Breaking down several reasons Zscaler stock's red-hot rally isn't over just yet
Software stock Zscaler Inc (NASDAQ:ZS) has been barreling up the charts since mid-May, when it hit an annual low of $157.03. In fact, the security added a solid 42.8% over the past three months, with consistent support at its 20-day moving average, while long term support at the 140-day moving average has helped contain most of ZS’ pullback for nearly two years. Plus, Zscaler stock just touched a record high of $249.71 late last week, and remains within a chip shot of that peak.
In addition to a promising technical setup on the charts, another bullish signal just started flashing for ZS that indicates this rally isn’t over just yet. Specifically, Zscaler stock just landed on Schaeffer’s Senior Quantitative Analyst Rocky White’s list of stocks trading near a 52-week high amid historically low implied volatility (IV). This has been a bullish combination for the equity in the past, with ZS boasting higher one-month returns after 83% of the six signals seen in the past five years. The stock averaged a 7.2% pop in this time period, and a similar move from its current perch would easily put it at a fresh record peak, just above the $261 level.
The security recently notched a bull note, just one day after reaching its aforementioned record peak, with BTIG lifting its price target to $279 from $253. There’s still room for a shift in sentiment to send the stock higher, though. Of the 21 in coverage, six still say “hold.” Plus, the equity’s 12-month consensus price target of $246 is a slim 1.5% premium to current levels.
A further unwinding of short interest could put wind at Zscaler stock’s back, too. While short interest dropped 1.7% in the most recent reporting period, the 6.52 million shares sold short make up a healthy 8.5% of the stock’s available float, leaving plenty of room for a short squeeze.
An unravelling of pessimism is overdue elsewhere. Namely in the options pits, where Zscaler stock sports a Schaeffer's put/call open interest ratio (SOIR) of 1.27, which stands higher than 79% of readings from the past 12 months. This implies short-term options traders have rarely been more put-biased. Echoing this, Zscaler stock’s 10-day put/call volume ratio of 1.25 sits above 95% of annual readings at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), suggesting long puts have rarely been more popular.
As we stated before, ZS’ Schaeffer's Volatility Index (SVI) is incredibly low right now, sitting in the 3rd percentile of its 12-month range, making now a perfect time to speculate on the security’s next move higher with options, since these traders are pricing in extremely low volatility expectations. Additionally, the stock’s Schaeffer’s Volatility Scorecard (SVS) ranks at 79 out of a possible 100. This means Zscaler stock has tended to outperform said volatility expectations – a good thing for buyers.