Bear Signal Flashing for This Healthcare Stock Before Earnings

HSIC could be headed for another test of support, if history repeats

Digital Content Manager
Feb 15, 2019 at 12:49 PM
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Medical supply distributor Henry Schein, Inc. (NASDAQ:HSIC) has taken a beating from analysts this week, with Baird, J.P. Morgan Securities, UBS, and RBC all issuing price-target cuts. The equity has managed to stay afloat, though, and is pacing to end the week with a nearly 6% gain. However, ahead of earnings next week, HSIC stock just sounded a historically bearish signal on the charts. 

Specifically, the equity is trading within one standard deviation of its 80-day moving average after a lengthy dip below the trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, this signal has flashed seven other times in the past three years. The equity averaged a 5.23% loss a month after these signals, and was lower 83% of the time. From where the equity currently sits at $62.26, a move of similar proportions would send the stock back below $60, toward recent support in the $58-$59 neighborhood. 

HSIC Chart Feb 15

Henry Schein is slated to report earnings next Wednesday, Feb. 20. HSIC shares have dropped the day after five of their last six earnings releases, and another earnings miss could spark an unwinding of bullish bets in the options pits.

The stock sports a  10-day call/put volume ratio of 4.85 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 81st percentile of its annual range. This means that almost five calls have been purchased to open for every one put, and at a faster pace than what is usually seen. 

However, it's worth noting that short interest represents a healthy 9% of HSIC's total available float. At the stock's average pace of trading, it would take about two weeks to buy back these bearish bets. As such, some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge ahead of earnings.

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