The shares recently pulled back to a trendline that's had historically bullish implications
Shares of Square Inc (NYSE:SQ) are popping today, after SunTrust Robinson raised its price target on the payments processor to $66 from $65. At last check, SQ stock was up 1.8% to trade at $60.71 -- and could be headed higher in the near term, if history is any guide.
After topping out at a record high of $69.40 on June 21, Square stock pulled back alongside the rest of the tech sector, and is now within one standard deviation of its 40-day moving average. Following the last seven times this has happened after Square had been trading above this trendline for a significant length of time, the stock went on to average a one-month gain of 7.94%, with the majority of returns positive.
Another move of this magnitude would put SQ shares back near $66 , based on its current perch, and could spark a bigger wave of bullish brokerage attention. Despite the stock's current 76% year-to-date advance, 15 of the 29 analysts covering the equity maintain a "hold" or "sell" recommendation, while the average 12-month price target of $56.33 is a discount to present trading levels.
A round of short covering could also keep the wind at Square's back. The 33.51 million SQ shares sold short account for a healthy 13% of the equity's available float, and would take almost four days to cover, at the average pace of trading.
And the good news for those using call options to bet on Square's next leg higher is that the security has consistently rewarded premium buyers over the past year. This is based on SQ's Schaeffer's Volatility Scorecard (SVS) reading of 95 out of a possible 100, which indicates the equity has tended to make outsized moves in the last 12 months, relative to what the options market has priced in.