Waste giant RSG looks ready to bounce after sending up a reliable buy signal
The shares of waste collection giant Republic Services, Inc. (NYSE:RSG) built on their years-long uptrend in 2018, rising in early December to a fresh record high of $78.54. However, amid the latest bout of broad-market turmoil, RSG found support earlier this week in the same area it did following October's patch of volatility -- around the site of its year-to-date breakeven point, not far below the $70 level.
RSG stock's pullback has now effectively erased what was, at its high point, a 2018 advance in excess of 16%. However, the heavy selling has also created what could be a prime buying opportunity for the garbage-and-recycling name, which boasts a virtually "recession-proof" fundamental outlook as we head into an uncertain 2019 for investors.
Specifically, Schaeffer's Senior Quantitative Analyst Rocky White notes that RSG's dramatic dip this month brought it to within one standard deviation of its 320-day moving average after a prolonged stretch of trading above it, marking only the third such pullback to this trendline over the past three years. Following previous such signals, RSG's returns have been middling; the equity is up just 0.99%, on average, with 33% of the returns positive.
However, broadening our view to 21 days after a 320-day pullback, RSG's performance is compellingly bullish. The stock's returns have been positive 100% of the time, with an average return of 7.18%. The accompanying chart clearly displays how those prior pullbacks have played out in the form of snapback rallies throughout 2018, after this trendline first proved its mettle as support during the high-volatility selling of the third quarter of 2015.
Plus, like many other equities, RSG is deeply oversold right now. Its 14-day Relative Strength Index (RSI) was docked at 24 by Monday's early closing bell, leaving the stock well-positioned to bounce in the short term as it works off this oversold condition.
That could shake loose some of the recent crop of RSG short sellers. Following a 14.6% increase over the past two reporting periods, short interest on the stock just reached 5.66 million shares -- its highest point since mid-August. If some of the weaker bearish hands jump ship, a capitulation among these shorts could fuel additional upside for RSG as it capitalizes on solid trendline support.