Here’s my take on ZS. (June 20, 2019)
ZS
I want to look at Zscaler ( NASDAQ: ZS ) here and this is why: This is a stock that is on our Growth Stock List, it’s doing really well but I want to talk about today and here’s why: I had a member in the forum ask me, “Is it too late to buy Zscaler ( NASDAQ: ZS )?” And I said, “You know what? You want to hold off on this.” I actually sold some of my position today. I want to explain why because this is an issue that a lot of traders have.
First of all, where is resistance on this chart? It is pretty easy to see, it’s like at $80.00 I’d say, you could even say $79.00 but let’s say $80.00. The stock broke out of this squeeze here, off of the 50-day moving average; and this is important, it broke out, pulled back one day, and then shot up higher, and boom, it bumped its head on the ceiling of $80.00. Then it ultimately drifted back, and this is all kind of commentating where we are talking about what players actually did. You don’t get to participate in this but I am analyzing and reviewing how traders are thinking and what they are doing here. That is why this analysis is important. If you are going to look at a chart you have to know what you are looking at other than, Oh, this looks good to me. So this is what we are doing here. The stock pulls back to the 50-day moving average as it has done; even here it penetrated it a bit and then rebounded. But here it hasn’t even touched the 50 until here and here and here and even here.
So what do we know about the 50-day moving average? Institutions that are buying a stock, that’s the prerequisite, they actually have to be buying the stock; institutions that are buying the stock are buying it, typically, at the 50-day moving average. Their idea is, you know what? The stock gets too extended above the 50-day moving average I am paying too much. Once the stock pulls back to the 50-day moving average they say, “Well gosh, this a good price. Over the last 2 ½ months of trading this is what the average price is, so I will buy it.” That’s just kind of their program. If the stock gets up too high above the 50-day moving average they don’t necessarily start selling they just stop buying. They say, “The price is too high so let’s back off of our buying. Let the stock come in and then we will start again.” I am telling you guys, this is the way institutions trade.
One of the things I do at Stock Market Mentor and then share with members is, I do the fundamental analysis to put stocks on a Growth Stock List. And my analysis is, in part, based on technicals but the biggest part, frankly is, I am looking at the prospects of a company; looking at their numbers and thinking; What is Johnny, Bill, and Saul, what are they looking at, at Mr. Hedge Funds account, trying to figure out what stocks to buy? And so I look for those stocks that have certain fundamental characteristics with respect to growth, revenue, market share, margins, stuff like that. And I look for those stocks that they will find attractive. Then I look at the chart to see if they are actually buying. And how do I look at that? I look at the 50-day moving average; it’s that easy. But acting on that is a whole different deal.
The idea here is, I actually sold some Zscaler ( NASDAQ: ZS ) today. Even though I sold some also, and I think the stock is moving a lot higher, you can see the kind of move it has made. However, the fact that it bumped up against $80.00 again and is pulling back is time for me to be cautious on this stock. So I cut back here, keep a very small position or, frankly, you don’t have to have any; wait for the stock to pull back further, 5 percent, maybe even more, and that is when you would have a better entry on Zscaler ( NASDAQ: ZS ).
Look, trading is not gambling it is speculation. We don’t know which way a stock is going to go, we really don’t. But by analyzing a chart in the way that I just did it here and then looking at the fundamentals in the way that I kind of explained it, you have a window into the what hedge funds and money managers, what mutual funds are doing. If you know what they are doing you can just go along for the ride. If somebody emailed you or call you and said, “Hey, by the way, we have got a big buying campaign going on for Zscaler ( NASDAQ: ZS ), because we think, ultimately, this is going to get to 140.00 over the next couple of years.” You would say, “Thank you very much.” You would never need to look at a chart, just buy the stock and then go on vacation. We can’t do that. And so we have to use this kind of Sherlock Holmes sleuthing method in order to get to where institutions are going and then just go along for the ride.
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