Zscaler Inc. (ZS) is trading lower in premarket activity here on Friday on the heels of a disappointing growth forecast. In my last review of the cloud security company on Sept. 9 the picture was positive, but things changed, so let's check out the charts and indicators of Zscaler again.
In this updated daily bar chart of ZS, below, we can see that prices continued up but made a high on Sept. 10 and worked in three waves to a low in early November. Prices rallied toward the underside of the declining 50-day moving average line but failed. ZS trades below the bearish 50-day average line and below the bearish 200-day line. The trading volume shows us an uneven pattern that does not have follow-through strength. The On-Balance-Volume (OBV) line shows weakness from early September, telling us that sellers of ZS are more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator is bearish.
In this weekly Japanese candlestick chart of ZS, below, we see a mixed picture that could turn bearish when the latest weekly candle pattern is plotted. Prices are in a longer-term downward trend as they trade below the bearish 40-week moving average line. The most recent candle is a potentially bullish hammer pattern. I say potentially because there are two problems.. First, the pattern is not in a downtrend but rather in a sideways trend. Second, it is now unlikely that this week's candle will give us bullish confirmation of last week's hammer. The weekly OBV line has been flat the last four months and that does not help the bull case. The MACD oscillator is bearish.
In this daily Point and Figure of ZS, below, we can see a bullish price target. A trade at $121.25 is needed to turn this chart bearish.
In this second Point and Figure chart of ZS, below, we used weekly price data. Here the software projects a downside price target of just $86.
Bottom line strategy: Traders should avoid the long side of ZS. If prices break the early November lows we are likely to see further declines.
