Short-term JCI options can be bought at a discount, from a volatility perspective
Johnson Controls Inc (NYSE:JCI) is struggling today, down 1.3% to trade at $36.48. After breaking through the $40 region back in late August, the stock pulled back sharply. However, a rebound could be on the horizon if history is any guide, with the stock now trading near two trendlines with historically bullish implications.
More specifically, Johnson Controls stock is now within one standard deviation of its 80-day moving average. Over the past three years, there have been four other instances of JCI pulling back to this trendline after trading above it at least 60% of the time over the previous two months. Those prior signals resulted in an average one-month return of 8.06%, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with all four of the returns positive.
A similar trend has occurred with the security's 200-day moving average. In this instance, there have been three other times since 2015 the stock has pulled back to this trendline after a lengthy stretch above it, according to White. Those occurrences yielded an average one-month return of 5.61%, with two of the three returns positive. Rallies of similar magnitude off of either trendline would put JCI back above its year-to-date breakeven level, which roughly coincides with a 61.8% Fibonacci retracement of the stock's sharp decline from late January through April.
Another big bounce could encourage short sellers to throw in the towel. Short interest surged 6.8% in the latest reporting period to 29.71 million shares, and would take nearly a week to cover at the average pace of trading.
A round of bullish brokerage notes could create tailwinds for JCI stock, too. While 12 of 15 brokerages maintain a "hold" or worse recommendation, the average 12-month price target of $40.07 is a slim 9.9% premium to current trading levels.
Those who want to bet on a repeat of history for JCI stock may want to do so with options. The stock has a Schaeffer's Volatility Index (SVI) of 19%, which ranks in just the 9th annual percentile. This reveals the security's short-term options are pricing in unusually low volatility expectations at the moment, a boon to potential premium buyers.