A short squeeze could power additional gains
The last time we covered Signet Jewelers Ltd. (NYSE:SIG), the jewelry retailer was enjoying a post-earnings breakout. A little more than a month later, the stock is in focus again, this time for its recent encounter with a historically bullish trendline.
Specifically, according to Schaeffer's Senior Quantitative Analyst Rock White, Signet stock has recently come within one standard deviation of its 80-day moving average, following an extended period above the trendline. The equity has seen three similar pullbacks within the past three years, which has resulted in an average 21-day gain of 10.1%.
At last check, SIG was trading at $20.14, so another move of this magnitude would launch the stock out of recent congestion below the $22 area. For context, the shares haven't traded above that area since May, despite a nearly 28% gain the last three months.
Options traders have been betting bearishly lately. In fact, at the the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 7.17 puts have been bought to open for every call over the last 10 days-- a ratio that sits higher than 95% of all other readings from the past year.
Echoing this is the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.36, which sits in the elevated 73rd percentile of its annual range. This means short-term speculators are more put-heavy than usual.
A short squeeze could keep the wind at the security's back. Short interest dropped a notable 9.1% during the past two reporting periods, but still accounts for a whopping 32.1% of SIG's total available float. At the stock's average pace of daily trading, it would take shorts almost eight days to buy back their bearish bets.