The next month could mean big gains
Phillips 66 (NYSE:PSX) is set to finish 2019 with a gain of roughly 28%, and technical data suggests the shares could be due for another strong move higher just as the calendar turns to 2020. Specifically, a study from Schaeffer's Senior Quantitative Analyst Rocky White shows that the admittedly obscure 70-day moving average has actually been strong support for PSX.
White's data shows that there have been four qualifying pullbacks to the 70-day in the past three years, and the shares have averaged a 21-day gain of 6.2% following those meet-ups, with three of them producing positive one-month returns. White also broke down the expected 21-day return for an at-the-money call trade, based on average volatility expectations for Phillips 66, to be 124%.
Interestingly, recent options traders have been betting bearishly on PSX, which could also point to upside potential, from a contrarian standpoint. For instance, the 10-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 1.37, and ranks in the 89th annual percentile. This shows unusual levels of put buying versus call buying, and an unwinding of the bearish positions could support the shares.
Looking closer, peak open interest is at the weekly 1/10 121-strike put, where more than 11,000 contracts reside -- roughly 9,000 more than the next most populated strike. Those interested in PSX on either side of the aisle should note that its Schaeffer's Volatility Index (SVI) is 18% and ranks in the 9th annual range, suggesting short-term options are pricing in historically low volatility expectations at the moment.