History Says Bet on Campbell Soup Stock's Next Leg Lower

Options traders have been extremely bullish during the past two weeks

Managing Editor
Sep 25, 2018 at 1:14 PM
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Shares of Campbell Soup Company (NYSE:CPB) are moving lower in afternoon trading, last seen down 0.5% at $39.62. Below we will take a look at how CPB has been faring on the charts, and dive into why now looks to be an ideal time to bet on the stock's next leg lower, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

CPB has been in a downward spiral since its early December peak, notably suffering a huge bear gap in May. While the shares managed to recover those losses, the $42-$44 region has capped breakout attempts, alongside the 160-day moving average. Overall, Campbell Soup stock has shed 17% year-to-date.

Daily Chart of CPB with 160MA

Meanwhile, the shares are now within one standard deviation of their 160-day moving average, after a lengthy stretch below this trendline. There have been seven similar signals of this kind in the past three years, after which CPB went on to average a one-month loss of 3.15%, per White. Another dip of this magnitude would put the shares back near $38.38.

In the options pits, however, traders have been leaning bullish in recent weeks. This is per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows a 10-day call/put volume ratio of 3.22, ranking in the 80th annual percentile. This indicates that calls have been bought over puts at a faster-than-usual clip..

Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.26, which ranks in the bottom percentile of its annual range. This means short-term traders have rarely been more call-heavy on CPB in the past year.

Finally, short interest fell 12.5% during the past two reporting periods, but still represents nearly 19% of the stock's total available float. At the packaged food concern's average daily trading volume, it would take shorts over a week to buy back the rest of their bearish bets.
 

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