Plenty of Reasons to Avoid This E-Tail Stock

ETSY has run up to a historically bearish trendline

Managing Editor
Jan 14, 2020 at 12:56 PM
facebook twitter linkedin


Small business retail platform Etsy Inc (NASDAQ:ETSY) has started off 2020 red-hot, already posting a nearly 10% gain. It's more of the same today, with ETSY up 1% to trade at $48.97, on track for its highest close since a late-October. However, this rally has sent the stock running head-first into a historically bearish trendline. 

More specifically, Etsy stock is trading within one standard deviation of its overhead 80-day moving average. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, three similar run-ups to this trendline have occurred in the last three years. One month after these signals, ETSY was lower by an average of 9.2%, with all three returns negative.

Daily Stock Chart ETSY

A drop of similar magnitude would mean nearly all of the stock's 9.3% gain in 2020 would be erased next month. That 80-day trendline roughly sits just below the round $50 level too, an added layer of resistance considering it's home to the stock's post bear gap levels from a late-October earnings miss. And if that's not enough, ETSY's 14-Day Relative Strength Index (RSI) currently sits at 70, firmly in overbought territory -- indicating a pullback may be soon in the cards.

There's ample amount of optimism to be unwound. The majority of analysts rate the security a "buy" or better, with only one "sell" on the books. And among options traders there's a big appetite for calls. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ETSY's 10-day call/put volume ratio is perched at 5.65 and ranks in the 79th percentile of its annual range. However, considering 12.6% of the equity's total available float is sold short, its possible some of these calls could be shorts hedging against any upside risk.

That being said, options can be had for a bargain right now. Etsy's Schaeffer's Volatility Index (SVI) of 38% sits in the low 7th percentile of its annual range. This means options traders are pricing in extremely low volatility expectations right now.

Bernie's Best Stock Bets for Summer 2021

1608308875

 




 
Special Offers from Schaeffer's Trading Partners