3 Reasons to Like Foot Locker, Inc. (FL)

Foot Locker, Inc.'s (NYSE:FL) strong technical backdrop hasn't convinced skeptics on Wall Street

Jan 26, 2016 at 2:36 PM
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Each week, Schaeffer's Quantitative Analyst Chris Prybal routes an email of outperforming equities that have recorded an all-time high since September 2015, but are surrounded by pessimism -- making them a prime candidate for our Expectational Analysis® methodology. This week, Foot Locker, Inc. (NYSE:FL) entered a spotlight recently shared by Home Depot Inc (NYSE:HD).

On the charts, FL has been a standout -- boasting a 22% year-over-year lead. In late September, the shares hit a record high of $77.25, before subsequently embarking on a two-month pullback to their 80-week moving average. Since early December, the stock has taken several successful bounces from this trendline -- one which has ushered the shares higher for more than six years -- suggesting a solid layer of support is in place. Today, FL is extending its lead over this critical moving average, up 2.4% at $66.02, amid a rally from fellow athletic retail stock Lululemon Athletica inc. (NASDAQ:LULU).

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In spite of this impressive technical showing, sentiment around the Street is nearing pessimistic extremes. In the options pits, for example, FL's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 4.19 ranks in the 96th annual percentile. In other words, puts have been bought to open over calls at a faster clip just 4% of the time within the past year.

Echoing this skepticism is FL's Schaeffer's put/call open interest ratio (SOIR) of 2.33. Not only does this show that puts more than double calls among options expiring in three months or less, but it ranks higher than 98% of all comparable readings taken in the past year. Should the stock continue its trek up the charts, an unwinding of the hedges related to these put positions could translate into a fresh burst of buying power.

The security could also get some help from the bears that are lingering outside of the options arena. Specifically, short interest jumped 16% over the last two reporting periods, and now accounts for more than 15% of FL's available float -- or 20.8 million shares. This is the highest amount of shorted FL shares in at least 13 years.

Not only is it impressive that the stock continues to hover near all-time highs in the face of such immense selling pressure, but it's created plenty of available cash to help sustain a short-covering rally. In fact, at average daily trading volumes, it would take more than two weeks to cover all of these bearish bets.

Finally, now appears to be an opportune time to purchase premium on Foot Locker, Inc.'s (NYSE:FL) near-term options. In fact, FL's Schaeffer's Volatility Index (SVI) of 32% sits lower than 97% of all similar readings taken over the last 12 months, meaning premium on the security's short-term options is pricing in extremely low volatility expectations at the moment.
 

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