The cloud security company that offers Zscaler Internet Access solution that connects users to externally managed applications, Zscaler Inc. (NASDAQ: ZS) to be gearing up for a surge as per its latest charts.
Bullish Indications
#1 IH&S Pattern: As you can see from the daily chart, the stock has been forming an Inverted Head and Shoulders (IH&S) pattern for the past few weeks. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern. Once a breakout occurs from this pattern, the stock usually moves higher in the short term.
Daily Chart – ZS
#2 Double Bottom: A double bottom pattern is being currently formed for ZS. This is shown in the figure in pink color. A double bottom pattern is a bullish reversal pattern, indicating that the stock could possibly move upwards shortly.
#4 Price above MAs: The daily chart shows that the stock is currently trading above its 50-day as well as 200-day SMA. This is also a bullish sign.
#5 Bullish Aroon: The value of Aroon Up (orange line) is above 70, while Aroon Down (blue line) is below 30. This indicates possible bullishness.
#6 Above Uptrend Line: As you can see from the weekly chart, the stock has been on an uptrend, as it has been forming higher highs and higher lows for the past several months. This trendline is shown in pink color in the chart below. The stock is currently above the trendline, which is a possible bullish sign.
Weekly Chart – ZS
#7 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart as well, indicating possible bullishness.
#8 Bullish ADX and DI: The ADX indicator shows bullishness because (+DI) is greater than (-DI), and ADX is starting to move up from below (-DI) and (+DI).
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the buy levels of ZS is when it breaks out of the IH&S pattern. This translates to a price of around $71.50.
TP: Our target prices are $80 and $90 in the next 3-6 months.
SL: To limit risk, place a stop loss below $65.80. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 12% to 26% in the next 3-6 months.
For a risk of $5.70, the target rewards are $8.50 and $18.50. This is a nearly 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the IH&S pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
Happy Trading!
— Tara
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