Elon Musk's SpaceX has banned employees from using Zoom's service due to "significant privacy and security concerns," and other companies are likely to follow suit. As it turns out, security issues have plagued Zoom well before the current controversy, prompting Apple Inc. (AAPL) to remove a hidden web server from the Mac operating system. It has also come to light that Zoom's software may have sent personal data to Facebook, Inc. (FB) when users logged into conference calls.
The fallout for shareholders could be enormous in coming weeks, with Zoom losing an extraordinary business advantage generated by the outbreak and stay-at-home orders. Blue-chip companies are already looking for alternatives to Zoom, while the negative press is also likely to affect personal usage. Worse yet, bearish headlines could continue for months because the disclosures have triggered a wave of lawsuits.
ZM Short-Term Chart (2019 – 2020)
The company joined the NYSE at $65.00 in an initial public offering (IPO) on April 18, 2019, and entered an immediate uptrend that topped out at $106 in June. A breakout attempt a few weeks later failed, yielding a short-term double top breakdown and decline that accelerated to the downside in September. Price action undercut the IPO opening print in October, generating a final downtick into the Oct. 23 all-time low at $60.97.
A fourth quarter bounce stalled at 50-day exponential moving average (EMA) resistance in late November, triggering a reversal and test at the October low. Committed buyers grabbed the helm two points above support a week later, generating a successful test that completed a double bottom reversal in January 2020. The stock made rapid progress into the June peak and broke out, posting two rally waves and an equal number of volatile trading ranges.
The uptrend stalled on March 23 after crossing the 2.00 Fibonacci extension of the four-month downtrend and reversed once again when it tested that level on March 30. This week's decline found support at the .382 Fibonacci rally retracement on Thursday, with that level now aligned at the 50-day EMA. However, the sell gap opening that session has completed a bearish island reversal, generating tough resistance above $135.
ZM Short-Term Outlook
The on-balance volume (OBV) accumulation-distribution indicator topped out with price in June 2019 and entered an orderly but persistent distribution phase that ended in December. Buying power into February lifted OBV back to resistance, yielding a breakout, followed by a successful test at new support on March 13. It is pulling back once again in reaction to recent disclosures, but the bullish pattern remains fully intact at this time.
A breakdown through the 50-day EMA at $113 would signal a bearish change in character, but sell signals will remain limited until OBV confirms deteriorating action by breaking support at the red line. It makes sense to watch the edges of Thursday's trading range in this regard because the stock is now caught between resistance at the island reversal and support at the moving average and Fibonacci retracement. The first swing out of this price zone could signal longer-term direction.
The Bottom Line
Disclosure: The author held no positions in the aforementioned securities at the time of publication.