ZNGA Stock: My Favorite Technical Price Pattern Is in Development
I am focusing on Zynga Inc (NASDAQ:ZNGA) stock and the reason is relatively similar to the reasons why I focused on a vast number of investments before it. The Zynga stock chart is very compelling, and the price pattern that is currently being painted on the ZNGA stock chart is suggesting that a very powerful move is in the making.
If you have not read any of my previous publications, then you probably have not realized yet that my opinions on an investment are generated using technical analysis rather than a more conventional approach, like fundamental analysis.
I have attained designations in both these methods of analysis, and I prefer using technical analysis because this method of analysis is based on indications that are produced using price and volume data points. These factors create timely signals and this method of analysis is therefore extremely effective when applied correctly to an investment strategy.
A substantial move is on the horizon, and the following Zynga stock chart illustrates the price pattern that is suggesting that a very powerful move is in the making.
Chart courtesy of StockCharts.com
The pattern that is highlighted on the ZNGA stock chart is a symmetrical triangle. This pattern is identified by the price action, which contains a series of lower peaks and higher troughs. This price action can easily be defined using two converging trend lines. These trend lines outline key levels of price support and price resistance.
As the pattern develops, the range between support and resistance begins to contract and this causes momentum to build with the pattern. Think of it as a battle that is being waged between bulls and bears. When a victor is crowned, the built-up momentum is finally released. Depending on whether the stock breaks above resistance or below support will determine the victor.
The size and scope of the pattern is directly related to the reaction that is expected to occur once the pattern is resolved. This is the reason why symmetrical triangles are influential and powerful price patterns.
Zynga stock has begun trading within a tight range that was bound by $0.30 and that range has done nothing but contract. In three months, this range contracted significantly and changed directions seven times.
Momentum is building and a breakout is imminent.
The longer-term perspective can be used to help shed some light on the situation, which can provide some insight into which direction the symmetrical triangle will resolve itself.
The following Zynga stock chart illustrates the price action that preceded the symmetrical triangle.
Chart courtesy of StockCharts.com
This ZNGA stock chart illustrates that the symmetrical triangle is also known as a consolidation wave. A consolidation wave is just one of two waves that create constructive price action.
The initial wave is an impulse wave, which is highlighted in green. This wave serves to define the point in a trend where the stock price stages a bullish advance.
The wave that follows is a consolidation wave, which is highlighted in purple. This wave serves to define the point in a trend when the stock refrains from staging an advance because it is unwinding any overbought conditions that were created during the impulse wave that preceded it. This wave functions to set up the next impulse wave.
These waves in an alternating wave structure create the necessary ingredients to produce and sustain a trend.
A resolution to the symmetrical triangle, which is also a consolidation wave, will determine which direction the next impulse will take. The rule of thumb is that, on average, the impulse wave that follows breaks out in the same direction as the impulse wave that preceded it.
The wave structure is bullish, and therefore, it favors a bullish resolution of the symmetrical triangle. As a result, the substantial move I am anticipating is likely going to occur in a bullish upward direction, but only time and price will tell.
Analyst Take: There is a compelling price pattern that is being painted on the Zynga stock chart, which is suggesting that a very powerful move is on the horizon. Which direction ZNGA stock breaks out of this pattern will determine which direction the shares are going to go. The price action that preceded it was bullish in nature and therefore, it supports a resolution that involves higher stock prices.