Previous pullbacks to DKS' 60-day moving average have preceded rallies
On April 24, sports retailer Dick's Sporting Goods Inc (NYSE:DKS) made a rally attempt towards its March 9, all-time high of $152.61. This momentum stalled just above $151, and the shares secured weekly losses of more than 2% over the next two weeks. Now isn't the time to worry, however, as this pullback has put DKS within striking distance of a historically bullish trendline that could see the security close in on its 2022 breakeven mark.
Specifically, over the past three years, there were seven other occasions where Dick's Sporting Goods stock was within one standard deviation of its 60-day moving average after an extended stint above it, according to Schaeffer's Senior Quantitative Analyst Rocky White. One month after testing this trendline, the security was higher 86% of the time, and sported an average return of 11%. From its current perch of $140.63, a move of similar magnitude would put the stock above $156 -- a new all time high.
Should Dick's Sporting Goods stock rally, a short squeeze could be in play. Short interest fell by 7% in the most recent reporting period, yet the 8 million shares still represent 13.4% of the total available float and nearly six days of pent-up buying power.
Meanwhile, options traders are exceptionally put-biased, based on DKS' 10-day put/call volume ratio of 3.92 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 91st percentile of its annual range. Echoing this, Dick's Sporting Goods stock's Schaeffer's put/call open interest ratio (SOIR) 2.97 stands higher than 85% of annual readings. In other words, puts are popular and an unwinding of this pessimism could have additional bullish implications.