Hostess is set to report earnnings after the close this evening
Twinkie maker Hostess Brands Inc (NASDAQ:TWNK) enjoyed a rally that started in late September and stretched well into October. In fact, TWNK added 8.9% last month, marking its biggest jump since April 2020. This rally culminated in a record high of $19.26 on Nov. 1 before quickly losing steam, as investors look ahead to Hostess' third-quarter earnings, which is due out after this evening's close. There is a silver lining, however, as TWNK pulled back to a trendline that's proven bullish for the equity in the past.
According to a study by Schaeffer's Senior Quantitative Analyst Rocky White, the security just came within one standard deviation of its 40-day moving average after a lengthy period above the trendline. Seven similar pullbacks have occurred in the past three years, per White's data, and 86% of the time the stock enjoyed positive one-month returns. While it only averaged a 1.8% jump, a similar move from its current perch would put TWNK just below its aforementioned record peak, at $19.02.
This small jump, along with an upcoming earnings report, could be reason enough to hold onto the equity, which still sports a healthy 27.7% year-to-date lead. The stock tends to do well after earnings, too, enjoying positive post-earnings returns during five of its last eight reports. It staged a 4.6% jump during its August confessional, and on average moved 3.1% during its next-day sessions, regardless of direction. This time around options traders are pricing in a much bigger move of 12.6%.
A closer look at options activity shows call volume running at double the intraday average, with 4,402 calls exchanged so far -- almost 18 times the number of puts traded. The most popular contract by far is the November 20 call, followed distantly by the 17.50 call in the same monthly series.
Short sellers are hitting the exits, with short interest down 15.2% in the last two reporting periods, but a further unwinding of pessimism could put additional wind at the equity's back. The 18.13 million shares sold short make up 14% of the stock's available float, and it would take nearly 14 days to buy back these bearish bets, at TWNK's average daily pace of trading.