Kroger stock dropped last week following a dismal quarterly report
Last week, Kroger Co (NYSE:KR) gapped lower following a second-quarter same-store sales miss. However, this drastic pullback could present a buying opportunity, if history is any guide.
Specifically, Kroger stock is now within one standard deviation of its 200-day moving average. Over the past three years, there have been two other instances of KR pulling back to this trendline after trading above it at least 60% of the time over the previous two months. These signals have resulted in an average one-month return of 7.3%, per Schaeffer's Senior Quantitative Analyst Rocky White, with both of the returns positive.
A rally of similar magnitude this time around would have Kroger stock paring most of its earnings-induced losses from last week. Despite the recent technical troubles, KR still boasts a 36% lead in the past 12-months, and nabbed a fresh annual high of $32.74 on Sept. 6. Today, the security is up 1% at $29.15.
Another rally could prompt analysts to rethink their skeptical stance. Of the 14 brokerages covering KR, half rate it a tepid "hold." Further, the security's consensus 12-month price target of $30.82 is a slim 5.7% premium to current trading levels.
Short sellers have been headed for the exits, and continued covering could also provide tailwinds for the grocery name. Short interest dropped by one-quarter in the two most recent reporting periods, but the 35.7 million KR shares still sold short represent 4.3 times the average daily pace of trading.
Traders wanting to bet on a short-term bounce may want to do so with Kroger options. The stock has a Schaeffer's Volatility Index (SVI) of 25%, which ranks in just the 6th annual percentile. This reveals the stock's near-term options are pricing in unusually low volatility expectations at the moment.
In addition, the security has been a good target for premium buyers during the past year. That's according to its Schaeffer's Volatility Scorecard (SVS) of 88 out of 100, which shows Kroger has tended to make much bigger moves on the charts compared to what the options market was expecting.