Trading Zoom Video as Stock Hits New Highs on Record Users

Zoom Video rockets to all-time highs on Friday as user growth remains robust. Here's how to trade the stock now.
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Zoom Video  (ZM) - Get Report was up about 3.5% on Friday as the bulls bid shares higher on strong user growth and a new security patch following an update.

Big businesses were dropping Zoom on security concerns, even though the company was working on fixes for the issues. While it’s easy to critique Zoom for having security issues in the first place, the unprecedented growth likely made it difficult.

The company only had about 10 million users in December. At the start of this month, that figure had swelled 20-fold, hitting 200 million. A few weeks later and the tally has eclipsed 300 million.

Zoom is set to replace corporate advisory group Willis Towers Watson WLTW in the tech-focused Nasdaq 100 on April 30.

Zoom's explosive user growth is helping to drive a massive rally in the stock price as well. Investors have also seen a large rally in Microsoft  (MSFT) - Get Report, which up more than 30% from the March lows. Helping drive that stock higher has been growth in its Teams platform.

Let’s take a look at the charts to see where Zoom Video stock could go on the upside and where support may come into play on a pullback.

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Trading Zoom Video Stock

Daily chart of Zoom Video stock.

Daily chart of Zoom Video stock.

The S&P 500 hit a new 52-week high on Feb. 19 before it began retreating on coronavirus worries. In respect to retracement levels, we’re measuring from that date for Zoom Video.

Using that range, the stock has the 61.8% retracement near $140, while the 123.6% extension is up near $180 and Friday’s high. The next extension - the 138.6% - comes into play near $190. Above that and $200 is in play.

Some investors will surely argue that such a rally seems overdone, and it’s true, Zoom has been on fire. But when approaching Zoom Video stock without bias, it clearly has several factors working its favor.

First, Zoom has momentum in its business, which is clearly driving momentum in the stock price. Further, have a look at the Relative Strength Index (RSI), which sits at the top of the chart. So far, the reading doesn’t suggest the stock is overbought yet, while the stock has had far higher readings than ~70 over the past few months.

Of course, this isn’t a guarantee that shares go higher, but it certainly doesn’t mean we’re at a top.

On the downside, I want to see a pullback to $160. If it holds as support, that would actually be a very attractive buying opportunity, as this level was clear resistance earlier in the year.

Below $155, and the 61.8% retracement near $140 may be back in play.