Building the Bullish Case For Digital Realty Trust, Inc. (DLR)

Digital Realty Trust, Inc. (DLR) could soon win over the doubters, and resume its quest for fresh record highs

Aug 10, 2016 at 2:50 PM
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Real-estate investment trust (REIT) Digital Realty Trust, Inc. (NYSE:DLR) has had a sensational run in 2016, gaining nearly 35% at $101.81. Based on what we're seeing on the charts -- and also among short sellers and options traders, where pessimism prevails -- the stock could continue to run higher.

Starting with the technical backdrop, DLR hit a record high of $113.21 in early July. Since then, the shares have pulled back 10%, suggesting they may be ready to resume their longer-term uptrend. Reinforcing this bullish case, the REIT's recent pullback was contained by double-barreled support at the round $100 century level and its rising 80-day moving average -- which could continue to usher the stock to even higher highs.

What's more, skepticism is running high among short-term options traders. Most notable is DLR's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR), which measures open interest among near-the-money options in the August series, expiring next Friday night. At 2.54, this ratio suggests puts more than double calls, hinting at potential options-related support on an unwind situation. In fact, the two puts with the most open interest among all series are the August and October 100 strikes, reinforcing the technical foothold mentioned earlier.

Short interest is high, as well. By the numbers, 23 million DLR shares are sold short, which would take 12 days to cover, at the REIT's typical trading levels. In other words, the stock could be on the verge of a short-squeeze situation, with ample buying power stashed on the sidelines. Last but not least, a round of upgrades could boost Digital Realty Trust, Inc. (NYSE:DLR), considering close to half of covering analysts rate the outperformer a tepid "hold."

dlr daily august 10

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