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Chart to Watch: Zulily Inc (ZU)

Children's apparel specialist ZU is poised to topple two key technical levels

by 6/25/2014 1:45:41 PM
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The shares of Zulily Inc (NASDAQ:ZU) are breaking out today, bolstered by a bullish note from Goldman Sachs. This morning, the brokerage firm upgraded ZU to "buy" from "neutral," citing the online retailer's robust mobile presence as one of the positive catalysts that could lead to $1.2 billion in sales this year.

ZU popped higher on the heels of this high-profile endorsement, and is up 10.1% at $40.24 this afternoon. This is a very significant breakout for the stock, as ZU is now hovering above two key technical levels -- its 50-day moving average and the round-number $40 area.

Looking back, ZU's 50-day trendline acted as resistance earlier this month, but today's big bounce is leaving this technical roadblock in the rearview. Likewise, shares of Zulily Inc (NASDAQ:ZU) have stalled out near the $40 level lately. Today's bullish nod from Goldman Sachs has the stock back above this barrier, which could now resume its previous role as support.

ZU since February 2014 with 50-Day Moving Average

Short sellers are likely contributing to the major surge in ZU, as short interest accounts for a lofty 30.1% of the equity's float. At the stock's average daily trading volume, it would take a solid week for all of these bearish bets to be covered. (Volume today, however, is a little higher than usual -- by 1:30 p.m. Eastern, nearly 1.68 million shares had traded, compared to ZU's daily average of 1.28 million.)

If ZU can establish a decisive foothold above its 50-day moving average and the $40 level, the stock could benefit from continued short-covering activity -- not to mention a fresh dose of bullish brokerage attention. Currently, only four analysts are covering Zulily Inc (NASDAQ:ZU), with two of those maintaining a lukewarm "hold" rating.

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