Zscaler (ZS) has trailed the market and its own sector badly this year. The stock is down 36%, while the S&P 500 is up nearly 19%. The gap looks even wider against cybersecurity peers: the HACK ETF (HACK) is up 31.5%. Compared with other names in that group, ZS sits at the bottom.
The past week was rough. There was a big move up after results from CrowdStrike (CRWD), Okta (OKTA), and Fortinet (FTNT), then Palo Alto Networks (PANW) dragged things down again. Any way you measure it, ZS is the weakest name in the group.
Chart pattern
Recent ZS price action forms a broadening triangle. The two boundary lines - one across the lows, one across the highs - spread apart from each other. This points to rising volatility and a harder pattern to trade, since the two targets keep moving away from each other.
The longer-term downward-sloping trend line (blue) broke recently, giving a small upswing. That move was limited because ZS failed to clear the old highs set before the last earnings, near 191. So 191 is the level to beat on the upside. Above that sits 212, where there is a small gap, then relative highs at 230 - the two higher resistance lines.
On the downside, there is a support zone between 160 and 157, marking a set of old highs plus recent relative lows. Another floor stands near 138.
Moving averages and momentum
ZS trades between all four moving averages that I follow. Below price sits the 63-day EMA (exponential moving average, representing one quarter) at 162. Above price sits the 251-day, the longest one, representing one trading year, at 183. These two act as the bookends to watch for a breakout up or down.
RSI is barely holding above the 50 midline and has slipped below its green trend line, showing a slowdown heading into earnings - common at this point. The volume profile study shows the heaviest volume between 124 and 155, roughly where the point of control (the busiest trading area) sits.
The trade
Looking to September 18th, 15 days out, the expected move (yellow box) is about plus or minus 14.5%. Evercore ISI put ZS on its tactical short list, saying there is not much sign earnings will beat.
For a more neutral view, an iron condor: minus one September 18th 205/210/150/145, taken for a 2.20 credit, 15 days out. Break-evens come in at 147.80 and 207.20, about 16.5% to the downside and 17% to the upside. The aim is for the stock to stay inside this expected-move area. Max profit is 220, max loss is 280.
