Did the stock deserve such a beating? Not necessarily.
The news has given investors confidence that the economy will open back up sooner than expected - there’s now hope. However, that doesn’t suddenly make the coronavirus group irrelevant.
Consumers aren’t going to stop streaming video on Netflix (NFLX) - Get Report and Roku (ROKU) - Get Report or ordering things on Amazon (AMZN) - Get Report. In the same light, companies are still going to leverage DocuSign (DOCU) - Get Report and Zoom Video.
Not only isn’t a vaccine not an overnight solution - although it is bullish in the intermediate to longer term - but many ways of life that have been accelerated due to Covid-19 are unlikely to disappear.
Businesses and consumers are not going to fully switch back to less efficiency and more costly ways of operation. As a result, Zoom Video will have life after the pandemic.
Trading Zoom Video
The biggest question for Zoom Video and its peers is, when will it bottom? That’s a difficult, if not impossible question to answer with only a few hours of price action in the books.
It's worth noting that Zoom's decline also comes on news of the company settling with the FTC.
We know the business model will remain relevant, but we don’t know at what price Zoom Video stock will turn to value.
Even before Covid-19 - but especially during the pandemic - the 50-day moving average acted as a beacon of safety for bulls. Each test was promptly bid higher, as investors gobbled up the dip.
Most recently, Zoom tested the 50-day moving average earlier this month and bounced as a result. However, the stock could not take out downtrend resistance (blue line) or retest the high from October.
On Monday, shares gapped well below the 50-day moving average. Bouncing now, investors have a decent roadmap to follow with the stock.
On the downside, Monday’s low at $402 needs to hold as support. If it fails, it could put the post-earnings lows in play near $346, followed by a potential gap fill down to $325.
As for the upside, let’s see what happens on a rebound to the 50-day moving average. Is it quickly reclaimed and turning to support or does it reject Zoom stock? If it’s the former, bulls are in control. If it’s the latter, bears are in control.