It only took eight-and-a-half years, but Zynga (NASDAQ:ZNGA) is finally a stock worth buying. The chart looks healthier than ever before, and it’s a whisker away from pushing into the double digits.
For a company that’s almost spent its entire life below $4, this is a big deal. Let’s breakdown why Zynga stock is heating up.
Zynga’s Bullish Brew
The bullish brew that has ZNGA bubbling higher contains four ingredients. Consider these the drivers behind this year’s meteoric gains. First up is the mobile video game company’s recent acquisition of Turkish game developer Peak Games in a $1.8 billion deal. It marks Zynga’s largest purchase ever and will rapidly expand the company’s daily mobile user base.
Next is the strength seen in the entire video game industry during the fallout of the novel coronavirus. The twin trends of staying-at-home and social distancing have drummed up renewed interest in gaming to stave off boredom. Peers in the industry from Activision (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA) to Take-Two Interactive (NASDAQ:TTWO) have seen their share prices perform very well over the past few months. Still, their gains have paled in comparison to the rapid resurrection of Zynga stock, which is now up 59% year-to-date.
The third ingredient is the rise of the Robinhood app. With sports leagues canceled or delayed across the nation, legions of sports bettors have taken to the stock market to scratch their speculation itch.
Led by the bombastic Dave Portnoy, founder of Barstool Sports, this new class of traders has flooded into brokers like Robinhood to bet on stocks. Robinhood has proven particularly popular due to its targeting of Millenials and other tech-savvy individuals. Their simple user interface makes it an easy gateway into the world of investing.
Lower dollar stocks like ZNGA are among the most popular tickers at Robinhood, and have arguably been helped by this influx of new traders.
The fourth and final ingredient fueling Zynga’s new bull market is the booming price chart. Dip buyers are now consistently being rewarded, as are breakout chasers. This virtuous cycle beckons to momentum lovers and trend traders to come and play.
Zynga Stock Charts
To chronicle Zynga’s looming emergence from its single-digit dungeon, take a look at the weekly chart. Short of one brief rally higher, its entire first year after the 2011 IPO was spent plunging to $2. The next six years saw the shares locked in a depressing range as sales stagnated and profits remained elusive.
In 2018, the trend began to shift higher. Last year saw buyers finally return en mass, and it’s only accelerated in 2020. All major moving averages are pointing higher and momentum has increased during the current upswing.
The daily chart has been rising above the 20-day moving average ever since late-March. Below that, the 50-day and 200-day averages are climbing as well. Together, this confirms buyers control the trend across all time frames. The past few weeks have seen Zynga stock consolidating just under resistance at $9.92. With the pause, ZNGA has worked off the overbought conditions arising after the June 1 jump.
With the stock thoroughly rested, a break over resistance looks tempting here. The setup is textbook. It’s been so long since we’ve seen the double digits that this might as well be viewed as an all-time high. The lack of overhead resistance will make it easier to see strong follow-through.
The Trade
Buy ZNGA over $9.92. For a stop loss, you could consider placing your exit below the 20-day moving average at $9.39. I like $11 as the first target and $11.50 as the second. Because of the cheapness of the stock price, options aren’t really necessary.
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