2 Building Stocks Poised For a Comeback

LL stock tends to fare well after meet-ups with its 40-day moving average

Sep 28, 2017 at 1:00 PM
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U.S. stocks are trading mixed this afternoon, with the tech-heavy Nasdaq pulling back as traders digest President Trump's tax plan and the latest round of economic data. Two buildings stocks that have also pulled back recently are hardwood flooring retailer Lumber Liquidators Holdings Inc (NYSE:LL) and concrete concern CEMEX (NYSE:CX). The stocks' retreats, however, could create compelling opportunities for options traders, as LL and CX both test a key trendline with historically bullish implications -- and as recent hurricane damage could translate into greater demand for building supplies.

Lumber Liquidators Stock Looks For Support From Key Trendline

LL stock was last seen at $37.84, slightly higher on the day, but still off its Sept. 8 two-year high of $41.33. Lumber Liquidators stock is now trading within one standard deviation of its 40-day moving average, after a lengthy stint above this trendline. According to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, previous pullbacks to this trendline over the past three years have yielded positive one-month returns two-thirds of the time, with an impressive average return of 11.31%. Another rally of 11.31% would put LL stock around $42.12 -- in new-high territory.

LL Since 2016 with 40-Day Moving Average

LL shares have more than doubled in 2017, gaining 139.4%. A short squeeze could propel the shares even higher, as short interest on LL accounts for 21.6% of the stock's total available float. At the equity's average daily trading volume, it would take nearly a week to cover these shorted shares. 

What's more, LL stock has tended to exceed options traders' expectations during the past year, as evidenced by the stock's Schaeffer's Volatility Scorecard (SVS) of 98. As such, now is an opportune time for option buyers to strike on Lumber Liquidators shares.

CEMEX Stock Options Are Cheap Ahead of Likely Trendline Bounce

Last seen at $9.01, CX shares are also fractionally higher on the day. Since scoring a two-year high of $10.37 in July, CEMEX stock has pulled back, and is now trading within one standard deviation of its 200-day moving average. If past is prologue, a retreat to this trendline could mean good news for CX stock, with five prior signals yielding an average five-day return of 2.83% -- 100% of those returns positive. Looking at its one-month performance after a signal, CX was again higher 100% of the time, with a more bullish average return of 11.70%. Another rally of 11.7% in the next month would place CEMEX stock back in double-digit territory.

CX Since 2016 With 200-Day Moving Average


Like LL stock, CEMEX shares have fared well amid increased short interest activity. Short interest on CX has grown roughly 20% in the last reporting period to 25.5 million shorted shares -- or 3.6 times the stock's average daily trading volume.

For speculators who want to roll the dice on another pop higher for CX, now is an attractive time to buy premium on short-term CX options, considering they're pricing in relatively low volatility expectations at the moment. The stock's Schaeffer's Volatility Index (SVI) of 27% ranks lower than 99% of all other readings from the past year.

 

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