ZNGA On Watch

Zynga may be setting up for a trade over the intermediate term. We’ll look at the absolute performance and sentiment to outline why the risk/reward favors the long side at current prices. Additionally, ZNGA is non-correlated with the broader market on a rolling 10 week basis, which allows you to maintain a neutral stance on the major indices but still have exposure to individual names.

ZNGA Weekly

This weekly chart shows that ZNGA is currently basing above long term support at $2.70. RSI is currently basing at support as well, as it tries to dig in a base and move higher. The next level of resistance is at $3.80 and the top of the channel which is $4.50.

ZNGA Daily

This daily chart shows a roughly 15 month downtrend channel that price has now broken out of and is basing above the prior lows of $2.70. Momentum is showing a positive divergence and is attempting to break its bearish range by breaking and holding above 50. As long as price can hold these recent lows, here offers a good entry point for a poential move back to the upside toward $3.80 and $4.50, levels outlined on the weekly chart.

Sentiment has a lot of room to improve and the conditions present in the stock could potentially lead to a short squeeze.

Short Interest:

As of 8/15/14 there were roughly 54 million shares short, representing 7.3% of the float.

Given the 10 day average volume of roughly 17 million shares, it would take 3 full days for shorts to cover.

Additionally, of the 23 sell side analysts covering ZNGA, only 2 have it as rated a buy, with 18 holds and 3 underperforms.  This leaves plenty of upside potential.

Risk/Reward: 

The current risk/reward in the stock is 4.5 to 1. Downside risk is 20 cents if a stop is placed below $2.70 and the initial target is $3.80.

The risk/reward using the top of the channel target of $4.50 is 8 to 1 if a stop is placed below $2.70.

Both the initial target and optimistic target for this trade offer good risk/reward on the long side given current conditions.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s