2 Retail Stocks to Bet Against Now

Retail sales data will come into focus tomorrow

Managing Editor
Oct 15, 2019 at 2:50 PM
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While earnings season kicks off this week, there's also retail sales data due out tomorrow, putting Abercrombie & Fitch Co. (NYSE:ANF) and Macy's Inc (NYSE:M) in the cross-hairs. The two retail stocks have made outsized moves in the past week, and  both ANF and M now running up to trendlines with historically bearish implications.

Looking at ANF first, the security is now within one standard deviation of its 40-day moving average after a lengthy stretch below the trendline, defined for this study as having traded south of the moving average 60% of the time in the past two months and in eight of the last 10 trading days. This signal has flashed six times in the past few years, per Schaeffer's Senior Quantitative Analyst Rocky White, resulting in an average one-month loss of 8.2%, with only 20% of the returns positive. 

At last check, Abercrombie & Fitch stock -- no stranger to bearish signals -- was up 2% to trade at $15.46, so a pullback of similar magnitude would put it near a chip-shot from its Sept. 3 annual low of $13.58. Year-to-date, ANF has shed 23%, thanks in part to sharp earnings-induced bear gaps back in May and August. The retailer next steps into the earnings confessional before the open on Nov. 29.

Daily Stock Chart ANF

Options traders have been focusing on calls. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ANF's 10-day call/put volume ratio of 19.53 registers in the 99th annual percentile, meaning calls have been bought to open over put at an accelerated clip. However, considering short interest accounts for 18.9% of the security's total available float, it's possible some shorts may be purchasing calls to hedge against any upside risk.

Those looking to speculate on ANF's short-term trajectory should consider doing so with options. The equity's Schaeffer's Volatility Index (SVI) of 52% is higher than just 21% of all other readings from the past year, suggesting near-term option contracts are attractively priced at the moment, from a historical volatility standpoint.

Macy's 40-day trendline is also in focus. Per White, there have been 12 other times M shares have rallied to within one standard deviation of this moving average after a significant period of time below it, looking back three years. Following these previous signals, Macy's stock averaged a one-month loss of 5.4%, with 92% of those returns negative. From M's current perch at $15.89 -- up 3.9% on the day -- a similar pullback would place the stock back near the round $15 level. Year-to-date, the security is down 46%, and fell to an annual low of $14.11 on Oct. 3.

Daily Stock Chart ANF

The security offers a similar setup in its options pits as ANF's ISE/CBOE/PHLX data shows the stock with a 10-day call/put volume ratio of 2.61. But given how short interest increased by 24.4% in the two most recent reporting periods and accounts for 25% of M's total available float, there's a good chance those calls are being purchased by shorts looking for an options hedge. Whatever the motive, the equity's SVI of 46% is higher than just 29% of all other readings from the past year, suggesting near-term option contracts are attractively priced at the moment, from a historical volatility standpoint.




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