Zillow (Z) and Trulia (TRLA) getting together? Here’s your trade. (July 26, 2014)
I want to look at Zillow ( NASDAQ:Z ) and Trulia ( NYSE:TRLA ) today. Zillow ( NASDAQ:Z ) and Trulia ( NYSE:TRLA ) were up big on Thursday and Friday under rumors, although the way they’ve been trading I guess they’re more than rumors, that Zillow ( NASDAQ:Z ) was going to be acquiring Trulia ( NYSE:TRLA ), or they were merging. So Zillow ( NASDAQ:Z ) is up about 9 percent just on Friday. From Wednesday’s close the stock is up 25 percent, that’s a pretty big move.
Now I’ve been looking at this pattern for a long time, this rounded pattern here, so this is one that’s been under coverage for a while. This is a bonafide breakout, it’s been trending higher, you can’t say creditably that all of this has been forecasting this move, that they were going to buy Trulia ( NYSE:TRLA ), sorry, it just doesn’t work that way. This has been a nice bullish pattern, so now you’ve got even more reason to want to own Zillow ( NASDAQ:Z ).
You can look at the weekly chart and see that the stock has much further to go. Is it overvalued? I don’t know, right now the value is $159.00, that’s the only valuation I really need to look at, because the market is telling you that the market values it at $159.00. So until downgrades start coming, meaning lower prices, I think Zillow ( NASDAQ:Z ) is one that you want to buy. Just know that again, it’s come up quite a bit, 25 percent over the last two trading days, so you aren’t exactly in early; but relative to where the stock could be in the future you may indeed be early.
So what I’d suggest on Zillow ( NASDAQ:Z ), if this is the one that you want to buy, I would suggest taking some stock here, but just know, three day rule: the first day the real smart money buys, the second day the semi-smart money buys, and then third day all the retail/not so smart money buys. So don’t look for the same kind of move up as you saw here or even here. But still I think it’s okay to get involved.
Now this was up 9 percent, my preference would actually be Trulia ( NYSE:TRLA ), it’s only up 5 percent, so about half of what Zillow’s ( NASDAQ:Z ) at. It’s the same basic price pattern, a lot more choppy. But why would I choose Trulia ( NYSE:TRLA ) over Zillow ( NASDAQ:Z ) when Zillow ( NASDAQ:Z ) ran twice as much, because this is the company that’s getting acquired; if that’s the case. Zillow ( NASDAQ:Z ) is not going to offer shareholders $56.00 a share.
The fact that the stock has gone up so much kind of hoses the deal, from 40 percent, 45 percent in two days, so guess what, the acquisition is going to wind up being a little bit more expensive than Zillow ( NASDAQ:Z ) anticipated, but if they want the company they’re going to have to make an offer even higher than it is right now. Otherwise, if they offer $50.00 a share, which a few days ago would have been a pretty nice offer, 50.00 maybe 55.00, you’re going to see this stock drop, I just don’t think that’s going to happen.
So you can take Trulia ( NYSE:TRLA ), look at the low of 51.65 on Friday and use that as your reference for stops. So you’ve got about a 10 percent risk on this with a stop right underneath, right about there, because if the stock starts pulling back, you don’t want to own this stock anyway, you can wait and see what happens. A stock that’s moved up so much, when it starts to roll over, you don’t want to be still long this stock, because it could keep going down where you would have had a better opportunity to buy it at an even lower level.
So if you’re taking some stock now just take a little bit, this isn’t the trade of the century. If the stock moves higher great, you’re making money, if the stock moves lower you’re not making that much money, you get stopped out and then look to re-enter at a lower level; anyway I hope these charts help you.
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