Zynga Stock Breaks Out, and These Are the Implications

Zynga stock
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ZNGA Stock: Cautiously Optimistic

I am returning to follow up on Zynga Inc (NASDAQ:ZNGA) stock because a certain technical price pattern that was in development on the ZNGA stock chart is now complete, and the applicable repercussions can now be expected.

This technical price pattern was the focus of a September 7, 2017, report that was titled, “Zynga Stock Is Setting Up to Make a Powerful Move.” Now that the technical price pattern is complete, just like the title of the report suggests, a powerful move towards higher prices is now expected.

There is a caveat, of course; if ZNGA stock falls back within the pattern, it would suggest that the powerful move towards higher prices had failed, which would negate the bullish implications suggested by the completed pattern.

At this current juncture, such an outcome cannot be dismissed because the breakout that occurred on September 13 was lackluster; most of the gains that were made earlier in that day evaporated by the end of the day.

The following Zynga stock chart illustrates the completed technical price pattern.

ZNGA stock chart

Chart courtesy of StockCharts.com

This ZNGA stock chart has been annotated to highlight the symmetrical triangle that was in development. This pattern is defined using two converging trend lines that outline levels of price support and price resistance. These trend lines capture the price action that characterizes a symmetrical triangle, which is a series of lower highs and higher lows.

The converging trend lines illustrate that as the pattern progresses, the range between support and resistance continues to contract. This contraction of space causes momentum to build within the pattern that will be released when the stock price breaks above resistance or below support. This is why triangle price patterns are particularly powerful and explosive price patterns.

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This pattern was in development since June, and it was causing momentum to build within it. It was only a matter time before this pattern was resolved, and on September 13, ZNGA stock broke out of this pattern.

Even though the breakout lacked conviction, the pattern still remains a successful breakout, and what happens next is of utmost importance.

The following Zynga stock chart illustrates the repercussion suggested by the successful bullish breakout of the symmetrical triangle.

Zynga price chart

Chart courtesy of StockCharts.com

This Zynga stock chart has been annotated to highlight the wave structure that creates constructive price action, which consists of impulse waves and consolidation waves. These waves feed off each other, creating the building blocks to produce and sustain a trend.

An impulse wave serves to define the period in a bullish trend where the stock price stages an advance that is characterized by a brief but relentless climb toward higher stock prices.

A consolidation wave serves to define the period in a bullish trend where the stock price stages a correction, which is characterized by its inability to advance. The function of this wave is to alleviate the overbought conditions that were created in the impulse waves that preceded it. This creates the necessary conditions so a new impulse wave can develop.

The completed symmetrical triangle, which also doubles as a consolidation wave, is acting to suggest that a new impulse wave is now in development.

Aside from just suggesting that higher stock prices are on the horizon, constructive price action can be also be applied to create a potential price objective. This price objective is obtained by assuming that the consolidation wave acts as a midpoint and therefore, the new impulse wave should match the one that preceded it.

Applying this ideology to the price action on the ZNGA stock chart produces an objective of $4.81, which represents a 25.92% return from the current price, but the caveat still remains the same, which assumes that the Zynga stock price does not reenter the triangle price pattern, and instead it continues to appreciate.

Analyst Take: 

On September 13, Zynga stock completed a technical price pattern, implying that higher stock prices are now in development. The breakout of this pattern lacked conviction, which has caused me to throw some caution to the wind. The pattern still remains bullish, which continues to suggest that higher ZNGA stock prices are on the horizon, but the caveat also becomes the moment of truth because if the share price falls back inside the pattern, it will negate the bullish implications.