report was getting smacked around after reporting quarterly earnings, dropping about 14% on Tuesday.
Bulls are going to be especially frustrated with the post-earnings reaction, given the good report Zoom issued.
The company easily beat on earnings and revenue expectations for its fiscal third quarter. Fourth-quarter and full-year guidance even came in better than expected.
Management also provided a strong earnings outlook for next fiscal year, with its bottom-line estimates coming in ahead of consensus expectations.
However, it doesn’t seem to matter. The market is selling Zoom stock lower on the results as analysts start to worry about the stock’s valuation.
The reaction is not helping other pandemic plays, like DocuSign (DOCU) - Get DocuSign, Inc. Report and Peloton (PTON) - Get Peloton Interactive, Inc. Class A Report, which are down 6% and 4.2%, respectively.
Trading Zoom Video
Zoom Video stock topped out in mid-October, but continued to find support amid its pullback. Last week, shares pushed through downtrend resistance (purple line) before reclaiming the 50-day moving average on Monday.
The price action was constructive, although a binary event like earnings always runs the risk of ruining even the best of setups.
With Tuesday’s recoil, Zoom Video stock is back below the 50-day moving average, while also trading below downtrend resistance. It now faces a critical support area near $390.
There it will find the 100-day moving average and short-term uptrend support (blue line). This area has been support twice in the past month.
Should Zoom fail to hold the 100-day moving average as support, it will put the November low in play near $366. The reaction to this area will be interesting. If it holds, Zoom will need to reclaim the 100-day moving average to show that bulls have any strength at all.
However, if it fails to hold last month’s lows, Zoom may fill that big gap from August near $325. Down in this area, with the 200-day moving average close by, bulls may feel comfortable taking a shot at Zoom. At $300 the stock will be about 50% off its highs.
Whenever we see a stock trade poorly despite good numbers, it’s always worth using a bit of caution. From here, let’s allow Zoom the opportunity to test down into the 100-day moving average and go from there.
If it never gets there — meaning it rallies first — look for Zoom Video stock to fill its post-earnings gap back up toward the 50-day moving average. If the 50-day is resistance, the stock remains vulnerable. Above the 50-day and we need to see a move above $500.