Zillow Breaks Below Key Chart Support

When we last wrote about Zillow Inc. (NASDAQ: Z), the company's stock had soared to all time highs above $160 a share on news that it plans to merge with Trulia (NYSE: TRLA).

Since then, as evident on the weekly chart below, Z has been on a bumpy ride. Although the stock went as high as $164.90, it never closed above the $160 level on the weekly time frame.

$Z : Zillow Inc.

Z subsequently pulled back to the $140 support level we initially identified when we first analyzed the stock in early July. The bears and bulls then engaged in a prolonged tug of war, as the stock jostled around the $140 level for the entire month of August.

The bears finally won the battle when Z closed below the $140 level at the end of the first week of September. The bulls did not follow through with a push above $140, as they had successfully done in August , and in the weeks since, Z has continued to slide lower in price.

Last week, Z tagged the $123 support area and bounced off of it, to close the week out at $130.97. However, there was no carry-over in bullish momentum. The stock has since fallen below $123, finishing Friday's trading session at $121.75.

Friday's close is significant in that the $123 level had been fiercely defended by the bulls on the weekly chart multiple times since June, as noted by the blue arrows. Z traded as high as $123.43 for the day but the bulls were unable to hold above it to finish off the week.

Additionally, -DMI has been rising since the beginning of September, so the bears are clearly awake and eying the stock now with greater vigilance.

Conclusion

Any further selling pressure could take the stock down to as low as the $113 and $110 levels. Keep in mind that Z has not closed below $110 on the weekly time frame since the week of May 12, 2014. The $113 level is the low for the week of June 2, 2014.

Readers should note that the Federal Trade Commission is still reviewing the proposed merger between Zillow and Trulia. That process could take months to complete. The uncertainty associated with this regulatory step may be emboldening the bears. As noted by the Wall Street Journal, real estate agents have expressed concern about the deal, as they are afraid that it could increase their costs to advertise on the online home search portals. 

If the merger deal is approved, that may reignite bullish momentum for Zillow's stock. However, there is no way of anticipating when the FTC's decision will be announced or what the final outcome will be. Traders should keep this in mind moving forward.