Signal Says ETSY Stock is Still Hot

Outperforming ETSY remains plagued by pessimism

Deputy Editor
Jan 3, 2019 at 1:14 PM
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The shares of Etsy Inc (NASDAQ:ETSY) notched a record high of $58.30 in early December, and while the broader stock market languished, ETSY shares finished 2018 with a gain of nearly 133%. Since that high, though, the e-commerce concern has pulled back to a key trendline -- a signal that, if history is any indicator, could mean another big rally for ETSY ahead. 

Drilling down, the stock has just come within one standard deviation of its 120-day trendline, after a lengthy stretch above it. The security has generated this signal five other times in the past three years, bouncing higher each time. Specifically, ETSY stock has enjoyed an average one-month gain of nearly 19% after these pullbacks, per data from Schaeffer's Senior Quantitative Analyst Rocky White. From its current perch of $47.26, similar move would put the stock back up near its December highs, to trade around $56.20. 

ETSY with 120 MA

Despite ETSY's outperformance in 2018, there's still room for some analyst upgrades, with four of 11 analysts maintaining tepid "hold" ratings. An exodus of short sellers could also propel the stock higher, with short interest representing 9.3% of the equity's total available float.

Likewise, skepticism in the options arena remains incredibly high. Currently, ETSY sports a 10-day put/call volume ratio of 5.79 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This means that puts are being bought to open at nearly six times the rate of calls. This ratio sits in the 100th percentile of its annual range, indicating that options traders' bearish appetite has been much bigger than usual as of late. An unwinding of pessimism in the options pits could also translate into tailwinds for ETSY.


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