Best Buy stock has pulled back in recent months, but is still up 45% year-over-year
Retail stocks have been in focus, with Kohl's (KSS) trading lower today following a disappointing earnings report. While Best Buy Co Inc (NYSE:BBY) won't step into the earnings confessional for another week, the electronics retailer recently ran into a trendline that has had bullish implications in the past. If history repeats itself, shares of BBY could break out in the coming weeks, just in time for Black Friday. Below, we will take a look at this potential buy signal, and examine how options traders have been lining up on Best Buy stock.
While Best Buy stock is currently down 1% to trade at $55.95, the electronics retailer has tacked on 45% year-over-year and reached an all-time high of $63.32 on Aug. 24. However, a handful of subsequent bear gaps now have the equity staring up at the $60 level.
These recent technical troubles have Best Buy trading within one standard deviation of its 160-day moving average, after a lengthy stay above this trendline. According to Schaeffer's Senior Quantitative Analyst Rocky White, following the last four pullbacks to this moving average in the past three years, the tech retailer was up an average 5.14% one month later, and was higher 67% of the time.
A short squeeze could provide even more tailwinds for Best Buy. Short interest increased by nearly 4% during the last reporting period to 33.28 million shares, the most since July 1. Furthermore, this represents a healthy 12% of BBY's total available float. It would take more than 11 days for shorts to fully cover their positions, at Best Buy's average daily trading volume.
In the options pits, call buying has been unusually popular relative to put buying in recent months. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), BBY sports a 50-day call/put volume ratio of 1.39, which ranks in the 74th percentile of its annual range.
Digging deeper, the weekly 11/24 62.50-strike call has seen one of the largest increases in open interest in the past ten days. Data from Trade-Alert points to buy-to-open activity, indicating BBY options traders are betting on Best Buy stock to close in on its all-time highs over the next two weeks -- a time frame that includes next Thursday morning's earnings report.