Zscaler (ZS) is set to report their latest quarter numbers after the close of trading on Tuesday. We looked at ZS on October 22 when we wrote that "Traders who are long ZS from our earlier recommendations should continue to hold longs. Raise stops to $270 from $250. The $402 area is our new price objective."
In this updated daily bar chart of ZS, below, we can see that prices surged still higher in November but made a recent pullback. This retracement is not really damaging but it does get our attention. Prices are still trading above the rising 50-day moving average line and the rising 200-day moving average line. This is not what worries us.
The On-Balance-Volume (OBV) line has started to show some weakness and the 12-day price momentum study is showing lower highs as prices have made higher highs. This difference is called a bearish divergence and can foreshadow price weakness ahead.
In this weekly Japanese candlestick chart of ZS, below, we see a mostly positive picture. Prices are in a longer-term uptrend above the rising 40-week moving average line but the most recent candle is bearish (red). The weekly OBV line is still pointed up but the MACD oscillator has begun to narrow and that is the first hint that the strength of the uptrend could be wavering.
In this daily Point and Figure chart of ZS, below, we can see a potential downside price target in the $287 area.
Bottom line strategy: I have no special knowledge of what ZS is going to report for earnings but traders should reduce their long exposure and raise stops on any remaining longs to $330.
