Bristol-Myers Squibb Co (BMY) Could Be Due for a Bounce

Bristol-Myers Squibb Co (NYSE:BMY) stock is flirting with new lows, but Labor Day week has historically been positive for the drugmaker

Sep 2, 2016 at 12:28 PM
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The shares of drugmaker Bristol-Myers Squibb Co (NYSE:BMY) are down 1.7% at $55.82, and just hit a new annual low of $55.11, as biotechs struggle in the wake of Hillary Clinton's promise to address "excessive unjustified costs" of life-saving drugs if she's elected president. The stock has given up more than 27% since flirting with decade-plus highs north of $77 in mid-July, with the sell-off triggered by devastating drug data early last month. However, if history is any indicator, BMY could be headed for a rebound after Labor Day.

As Schaeffer's Senior Quantitative Analyst Rocky White pointed out earlier this week, BMY is among the 20 best S&P stocks during Labor Day week over the past 10 years. Specifically, the stock has ended the week higher 90% of the time, though its average return is the smallest on the list, at just 0.6%. (For the historically worst-performing sector after Labor Day, click here.)

Chart 4 SPX best stocks

In light of its steep fall from grace, BMY sported a 14-day Relative Strength Index (RSI) of 23 even before today -- deep into oversold territory. Now, the stock is testing the waters in the $55-$57 neighborhood, which has contained pullbacks since October 2014. In other words, the stars could be aligning for a short-term breather for BMY.

BMY options buyers seem to be betting on a bounce, too. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX (PHLX), the stock's 10-day call/put volume ratio sits at 3.67 -- in the 66th percentile of its annual range. In other words, speculators have bought to open nearly four BMY calls for every put during the past two weeks, underscoring a healthier-than-usual appetite for bullish bets.

Today, in fact, BMY options are flying off the shelves at twice the average intraday clip, with calls comfortably outnumbering puts. It looks like traders are buying to open the weekly 9/30 56.50-strike call, which will move into the money if BMY claws back above the $56.50 level before the end of the month, when the options expire.

Now is an opportune time to buy Bristol-Myers Squibb Co's (NYSE:BMY) short-term options. The stock's Schaeffer's Volatility Index (SVI) of 21% is higher than just 16% of all other readings from the past year, suggesting historically low volatility expectations at the moment. Still, with the broader biotech landscape uncertain ahead of the November election, perhaps traders looking for a short-term bullish play might want to consider these historical September gems.

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