Recent posts about Zoom Video Communications Inc. (ZM) noted that because of ZM’s recent decline while the S&P 500 (SPX) rallied, increased the risk of buying ZM. An abundance of evidence is needed to take a trading position and this stock still lacks enough evidence to make a long recommendation.
ZM does continue to be a valuable market indicator and needs to be watched. The primary reason is the clear Elliott Wave pattern which is illustrated in the daily ZM chart courtesy of Trading View.
The supposed Primary wave “4 – boxed” decline was 37.7% the largest since the rally began in late 2019. The supposed Primary Wave “2 – boxed” fell 18.1% which is 48% of Primary wave “4” and close to a Fibonacci .50 relationship – common among waves “two and “four”.
Also, the bottom of Primary wave “4” had an RSI reading of 32%. The Primary wave “2” RSI reading was 33%. Near equality of an oversold level is what would be expected for waves of the same degree.
Since 11/10/20 there have been two bullish signals, First on 11/10/20 ZM daily Stochastic had a bullish divergence. Second, on 11/20/20 ZM was up 6.11% while the SPX declined 0.68%.
This is still not enough evidence to issue a long recommendation. Additionally, within the last four trading days ZM has risen 16%. As of 11/20/20 ZM is too far a above the area to place a stop loss – which is the short-term bottom made on 11/16/20. A potential loss of 16% is too large.
If ZM is in a Primary wave “5” rally it could reach at a minimum the October high of 588.84.
Whichever direction ZM takes in the next several weeks it could give valuable evidence regarding the broader US stock market.
Keep watching ZM.