Why Zoom Video Investors Need To Be Careful Now

Zoom Video Daily ChartZoom Video Daily Chart

I love writing analysis when people are making tons of money and everything points to them making even more money. Unfortunately, that’s not the case with Zoom Video Communications (NASDAQ:ZM) and I feel bad writing this, but these things need to be said.

This latest episode of weakness started back in early December when the stock tumbled 15% following robust revenue growth. As I wrote back then:

There are few things more worrying than a stock that falls on good news. That signals unrealistic expectations and once the selling starts, it usually doesn’t stop. The market loves symmetry and rallies that go too high are almost always followed by pullbacks that go too low.

December’s initial breakdown paused near $400 for a few weeks, but as is often the case, when something refuses to bounce, that usually means lower prices are ahead. And yesterday’s 6% tumble was the day. The stock violated $400 support, unleashing a torrent of defensive selling. The stock closed just a hair under recent lows but we should expect this to only get worse from here.

I’d love to be proven wrong and see this stock bounce decisively, but this price action is dreadful and we should be prepared for the worst. If a person still believes in this name, take profits with a plan to jump back in after the stock retakes $400. As I often say, it is better to be a little safe than a lot sorry.

On the other side, this looks like a great short entry with a stop just above $400 support.

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