Urban Outfitters Stock Could Reclaim Record Highs Next Month

URBN recently met up with a historically bullish trendline

Managing Editor
Sep 4, 2018 at 11:36 AM
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Back on Aug. 22, Urban Outfitters, Inc. (NASDAQ:URBN) roared to a fresh record high after an earnings beat, vaulting briefly up to $52.50 before reversing its gains and falling back below the $50 level that very same day. Since then, the retail name has cooled off -- but this pullback could have bullish implications for URBN, if history is any guide.

More specifically, Urban Outfitters stock is now within one standard deviation of its 80-day moving average, after a lengthy stretch above it. Over the past three years, there have been four prior instances of URBN pulling back to its 80-day trendline after trading north of it at least 60% of the time over the previous two months. Those prior pullbacks have resulted in an average one-month return of 6.7% for URBN, per Schaeffer's Senior Quantitative Analyst White, with all four returns positive.

Daily Stock Chart URBN

Based on its current perch at $47.86, another move of this magnitude would put Urban Outfitters stock at $51.07 by this time next month -- within striking distance of that Aug. 22 record high. Longer term, URBN shares are up an impressive 35% year-to-date, and have more than doubled in the last 12 months. 

There is reason to believe the stock could have even more room to run. For starters, the equity is ripe for a short squeeze. Short interest increased by 8.2% in the most recent reporting period to 13.50 million shares -- the most since December. This represents a hefty 16.4% of URBN's total available float, and eight days of pent-up buying power, at the equity's average daily volume. 

The outperforming retailer is also overdue for upgrades. Of the 19 brokerages covering URBN, only five rate it a "buy."  

Short-term options traders are much more put-heavy than usual right now. URBN sports a Schaeffer's put/call open interest ratio (SOIR) of 1.58, indicating that puts outnumber calls among options expiring within three months. This ratio is in the elevated 73rd percentile of its annual range, which means near-term traders are more put-biased than usual. Should the equity embark on another leg higher over the next month, an unwinding of pessimism in the options pits could add fuel to the stock's fire.

Those wanting to bet on a bullish repeat of history for URBN may want to consider a call-buying strategy, considering short-term options on the retail stock are pricing in remarkably low volatility expectations. It's Schaeffer's Volatility Index (SVI) is 32%, which arrives in the 1st percentile of its annual range.

 

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