This Will Dictate When Zynga Stock Is Ready to Stage a Move

zynga stock prices
Credits: istock.com/monsitj

ZNGA Stock: The Bigger Picture Is What Is Important

I have been watching Zynga Inc (NASDAQ:ZNGA) stock because a particularly powerful technical price pattern had been developing on the ZNGA stock chart, and the resolution to this pattern was expected to yield impressive results.

The pattern I was originally watching was resolved on September 15 and as a result, I published a report titled “Zynga Stock Breaks Out, and These Are the Implications.” In that report, I outlined the developments suggesting that a move to the upside was expected. Instead of surging to the upside like I had assumed it would, another pattern began to develop, and it also has similar repercussions to the pattern that came before it.

Before I move forward, it is worthwhile to point out that using price patterns as the basis of creating a view on an investment is a method known as technical analysis. I have been using this method of analysis to generate trading strategies for almost two decades. Although this method is not perfect, when it is applied correctly, the results are pertinent and cannot be dismissed.

I have applied my knowledge of technical analysis and have annotated the following Zynga stock chart in order to highlight the confluence of patterns that have been painted the ZNGA stock chart.

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Chart courtesy of StockCharts.com

There are two distinct patterns highlighted on the Zynga stock chart.

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The first pattern is a symmetrical triangle and it is characterized by a sequence of lower highs and higher lows. This pattern is easily identified by connecting the sequence of higher lows and lower highs, which creates two converging trend lines, giving this pattern its shape.

Symmetrical triangle patterns store energy as they develop. This results in a pattern that acts like a coiled spring, where the energy stored within it is finally released when the stock price either breaks above resistance or below support.

In September, Zynga stock exited the symmetrical triangle by breaking above resistance, which signaled that a move towards higher ZNGA stock prices was in development. Unfortunately, that is not exactly what transpired because another pattern began to develop.

The second pattern highlighted on the ZNGA stock chart is a descending channel characterized by a sequence of lower highs and lower lows. This pattern is easily identified using the same method applied to the symmetrical triangle. This created two parallel downward-sloping trend lines, giving this pattern its shape.

This pattern is not as powerful as the symmetrical triangle, but the repercussions remain the same when the stock price finally breaks above resistance or below support.

On November 8, Zynga broke above resistance, and the breakout highlighted on the stock charts is suggesting that the move towards higher stock prices is now in development.

The notion of higher prices is compelling but when I take a longer-term view, these two patterns paint a distinctly different picture.

The following Zynga stock chart illustrates the distinctly different picture I am referring to.

Chart courtesy of StockCharts.com

This stock chart illustrated that both these technical price patterns are in fact just one large pattern defining a consolidation wave.

A consolidation wave is part of a two-wave structure that is responsible for creating and sustaining a trend.

The consolidation wave that has formed is an ascending channel, which is a rare occurrence, because the majority of the time, these patterns refrain from advancing as they work off any overbought conditions created by the impulse wave that preceded them.

Working off an overbought condition creates the necessary environment so a new impulse wave can develop. An impulse wave defines the stage in a trend when the stock price makes a substantial move towards higher stock prices.

In order to suggest that higher Zynga stock prices are in development, the stock price must break above resistance outlined by the consolidation wave. This feat will suggest that an impulse wave is in development, and therefore the move towards higher prices that has been anticipated will finally take place.

Analyst Take: 

I had been anticipating a move towards higher prices for a few months and have been frustrated by the lack of progress. I am currently watching the ascending channel in development on the Zynga stock chart. When ZNGA stock exits this channel in an upward direction, I will finally believe that a sustained move towards higher prices is in development.