An Interesting Exhibit

Zillow Group Inc. is a name I turned wildly bullish on a few months back, especially from a long-term perspective in the VIP arm of Market Chess Subscription Services. 

My reasoning centered around the potential for the numerous shorts in this name to miscalculate just how much value management intends to extract and unlock from the firm's impressive list of online real estate-related websites, including Trulia, StreetEasy, HotPads, RealEstate.com, Naked Apartments, etc..

Technically, the stock has been exhibiting a multitude of signs of a multi-quarter turnaround for the better, with excellent outperformance versus the broad market in the month of May combined with surges in buy volume as well. As you can plainly see on ZG's daily chart, updated below, the stock has also soundly recaptured its 200-day moving average (yellow line). 

Recently, ZG suffered a heavy selloff last Tuesday. At the time, the chart looked like a potential base breakdown. But I wanted to see if sellers would be able to immediately sustain the downside or, instead, if the selloff amounted to a one-off shakeout which ultimately spawned the next leg higher, as strong stocks are prone to do. 

On Friday, I tweeted out an updated chart after the stock bounced back a few days, noting that shakeouts on the righthand side of a base consolidation (arrows) tend to be very bullish, since they catch the majority off-guard, stop out a bunch of longs, and trap in a fresh batch of bears. 

In other words, Zillow is an interesting exhibit of the rare but powerful, "shakeout on the righthand side of base" setup. 

Since then, ZG is printing multi-week highs today. If the stock can clear $48 anytime soon I expect the name to swiftly run into the mid-$50s. 

Ultimately, Zillow is still a work in progress. Concerns about the housing market on many fronts may impact the stock. However, I maintain the same bias I had a few months back when I initiated a long-term position: The risk-to-reward ratio seems skewed in favor of longs, especially if the impressive portfolio of the firm's brands continues to dominate the intersection of technology and housing.