HBI's rally into a historically bearish trendline could mark a selling opportunity
The shares of Hanesbrands Inc (NYSE:HBI) have rebounded sharply off their Dec. 24 five-year closing low of $11.62, up 27.7% since then to trade at $14.84. However, in its attempt at a comeback, the apparel name is now testing the waters around a key trendline -- sending up a potentially bearish signal that has has sent the stock southward in the recent past.
Specifically, HBI stock closed Thursday within one standard deviation of its 50-day moving average, after a lengthy stretch below the trendline. Over the past three years, there have been six other instances of Hanesbrands stock testing resistance at its 50-day trendline in this manner. Ten days after a signal, HBI was trading 6.73% lower, on average, with only 33% of the returns positive, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Looking out 15 days, the stock's average return widens to a drop of 7.12%.
While HBI is pacing for a rare close above its 50-day moving average amid today's broad-based rally, a breakout could be short-lived. The stock last managed to settle north of its 50-day back on Oct. 30 -- but by the time the closing bell sounded 10 trading days later, HBI was down 10.2%. From the equity's current price, a comparable drop this time around would leave the shares at $13.33 two weeks from now.
Options traders have remained quite bearish amid HBI's rebound of late, with the equity's 10-day put/call volume ratio of 7.45 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicating that over seven puts have been bought to open for every call in the past two weeks. What's more, this ratio sits in the 96th percentile of its annual range -- meaning that traders have rarely had a bigger appetite for bearish bets over bullish.
Elsewhere, short interest accounts for a healthy 10.3% of the equity's float, or 4.9 times its average daily trading volume. However, short interest rose by 1.1% in the most recent reporting period, after having collapsed by roughly half from its February 2018 peak. If shorts take advantage of HBI's rally into the historically bearish 50-day moving average as an opportunity to ramp up the bearish stakes again, it could apply fresh selling pressure in the weeks ahead.