Bearish Signal Says Retailer's Puts Could Double

American Eagle stock has run up to a historically bearish trendline

Managing Editor
Sep 9, 2019 at 11:58 AM
facebook X logo linkedin


It's been a rough start to the month for American Eagle Outfitters (NYSE:AEO), which tagged a two-year bottom of $13.66 on Sept. 4. Today, AEO is up 3% to trade at $16.32, but this could spell more trouble for the retailer later in September, if history is any guide. 

Today's rally takes the shares right up to resistance at their 60-day moving average, after a lengthy stretch below it. There have been four similar encounters with this moving average in the last three years, after which AEO stock was lower 10 days later by 8.3%, on average, per data from Schaeffer's Senior Quantitative Analyst Rocky White, with three of the four returns negative.

Daily Stock Chart AEO

What's more, implied volatilities on the equity are at low levels. The equity's Schaeffer's Volatility Index (SVI) of 42% registers in the 17th percentile of its annual range, a few notches below its two-year average SVI of 44.4%. With the stock resting on a historically bearish trendline, and short-term options unusually cheap at the moment, White's modeling shows that an at-the-money AEO put option could potentially return 141% over two weeks. In other words, prospective put buyers could more than quadruple their money on an expected 8.3% drop in the shares.

For a stock that's down 33% year-over-year, there's plenty of optimism to be unwound that could also fuel a decline. For starters, there's potential for downgrades, as six of the 11 brokerages in coverage rate the stock a "strong buy" and the consensus 12-month price target sits up at $19.27, territory not seen since June. 

Calls are also heavily preferred. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.48 ranks in the bottom 3rd percentile -- show a very unusual call-skew among short-term speculators. Another decline this month could lead to an unwinding of bullish bets. 

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI