PreMarket Prep Stock Of The Day: Zoom Video

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

Over the past few weeks, with the announcement of multiple coronavirus vaccines from different companies, the “reopening trade” has been in full bloom.

On the flip side, the stay-at-home stocks have been battered. Perhaps the one stock that is most symbolic of the stay-at-home category is Zoom Video Communications ZM, the PreMarket Prep Stock of the Day.

Zoom A Winner Off IPO: Zoom made its debut in April 2019 and immediately put in a double bottom at the $60 area in its first trading sessions — a level that may never be revisited.

It followed the market higher in January and February and initially followed the market lower, but found a bottom 10 days ahead of the S&P 500 index on March 9 at $100.88.

The rally stalled in April, but resumed in May, crossed $300 in August and added another chunk in September, rallying from $325.10 to $470.11.

The Buck Stops Here: Finally, on Oct. 19, Zoom peaked at $588.84 and retreated to end the session at $568.34, what has turned out to be its all-time closing high.

It briefly traded above that level the following day, but traded lower in eight of next 11 sessions, falling as low as $440 before staging a significant rebound

Qhen the world was greeted with positive announcements on the development of a vaccine for COVID-19, sellers engulfed the issue. Over the next two days, it swooned on a closing basis from $500.11 to $376.01, before staging another rebound.

Filling The Gap: One technical term that is discussed on the show is “filling the gap in price.”

In other words, an issue fills the void in price action that was instigated by unexpected news.

In this instance, Zoom had a void in price from its Nov. 6 low ($482.67) down to its Nov. 9 high ($446.47).

That void in price was filled on Monday, Nov. 30, when the issue reached $486.83 early in the session. It retreated to end the session at $478.36.

Another Gap To Fill: After the close Monday, Zoom reported a third-quarter EPS beat of 23 cents along with a sales beat of $83.25 millon.

The company raised forward guidance, with a fourth-quarter adjusted EPS range of 77-79 cents against a 66-cent estimate and a sales projection of $806 million to $811 million against a $730.11-million estimate. 

When an issue trades at a high as valuation as Zoom, a great report is needed instead of a good report to move an issue higher.

With the issue being out of favor on the Street and the overhead supply that exists from recent long or longer-term holders, there's plenty of overhead supply in the issue.

Zoom Price Action During PreMarket Prep: When the issue was being discussed on the show Tuesday, it was retreating at the $445 area.

Co-host Dennis Dick, who has been bearish on the issue, was not surprised at the Street’s reaction to the report.

"It’s a good report, but it's all about the reopening stocks now,” he said. 

"People who believe in the story are trapped now. It's going to hard for it to go back up.”

The author of this article noted the importance of holding the $425 area, as it represents a 50% retracement of the recent rally.

Zoom's Regular Session Price Action: After a much lower open, Zoom could rally only another 27 cents to $534.99 before it collapsed. It has continued to make new lows for the session and was down 15.37% at $404.82 at last check. 

Photo courtesy of Zoom.