Is United Parcel Service, Inc. (UPS) Flashing a 'Buy' Sign?

United Parcel Service, Inc. (UPS) is potentially forming a cup-and-handle pattern, signaling a breakout to new highs could be ahead

Jun 22, 2016 at 11:48 AM
facebook twitter linkedin


Shipping specialist United Parcel Service, Inc. (NYSE:UPS) has added more than 10% so far in 2016, despite starting the year on a sharp slide. Recently, the stock took a bounce from its 200-day moving average, and since late last year has been forming what looks like a cup-and-handle pattern -- which could signal a big breakout ahead. The shares are taking a breather today, down 0.6% at $106.04, in sympathy with sector peer FedEx Corporation (NYSE:FDX) -- which gave a disappointing outlook alongside stronger-than-expected quarterly earnings. However, UPS stock could still present an attractive opportunity, especially for contrarian option bulls.

UPS Daily Chart June 22

In spite of a strong technical performance so far this year, UPS has been surrounded with bearish sentiment. More than two-thirds of analysts following the stock maintain a "hold" or "strong sell" rating. And short interest climbed by nearly 33% during the two most recent reporting periods. In fact, these bearish bets now represent more than a week's worth of trading, at UPS' typical daily volume.

Options traders have taken a pessimistic view, as well. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 5.47 indicates more than five UPS puts have been bought to open for each call over the past two weeks. Meanwhile, the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.69 shows put open interest nearly tripling call open interest among options set to expire in the next three months. What's more, both of these readings are seated in the put-skewed 94th percentile of their respective annual ranges.

Near-term UPS option buyers could get quite a bargain at the moment. The stock's Schaeffer's Volatility Index (SVI) of 14% ranks in the low 16th percentile of its 12-month range, and its 30-day at-the-money implied volatility of 14.5% is lower than 91% of all comparable readings in the past year. All of this suggests that premium on the stock's short-term options should be pricing in historically low volatility expectations right now.

UPS hit a record high of $114.40 in January 2015, but more recent rally attempts have stalled out around the $107 level. A breakout above this area of resistance could see United Parcel Service, Inc. (NYSE:UPS) soaring toward new record highs. 

Let us help you profit from market volatility. Target big gains in short order with a 30-day trial of Schaeffer's Weekly Volatility Trader!

A Schaeffer's exclusive!

The Expert's Guide

Access your FREE trading earnings guide for Q3 before it's too late!


  
 
Special Offers from Schaeffer's Trading Partners