A short squeeze could also power the shares higher
When we last checked in on InVitae Corp (NYSE:NVTA), the genetic testing concern was fresh off a lofty bull note from Citron Research. Since nabbing an earnings-induced record high of $28.75 on Aug. 7, the shares have pulled back sharply, down 6.3% month-to-date. However, this Citron favorite -- which has more than doubled in 2019 -- is now flashing a "buy" signal, thanks to an encounter with a historically bullish trendline.
More specifically, data from Schaeffer's Senior Quantitative Analyst Rocky White shows that NVTA has historically performed well after meet-ups with its 40-day moving average, with the stock averaging a one-month return of 6.5% following the last eight signals. As you can see from the chart below, this trendline has neatly contained the stock's August pullback. From its current perch at $25.18, a jump of similar magnitude would have NVTA back near $26.80.
A rally could be jump-started by a continued exodus of short sellers. Short interest fell 6.2% in the most recent reporting period, but these bearish bets still account for 21% of the equity's total available float, or nearly a week's worth of pent-up buying power, at the average pace of trading.
There could also be an unwinding of pessimism among options traders. The stock's 10-day put/call volume ratio of 0.47 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks 4 percentage points from an annual high. This shows that while calls have been more popular than puts on an absolute basis during the past 10 days, the rate of put buying relative to call buying has been quicker than usual.
Echoing this sentiment is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.78, which ranks in the 98th percentile of its annual range,. This indicates near-term traders have rarely been more put-biased toward the genetics testing name.
It's certainly an attractive time to purchase premium on NVTA short-term options, considering they're pricing in relatively low volatility expectations at the moment. This is based on the stock's Schaeffer's Volatility Index (SVI) of 68%, which registers in the 14th percentile of its annual range. Plus, Invitae stock has a history of making bigger moves than the options market was pricing in, according to the security's Schaeffer's Volatility Scorecard (SVS) reading of 98 out of 100.