Major Player in the Cybersecurity Industry

This company is heavily invested by institutions. The cybersecurity industry is a hot industry, and Zscaler is one of the major players in its industry. There will always be demand for cloud security. They have a ton of cash. Their financials look great. Profit margins have been improving steadily over the past several quarters. Financially and fundamentally, everything looks good in this company in my opinion.

This stock was apparently selling off with most of the market last week. Options contracts expiring next month ended the week on a bearish note. It appears that there may be more selling in the near term. When can we expect a rebound in price action with this name? Lets take a look at the technicals to get a good idea of a potential rebound point.

ZS has been in a consolidating range pattern for over the past 5 months. Recently, the price appeared to break out to the upside of the price channel you can see in the chart below. This breakout proved to be false as the price action has returned to its original trend due to last weeks major selling pressure. There was a high amount of relative volume to confirm the drop back into the trend. This leads me to believe that the price will remain within the original trend and likely return back to support of this channel.

In the chart below, I have also highlighted the possible new trend that is potentially forming. This trend is not confirmed, but if the price action stays above the support of this potential new trend, then we will see a breakout to the upside very soon. Personally, I do not think that this new trend will hold. I think the original trend is more valid at this point.

I have pointed out the position cost distribution overview on the right of the chart. You can see that there are a lot of spikes in positoning volume above the current price. This shows me that there are a large supply of bag holders above the current price and it may be a bumpy ride on the way up as some of these holders have likely been waiting to get some of their original investment back.

Take note of the gap in volume in the PCD chart. This area has no resistance from bag holders. The price will likey shoot upwards when it reaches this area of least resistance.

The immediate-term picture looks a bit more bearish than the medium-term or the very long-term picture. You can see the long-term bull flag in the chart below. Typically, this is a bullish development as the price action is consolidating before the next leg up.

Personally, I would watch the support level of the original trend that I mentioned for some major support. Other than that, I have highlighted the major and minor support/resistance levels in the chart below. As usual, these are the levels I would watch for potential rebounds/rejections and breakdowns/breakouts.

I like this company. I strongly believe there is a future upside in this company. But within the short term, I am worried that the bearish sentiment might cause more selling. So, I am cautious in the short term and bullish in the very long term.

One side note I should point out is the fact that share prices of companies within the cybersecurity sector often respond strongly to headlines about a hacker breaching the security of a major companies servers or something along those lines.

The reaction can go either direction and sometimes will be a prolonged reaction. These make great trade opportunities for a swing trader like me.