Why the Whole Foods Stock Rally May Have Legs

Shares of Whole Foods have been heating up since the Jana Partners news

Apr 12, 2017 at 2:46 PM
facebook X logo linkedin

Whole Foods stock has been one of the highest profile names in the past 48 hours. The buzz surrounding WFM shares stems from reports that activist investor Jana Partners could be pushing the organic grocer toward a possible sale. From the looks of it, short sellers could be getting punished by the sizzling shares.

Week-to-date, WFM stock has jumped 10.4% to trade at $34.32 -- including today's 2.3% gain. This could be putting short sellers on the defensive, based on a study run by Schaeffer's Senior Quantitative Analyst Rocky White. Most obviously, a lofty 12.4% of Whole Foods' float is sold short, representing almost two-weeks' worth of pent-up buying power, at average daily volumes.

But there's more, as White points out. Jan. 1 marked an annual low in WFM short interest, and since bottoming, these bearish bets have surged 42%. Plus, he estimates that the average price at which the shorts entered was $29.90, based on an average build date of Feb. 6. Given the facts above, the average short seller is currently sitting on a deficit of nearly 15%, suggesting they're being pressured to cover as WFM stock extends its upside run.

That said, short sellers may have hedged their bearish positions via long calls. Call buying has been extremely popular in recent weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). WFM sports a 10-day call/put volume ratio of 4.11, in the top quartile of its annual range.

That trend is continuing today. More than 16,000 WFM call options are on the tape, or two times the usual intraday amount. Plus, buy-to-open activity is detected at the near-the-money August 34 call, suggesting expectations for even more upside over the next four months.

Whether or not the aforementioned short sellers cover, Whole Foods stock still has plenty of opportunity to run higher, from a contrarian perspective. After all, 14 of 17 analysts rate the shares a "hold" or worse, while the average 12-month price target is below the current perch, at $29.19. In other words, WFM stock could benefit from upgrades and/or price-target hikes. Just this morning, in fact, BMO bumped its price target to $28 from $23. 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI