Technical Signal Suggests Traders Buy Fossil, MGM Resorts Shares

by Alex Eppstein | Feb 17, 2017
Fossil Group Inc (NASDAQ:FOSL) and MGM Resorts International (NYSE:MGM) both suffered staggering losses in the wake of their recent earnings reports. Specifically, FOSL plunged almost 15% on Wednesday -- and hit a multi-year low -- while MGM shares shed over 9% yesterday, attracting options traders in the process. That said, if past is precedent, both stocks may have also flashed a buy signal.

Starting with FOSL, the watch stock breached its lower Bollinger Band after its post-earnings sell-off, putting it in oversold territory. This has been a bullish signal for stocks over the last 12 months. In fact, Fossil shares breached this level in early November, which was immediately followed by a sharp rally, per the chart below:

fossil stock chart with bollinger bands

At last check, FOSL stock is up 2.4% at $20.72, muscling back above the lower Bollinger Band. Potentially also contributing to today's rebound, the stock settled yesterday with a 14-day Relative Strength Index (RSI) of 29, echoing its oversold status -- and suggesting even more near-term gains could be in the cards.

As the chart above makes clear, FOSL still has a long way to go to reach technical respectability. However, if the stock reasserts itself, it could benefit from short-covering activity and/or analyst upgrades. With over one-fifth of FOSL's float sold short, it would take eight sessions for short sellers to cover their positions, at typical trading levels. Moreover, 12 of 13 analysts maintain a "hold" or worse rating on the stock.

MGM is in a similar spot, technically speaking, having breached its lower Bollinger Band after a dismal earnings report yesterday. The stock continues to descend, down 1.8% today at $26.39. However, the shares could be gearing up for a mean reversal, given the Bollinger Band signal -- which last flashed in late August, preceding a sharp, months-long rally -- and the fact that the equity's 14-day RSI is below 32, approaching oversold territory.

mgm resorts stock chart with bollinger bands

However, from a contrarian perspective, MGM Resorts International doesn't have as good a setup as Fossil Group Inc, given the former's higher levels of optimism. For instance, just 3.5% of MGM's float is sold short, suggesting there's limited potential for a short squeeze. Not to mention, all 14 analysts tracking the stock rate it a "buy" or better, leaving next to no room for upgrades.

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