With just a quick glance, it would be easy to assume this week's strength from Zynga Inc. (NASDAQ:ZNGA) is just another wild swing from a usually-volatile stock, destined to be undone just as quickly. A closer look at the chart of ZNGA, however, may reveal this isn't the usual ebb and flow from the game-publishing stock. This looks like the beginning of a much bigger breakout.
It's modestly evident on the daily chart, but to fully appreciate just how much upside ZNGA could be on the verge of doling out, you have to zoom out to zoom out to a weekly chart. On it, it becomes clear Zynga has cleared a major hurdle.
Simply put, Zynga Inc. shares have been getting squeezed into the tip of a wedge shape since early 2013. The upper edge of the triangle is the horizontal ceiling around $4.07, while the rising support line that's been in place since early 2013 makes up the lower edge of the wedge. That rising support line actually started to ascend in recent months, and with practically no room left to roam inside that wedge shape, something had to give... and it was the resistance line. ZNGA pushed above that horizontal ceiling at $4.07, and it's not looked back since.
As for the potential longevity of this breakout, there's no way of knowing for sure exactly where and when ZNGA will stop rising. But, bear in mind that the longer the breakout brews, the bigger the breakout move. The buildup period for this breakout lasted for months, so Zynga Inc. may be able to at least get several weeks' worth of traction now that the ball is rolling. A move to $8.00 isn't out of the question, though trades may want to start thinking defensively at anything above $6.00.
The prompt for the breakout was success in the courtroom. As it turns out, Zynga is not going to have to pay an estimated $25 million for the way one of its games plays. Another game designer was claiming that the process used to hand-out in-game rewards was its intellectual property. The judge and jury disagreed, and the market loved the news. Truth be told though, it wasn't a big deal for ZNGA (the company, not the stock) either way. Thing is, the hollowness of the perceived victory doesn't matter. This stock was clearly primed for a breakout. All it needed was a catalyst - and catalyst - to get going. The court-case thing did the trick, catapulting shares into a breakout that had been building up for a long while. Now that it found one, it's off to the races. There's still plenty of meat left on the bone to chase though.
Oh, and just for the record, no, the newfound strength has nothing to do with the company's fundamentals. The Zynga Inc. fundamentals, quite frankly, aren't impressive. Doesn't matter. The market is ready to see ZNGA in a bullish light, and that's good enough for a few weeks' worth of upward momentum.
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