CME Stock Could Right the Ship Next Month

CME Group options are attractively priced at the moment, too

by Patrick Martin

Published on Jan 11, 2019 at 11:13 AM

CME Group (NASDAQ:CME) has started the new year off on the wrong foot, on track for its second straight weekly loss amid concerns over a new rival exchange. This morning, the exchange operator was downgraded to "hold" from "buy" at BofA-Merrill Lynch, while its price target was trimmed to $191 from $200. However, Deutsche Bank hiked its price target up to $232 from $206 and if past is precedent, CME could be due for a rally in the coming month.

Specifically, CME recently came within one standard deviation of its 160-day moving average, following a lengthy stretch north of this trendline. Over the past three years, there have been eight similar pullbacks, per Schaeffer's Senior Quantitative Analyst Rocky White. Afterwards, the stock was higher one month later 86% of the time, with an average gain of 5.95%.

At last check, CME was down 0.3% to trade at $178.93, so a 6% pop would put the equity back near $190 for the first time in a month and erase its year-to-date deficit. The shares have added 18% in the last 12 months and nabbed a record high of $195.18 back on Nov. 19.  

Daily Stock Chart CME

The mixed brokerage notes today are emblematic of the overall analyst sentiment. There are seven who label CME a "strong buy," while five rate the stock a tepid "hold." Further, the consensus 12-month price target of $201.07 sits at a record high, but is only an 11.6% premium to its current perch. 

As for options activity, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows CME stock's 10-day put/call volume ratio of 0.76 ranking in the 83rd percentile of its annual range. While this means purchased calls still outnumbered puts on an absolute basis, the high percentile indicates a much healthier-than-usual appetite for long CME puts over calls in the past two weeks.

Meanwhile, data does suggest it would be a good time to speculate on CME with options, based on the Schaeffer's Volatility Index (SVI) of 17%, which ranks in the low 15th annual percentile, hinting at low volatility expectations at the moment.

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