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These 2 Small-Cap Stocks Could Be Ready to Bounce

FRED and FOSL stocks recently breached their lower Bollinger Bands

Jun 16, 2017 at 11:55 AM
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Small-cap stocks have been slowly gaining ground in 2017, with the Russell 2000 Index (RUT) up 3.14% year-to-date. And while the RUT recently pulled back from its June 9 record high of 1,433.79 amid a broader stock market retreat, it has held above the round 1,400 mark, a level that signaled "false" breakouts earlier this year, as Schaeffer's Senior V.P. of Research Todd Salamone noted in a recent Monday Morning Outlook.

This positive price action could encourage traders to give small caps a second look, especially with many low-priced stocks in oversold territory. Two names that popped up on our radar that could potentially be due for a short-term bounce are retail stocks Fred's, Inc. (NASDAQ:FRED) and Fossil Group Inc (NASDAQ:FOSL).

Fred Shares are Heavily Shorted Ahead of Rite Aid Asset Purchase

There's no denying that FRED stock has been in a long-term downtrend, with the shares currently staring at a 42.3% year-to-date deficit to trade at $10.71. However, Fred's recently breached its lower Bollinger Band, while its 14-day Relative Strength Index (RSI) is currently docked at an oversold 28.8 -- two historically strong "buy" signals.

There's certainly plenty of sideline cash available to help fuel any future FRED rally attempts. In fact, short interest has more than quadrupled since mid-December, and now a record 15.8 million shares are sold short.

Some of this is likely tied to Fred's involvement with a potential Walgreens Boots Alliance-Rite Aid merger, with the former set to acquire $950 million in Rite Aid assets at the end of this month. Nevertheless, it would take short sellers nearly 31 days to cover their bearish bets, at the stock's average pace of trading.

Fossil Options are Reasonably Priced at the Moment

FOSL has also been a long-term laggard, down more than 64% year-to-date. In fact, the shares hit a 15-year low of $8.98 today, last seen trading at $9.17. Against this backdrop, Fossil shares are trading south of their lower Bollinger Band, while their 14-day RSI is perched at 18.3 -- on track for its lowest close since Nov. 16, 2015.

Those wanting to bet on a near-term bounce with Fossil options are in luck. FOSL stock's Schaeffer's Volatility Index (SVI) of 50% ranks in the 16th annual percentile, meaning low volatility expectations are being priced into the shares' short-term options -- a potential boon to premium buyers.
 

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