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Which Stock Could Serve Up Big Returns This Tax Season?

Intuit Inc. (NASDAQ:INTU) and H & R Block Inc (NYSE:HRB) are headed in opposite directions on the charts ahead of Monday's tax deadline

Apr 14, 2016 at 12:46 PM
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With the deadline to file federal tax returns quickly approaching (Monday, April 18, for anyone who may have forgotten), two stocks that could stand to benefit -- whether you do or not -- are top tax software creators Intuit Inc. (NASDAQ:INTU) and H & R Block Inc (NYSE:HRB). But on the charts, these stocks have been heading in opposite directions, and it looks like their current momentum could continue.

INTU is up 0.2%  at $103.56 today, after Brean Capital initiated coverage this morning with a "buy" rating and a $125 price target -- a 21% premium over the stock's current value, and well into record-high territory. This optimism is a change of pace from the brokerage bunch, where eight out of 13 analysts rate the stock a "hold" or "strong sell."

The equity hasn't seen much bullish attention elsewhere, either. While short interest fell slightly during the two most recent reporting periods, these pessimistic bets still account for more than a week's worth of trading, at INTU's average daily volume.

On the technical front, INTU is up 7% in 2016, and has gained about 30% since its August annual low of $79.63, nearly closing its huge late-August bear gap. The stock has been on a long-term uptrend since late 2008, but the shares are currently struggling to break through the $105-to-$108 region -- an area that served as a roadblock after Intuit Inc. (NASDAQ:INTU) hit its all-time high last summer. Should the shares manage to break out above this level, marking new record highs, an unwinding of skepticism on Wall Street -- via upgrades or a short squeeze -- could add fuel to the fire.

HRB, meanwhile, is down 3.6% at $24.10 today, not far off Tuesday's two-year low of $23.83, after an unfavorable report on the company's tax fees. The shares have given up nearly 28% year-to-date, and have been in a downtrend since an early-March bear gap, when HRB reported weaker-then-expected earnings. Longer term, the drop sent the equity beneath a trendline connecting a set of higher lows.

Short interest rose by an astounding 120% over the past month, but represents only 7.2% of the stock's total float -- less than five days' worth of trading, at HRB's typical pace. Likewise, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.19 is in the 83rd percentile of its annual range.

The stock's sentiment picture isn't exactly optimistic, but there is plenty of room on the bearish bandwagon. Near-term option traders remain relatively call-skewed; HRB's
Schaeffer's put/call open interest ratio (SOIR) of 0.43 shows calls more than doubling puts among options expiring in three months or less, and ranks lower than 63% of the past year's readings. Plus, while five out of nine analysts rate HRB a "hold," not a single one gives it a "sell" or worse recommendation. Should H & R Block Inc (NYSE:HRB) continue to slip, further pessimism from analysts and option traders alike could pressure the shares toward a new multi-year bottom.


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