Signal Says Seagate Technology Can Start Strong in 2020

Short-term STX options are attractively priced at the moment

by Patrick Martin

Published on Dec 26, 2019 at 2:18 PM

The shares of Seagate Technology PLC (NASDAQ:STX) have climbed alongside the broad market this holiday season, culminating in a Dec. 23 annual high of $60.83. What's more, the tech stock remains in close contact with a trendline that offers historically bullish implications, if past is precedent. 

Specifically, according to Schaeffer's Senior Quantitative Analyst Rocky White, the security is trading within one standard deviation of its 40-day moving average, after spending most of its time above this trendline over the past two months. Similar tests of 40-day support have occurred nine times in the past few years, resulting in an average 21-day gain of 5.9%, with 75% of the returns positive.

A similar surge from current levels would put STX near $64 by this time next month, territory not charted since February 2015. The equity is up 54% year-to-date, and hasn't posted a monthly loss since July. 

Daily Stock Chart STX

There's pessimism abound to be unwound. For one, 15 of the 18 in the brokerage community rate STX a "hold" or worse, and the consensus 12-month price target of $56.22 is a discount to its Christmas Eve closing perch of $59.49. And among short sellers, a healthy 6% of the security's total available float is sold short, which represents over six days' worth of buying power, at its average pace of trading. 

For those looking to speculate on STX's next move, options are incredibly cheap right now. The stock's Schaeffer's Volatility Index (SVI) of 25% sits in the extremely low sixth percentile of its annual range. This means options traders are pricing in relatively low volatility expectations.

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