Keeping an Eye on Zillow

 | Aug 01, 2014 | 12:31 PM EDT  | Comments
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Stock quotes in this article:

spy

,

z

,

trla

I'm digging out of a little hole today, not in account value or trades, but in time lost. Unfortunately, I missed the last day and a half due to an unforeseen challenge, so today is about playing catch-up.

So I'm not looking to get aggressive trading. Also, I am heading to the Big Apple on  Monday morning. As many traders will tell you, we are not comfortable having positions open while we're in transit.

The jobs data this morning were not positive in the short term for the bulls. The big gap lower would have been my preferred open to buy. Once the market bounced in the premarket, it put me on the sidelines for buying today -- and not just this morning. I think the market could retest those overnight lows even before the close today.

Looking at the daily chart, yesterday was a big break lower out of a rising wedge. This is certainly a bearish break from a slightly bearish pattern. There were some bearish divergences going into the day yesterday, which were clearly triggered at the open.

 

Source: StockCharts.com

 

The CCI is way oversold and the market should work that back to at least -100 along with a possible test of 50 on the RSI. But I don't expect an MFI rebound too soon. Any bounce into the $196-$198 area on the SPDR S&P 500 (SPY) certainly favors a short, but we may struggle just to get past the open from yesterday any time soon.  

I believe the best case for the bulls is this CCI staying at or below -250 while the price develops a new range between $192 and $195. A close below $192 sets it up to visit $188-189 next week. It was the level I was looking for on a close below $198.

I have been keeping a close eye on Zillow (Z) with its big run and the purchase of Trulia (TRLA). Some may argue a cup-and-handle pattern is forming on Z, which would be great if you are bullish since the upside target is near $190. And chances are if it catches $190, it will see $200. You can see the cup-and-handle patterns easier in the RSI, CCI and MFI. I don't see it as likely though. Plus, a trader would want to see a close above $165 before buying that pattern.

 

Source: StockCharts.com

 

Instead, I see a retracement back to $127 forthcoming. We can see that pullback without giving up the longer-term uptrend line. Of course, the stock could form a bit of an awkward looking head-and-shoulders pattern if that occurs.

Given the overall market environment, I don't see this as one to chase, but there could be a 10% downside here for an aggressive short. This is one that I would only consider using puts when going short since it has the potential to squeeze. Admittedly, I don't love the Trulia deal, so my view might be a bit slanted fundamentally; however, the chart slants bears at the moment and will get very interesting if the RSI drops below 50.

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