May Be Time to Dump BBBY Stock Before Earnings

BBBY will report first-quarter earnings after the close next Wednesday

Jun 22, 2018 at 11:24 AM
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Bed Bath & Beyond Inc. (NASDAQ:BBBY) is scheduled to report first-quarter earnings after the close next Wednesday, June 27. The retailer has a history of negative earnings reactions, and with BBBY trading near a trendline that's had bearish implications in the past -- it might be time to brace for the stock's next leg lower.

Over the past eight quarters, BBBY stock has closed lower the day after the retailer's earnings report five times -- including the last four in a row. On average, the shares have swung 9.4% in the subsequent session over this two-year time frame, regardless of direction. This time around, the options market is pricing in a 13.8% next-day move.

Strengthening the chance this post-earnings price action will occur to the downside is Bed Bath & Beyond's recent rally into its 160-day moving average. Specifically, the shares ran headlong into this familiar layer of resistance, after rebounding off their May 9 nine-year low of $16.52 -- last seen trading at $20.14.

bbby stock daily chart on june 22

According to Schaeffer's Senior Quantitative Analyst Rocky White, their have been seven other times in the past three years BBBY stock has come within one standard deviation of its 160-day moving average after a significant stretch below this trendline. Following these previous signals, the retail shares averaged a one-month loss of 5.95%, with two-thirds of the returns negative.

At least one group of options traders appears to be betting on another post-earnings drop for BBBY. The stock's weekly 6/29 20-strike put has seen the biggest increase in open interest over the last two weeks, and data from Trade-Alert points to significant buy-to-open activity here.

Skepticism has been growing among short sellers, too. Short interest is up more than 22% since early April to 23.79 million shares. Bed Bath & Beyond stock could encounter even stiffer headwinds, should shorts continue to ramp up their bearish exposure to the retailer.

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