Late last week, a reader pointed out that now might be a good time to look at stocks pulling back to support amid longer-term uptrends, considering the recent broad-market breather. Against this backdrop, I asked Schaeffer's Senior Quantitative Analyst Rocky White to run some numbers and find stocks with contrarian potential, and three names piqued my curiosity: streaming video concern Netflix, Inc. (NASDAQ:NFLX - 184.02), farming equipment issue Deere & Company (NYSE:DE - 87.09), and online retail titan Amazon.com, Inc. (NASDAQ:AMZN - 264.75).
More specifically, Rocky used the following contrarian criteria to generate a list of stocks retreating amid long-term rallies:
Below is a list of 25 stocks that met our standards, implying they could have room to run -- and now could be an opportune time to get in on the upward momentum (click chart to enlarge):
First up, after touching a new high of $197.62 last week, NFLX pulled back to support at its 20-day moving average. This trendline ushered NFLX notably higher in late 2012 and early 2013, and hasn't been breached on a daily closing basis since early December.
However, despite outperforming the broader S&P 500 Index (SPX) by almost 100 percentage points during the past three months, the stock sports a SOIR of 1.65 -- just 6 percentage points from a 52-week peak. In other words, near-term options traders have rarely been more put-heavy during the past year. Digging deeper, peak put open interest stands at the out-of-the-money March 130 strike. An unwinding of these bearish bets could translate into a contrarian boon for NFLX.
In the same vein, short interest accounts for almost 20% of NFLX's total available float, and just six out of 27 analysts consider the stock worthy of a "buy" or better rating. A short-squeeze situation or a round of upbeat analyst attention could help the stock extend its rebound off trendline support.
Moving on, DE peaked at $95.60 less than a month ago, but has since retreated to its 20-week moving average. Furthermore, the stock seems to have found an ally in the $86-$87 region, which acted as resistance in late 2012, but has since switched roles to serve as a foothold. In addition, the equity's Relative Strength Index (RSI) now sits at 34 -- approaching oversold territory, suggesting a rebound could be in the short-term cards.
Like NFLX, DE's longer-term ascent has done little to sway the skeptics on the Street. The security sports a SOIR of 1.21, which stands higher than 77% of all other readings of the past year. Should the bearish holdouts capitulate, or should Deere's shareholder meeting on Wednesday lure additional buyers, now could be prime time for DE bulls to bet on a bounce.
Finally, AMZN topped out at $284.72 in late January, but has cooled its jets to test support in the $260-$265 region -- home to its ascending 60-day moving average, which has contained the stock's pullbacks since late November.
On the sentiment front, near-term option players remain pessimistic, as evidenced by the stock's SOIR of 1.35. Compared to similar readings of the past year, this ratio ranks in the 73rd percentile, pointing to a bigger-than-usual put-skew among options expiring within three months. More specifically, peak put open interest in the front-month series stands at the out-of-the-money March 230 strike. A reversal in sentiment in the options pits could translate into a contrarian tailwind for AMZN.
In conclusion, those of you familiar with Schaeffer's Expectational Analysis ® methodology know that we like to find stocks with solid fundamentals and price action, juxtaposed with lingering skepticism on Wall Street, as this points to sideline cash that could fuel further gains. To exploit stocks you think are due for a bounce, consider selling puts, buying calls, or constructing bullish options spreads.
The Case for Big Moves in IWM and QQQ
Featured Partners: AOL DailyFinance
© 2015 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242
Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: email@example.com
All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.
Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.