Plus, short-term options are relatively cheap at the moment
Dick's Sporting Goods, Inc. (NYSE:DKS) is down 1.4% to trade at $34.73 today. A little more than a month ago, the retail stock flashed a bullish technical signal that preceded an annual high of $39.74 on Sept. 11. Since then, DKS pulled back, and is currently pacing toward a five-day losing streak. However, the stock is trading near another trendline that's marked attractive entry points in the past.
More specifically, Dick's Sporting Goods stock is now within one standard deviation of its 160-day moving average. Over the past three years, there have been six other instances of DKS pulling back to this trendline after trading above it at least 60% of the time over the previous two months, and closing north of it in eight of the last 10 sessions. Those prior signals resulted in an average one-month return of 7.12%, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with 67% of the returns positive.
A rally of similar magnitude would have the equity nearly erasing its September losses, with the shares shedding 5.2% last month. DKS gapped higher in late May following a well-received earnings report, but has since experienced a bout of choppy trading. Nevertheless, the stock still boasts a 21% lead for the year.
A round of short covering could create tailwinds for DKS. Short interest increased 35% in the last two reporting periods to 16.19 million shares, the most since July 2008. This represents nearly 22% of DKS' total available float, and almost seven days of pent-up buying power, at the equity's average pace of trading.
A shift in analyst sentiment could also draw buyers to the table. Of the 18 brokerages covering DKS, 11 rate it a "hold" or "strong sell."
Those who want to bet on a repeat of history may want to do so with options. The stock has a Schaeffer's Volatility Index (SVI) of 35%, which ranks in just the 6th annual percentile. This means the security's short-term options are pricing in unusually low volatility expectations at the moment, a boon to potential premium buyers.