Zoom Video Communications (ZM) has soared since February when the pandemic was just starting to change our lives. Prices rallied from around $60 to nearly $600 in less than 10 months. A ten-fold mark up in less than a year is truly amazing. When financial analysts talk and write about 2020 they will undoubtedly mention Zoom. It will probably be a new word added to the Oxford Dictionary or at least a new meaning for the word.
Let's check out the charts which are looking a little vulnerable right now.
In this daily bar chart of ZM, below, we can see some "issues" with the price picture and the indicators. Prices are still in an uptrend and above the rising 50-day moving average line but take notice that prices are more than twice the level of the rising 200-day moving average line.
The late technical analyst Ian Woodward said to watch out for stocks that are extended more than 70% above their 200-day -- he called that "Black Spot Disease" -- and/or extended more than 100% above their 200-day SMA ("Rust"). Stocks extended this far are ripe for a pullback.
Trading volume has been pretty active since early September and the On-Balance-Volume (OBV) line has moved up to a new high. This sounds bullish but it also suggests that there may be a fair amount of new longs above $450.
The 12-day price momentum study in the lower panel shows a pattern of lower highs since early September and that is a bearish divergence when compared to the rising price pattern. An extended stock with slowing momentum is not a good combination.