Is Abbott Laboratories (ABT) on the Verge of Another Presidential Cycle Selloff?

Abbott Laboratories (ABT) is surrounded by optimism despite its recent slump

Jan 4, 2017 at 11:26 AM
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With the presidential inauguration just around the corner -- on Friday, Jan. 20 -- this year will be the first of Donald Trump's term. Historically speaking, the early parts of presidential cycles haven't been particularly upbeat for stocks, especially the first year. Schaeffer's Senior Quantitative Analyst Rocky White took a closer look at which individual S&P 500 Index (SPX) stocks have seen the best and worst returns in the first year of presidential terms. Leading the list of losers is healthcare firm Abbott Laboratories (NYSE:ABT).

Worst stocks 1st year of presidential cycle January 4

Going back to 2005 -- which encompasses the three most recent presidential cycles -- ABT has seen only one positive first-year return. In fact, across the three years covered, the stock has an average loss of 18.6% -- a far cry from the consistent outperformance of this semiconductor stock. That's not the only reason to be skeptical of ABT, either. Despite a choppy 2016, the security remains surrounded by a surprising amount of optimism.

From a technical standpoint, the past 16 months have likely left shareholders disappointed. After trending steadily higher from mid-2011 to mid-2015, ABT hit a record high just south of $52 before stalling out, and falling off sharply starting in August 2015. Since then, the shares have been up and down, and have more recently spent the past several months slumping beneath resistance from the 60-day moving average. In fact, the shares are going head-to-head with this trendline today, last spotted up 1.1% at $39.47.

This moving average isn't the only cause for concern at current levels, either. The 60-day moving average corresponds with the round $40 mark, which ABT hasn't overtaken since November. This area also represents a 23.6% retracement of the stock's 2015 peak and 2016 bottom, potentially bolstering resistance.

ABT Daily Chart January 4

What's more, peak open interest among all ABT options resides at the January 40 call. In fact, this strike has been popular among call players in the front two-months' series, resulting in a big "call wall" at the 40 strike. An unwinding of the hedges related to these bullish bets could continue to reinforce resistance at this round-number level.

ABT Open Interest Configuration January 4

Looking more closely at recent action in the options arena, ABT has seen more than five calls bought to open for every put over the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Moreover, the resulting call/put volume ratio of 5.26 ranks just 9 percentage points shy of an annual peak.

It's a rather attractive time to pick up premium on ABT options, too. The stock's Schaeffer's Volatility Index (SVI) of 21% is seated in the bottom quartile of all readings from the past year, indicating near-term options are pricing in muted volatility expectations at the moment. Plus, ABT boasts a Schaeffer's Volatility Scorecard (SVS) of 90, meaning the options market has tended to underprice the equity's ability to make outsized moves over the last 12 months.

Outside of the options pits, the brokerage bunch has maintained an upbeat view of ABT. Of 15 analysts providing coverage, 11 consider it a "buy" or better, versus four "holds" and not one "sell." Plus, the average 12-month price target of $46.62 sits in a region ABT hasn't seen in well over a year. In other words, the shares could be vulnerable to downgrades and/or price-target cuts.

Short sellers have been targeting Abbott Laboratories (NYSE:ABT) more than usual lately, with these bearish bets hitting a record high in early December. Still, just 5.2% of the stock's available float is sold short, leaving plenty of room for further pessimists to pile on.

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