Etsy Could Be a Steal Before Earnings

This ETSY stock buy signal has never been wrong

Nov 2, 2018 at 1:45 PM
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Handmade marketplace Etsy Inc (NASDAQ:ETSY) is slated to report third-quarter earnings after the close on Tuesday, Nov. 6. While the shares have pulled back recently with the broader equities market, a historically bullish technical signal is now flashing -- suggesting ETSY stock could be on sale at current levels.

Etsy shares touched a record high of $53.25 in mid-September, but succumbed to those October stock market headwinds, retreating to their 160-day moving average. In the past three years, there have been five other times when ETSY came within one standard deviation of this trendline after a lengthy stretch above it. One month later, the stock was higher after all five signals, averaging an impressive gain of 12.88%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From ETSY's current perch of $42.77, a similar pop would place the shares around $48.27.

ETSY stock chart nov 2

Even with the recent retreat from record highs, ETSY has more than doubled in 2018. Nevertheless, short sellers have been upping the bearish ante, with short interest increasing by 24.2% in the past two reporting periods.

In the same vein, options buyers have been initiating bearish bets over bullish at an accelerated pace in the past two weeks. The stock's 10-day put/call volume ratio of 1.05 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is higher than 98% of all other readings from the past year.

Echoing that, Etsy's Schaeffer's put/call open interest ratio (SOIR) of 1.70 indicates that put open interest handily exceeds call open interest among options expiring within three months. This SOIR stands in the 99th percentile of its 12-month range, meaning near-term traders have rarely been more put-biased in the past year.

ETSY stock has moved higher after three of the last five earnings releases, including a one-day gain of 3.3% after earnings in August, and a massive 20.4% post-earnings pop in February. Should the e-commerce concern once again report strong earnings, a short squeeze or an exodus of option bears could further fuel the stock's rebound.

 

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