Zscaler Technical Setup Suggests Reversal Amid Cybersecurity Rally

Zscaler remains a significant laggard in the 2026 cybersecurity sector, with shares down approximately 13% year-to-date despite a broader industry rally. This underperformance persists even as peers such as CrowdStrike, Fortinet, Okta, and Palo Alto Networks have more than doubled their values. The divergence highlights a market rotation within technology, where investors are prioritizing established leaders while Zscaler continues to trade at a discount following a 65% decline from its 52-week high.

Jay Woods, chief market strategist at Freedom Capital, argues that Zscaler has entered a potential turnaround phase. He cites improving relative strength and specific technical indicators on the daily chart, including a positive RSI momentum and a bullish MACD crossover. These signals coincide with the stock breaking above major resistance levels near $195, suggesting that the prolonged downtrend may be reversing as the security product demand stabilizes.

AI Infrastructure Drives Security Demand

The fundamental case for Zscaler is increasingly tied to the expanding AI buildout across corporate IT environments. As companies deploy more AI systems and data centers, the requirement to protect data, networks, and digital infrastructure intensifies. Woods notes that regulatory pressure for greater oversight further elevates the necessity for robust security solutions. This dynamic supports product demand even if broader technology growth slows, creating a durable backdrop for cybersecurity vendors.

Market rotation is now extending beyond the sector’s market leaders, with capital flowing into stocks that have not yet fully participated in the rally. This shift indicates that investors are seeking value in laggards with similar exposure to AI-driven security needs. Zscaler’s position as a laggard makes it a primary candidate for this reallocation, particularly as the sector’s overall strength continues to spread through the peer group.

Technical Levels Define Support Resistance

On the five-year weekly chart, Zscaler exhibits a double-bottom formation and has broken its primary downtrend. Woods identifies the $165 area as a critical support level, where the rising 50-day and 200-day moving averages converge. This convergence acts as a technical floor for the stock, while the recent breakout above $195 resistance confirms the shift in momentum. Maintaining these levels is essential for the bullish thesis to remain intact.

If the breakout holds, Woods projects a path toward the $250 to $265 range. This target reflects the ample room for run-up that exists given the stock’s current discount to peers and its improved technical setup. The strategy relies on the stock maintaining its position above key resistance and support levels, leveraging the broader AI security tailwind to close the valuation gap with its higher-performing competitors.

Valuation Gap Persists Among Peers

The disparity between Zscaler and its peers remains stark, with CrowdStrike, Fortinet, Okta, and Palo Alto Networks all posting gains exceeding 100% this year. According to data tracked in GN auto stocks and technology sectors, this divergence creates a unique opportunity for investors to capture upside in a laggard. The sector’s strength is no longer confined to the top tier, allowing for broader participation in the rally.

Woods emphasizes that the sector’s gains are lifting laggards as investors seek stocks with similar fundamental drivers but lower relative valuations. Zscaler’s improving momentum and technical setup position it to benefit from this rotation. The convergence of AI-driven demand and technical reversal signals provides a clear framework for assessing the stock’s potential trajectory in the coming months.