Breaking down several reasons Zscaler stock's rally could be short-lived
Software stock Zscaler Inc (NASDAQ:ZS) has recovered nicely from its early January rut near the $105 level -- a more than two-year low. The shares have added 10.5% already this year, with the bulk of this price action occurring over the last two sessions. However, this recent pop has Zscaler stock trading near a historically bearish trendline.
More specifically, ZS just came within one standard deviation of its 60-day moving average after a lengthy stretch below the trendline. For the purpose of this study, Schaeffer's Senior Quantitative Analyst Rocky White defines that as the equity trading below the moving average for 80% of the time over the past two months, and closing south of the trendline in eight of the last 10 sessions.
According to White's data, five similar signals have occurred during the past three years. Zscaler stock was lower one month later after 80% of these signals, averaging a one-month loss of 5.9%. A similar move from the security's current perch would put ZS just above $116.
The security recently notched a bear note, with Deutsche Bank cutting its target price to $140 from $190. What's more, JPMorgan Securities initiated coverage with a "neutral" rating and a $124 target price. Of the 32 in coverage, 22 still say “buy” or better, and the equity’s 12-month consensus price target of $170.29 is a 37.7% premium to current levels, both of which indicate more bear notes could soon roll in.
ZS’ Schaeffer's Volatility Scorecard (SVS) is incredibly low right now, sitting at 24 out of 100. In simpler terms, Zscaler stock is a prime selling candidate.