Call it a hunch (because that's all it is), but I've got a feeling Zynga Inc. (NASDAQ:ZNGA) is on the verge of a major recovery effort. Between the chart, the news, and a fresh perspective under a new CEO, it just looks like ZNGA could finally take off.
Just so there's no confusion, stepping into a ZNGA trade now would be a high-risk trade. The company reports earnings after the close today, and that could do anything to the stock. Good news could drive a poor response for shares if new CEO Don Mattrick doesn't spin things the right way. Conversely, bad news could still lead Zynga shares in a bullish mode if the outlook is good here. There's a lot of psychology to it, and not all of it is rational.
First things first... the chart, which is actually what got my attention in the first place. After a miserable 2012 that drove shares from a high of more than $15.00 to a low of $2.09, the bleeding stopped late last year. The stock even perked up in early 2013, prompting speculation/hope that Zynga might actually come around and finally fulfill the promise the market expected way back in late 2011 when the company IPO'd.
It wasn't to be, however. ZNGA hit a ceiling around $3.65 in mid-February. It hit the same ceiling in early April, and again in mid-May.... and again in mid-July. Although Zynga Inc. pushed above that level very briefly in March, it's pretty clear that the $3.65 mark is a huge line in the sand.
It's not a reason to doubt the upside potential here, though, especially given everything else we can glean from the ZNGA chart. In the meantime, we've seen bullish crosses of all the key moving average lines, and while the stock was in this sideways-movement mode, we saw frequent instances of those moving averages playing a support role for the stock. This bought shares the time they needed - and helped lay the foundation - to get the breakout rally underway. Now all we need is a nudge, and Thursday's post-close earnings report may give us that nudge.
For what it's worth, the actual numbers we're going to hear Thursday evening mean little. Last quarter's results were driven under the guidance of founder and now-former CEO Mark Pincus. Though the company still has to work with and report those numbers, for all intents and purposes, the slate has been cleaned with traders; all eyes and ears are focused on what Mattrick will say about the future.
Also for what it's worth, though the market wants to be optimistic, this isn't a situation where the smart move is to step into a Zynga trade in front of earnings based on the shape of the chart. There's a ton of potential upside that's built in here, and yes, waiting for a break above $3.65 does leave some money on the table. There's plenty of upside above $3.65 once/if ZNGA proves itself though. Patience.
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