Yum China Stock Brushes Against Bullish Technical Signal

The firm said its coronavirus-related losses are easing

Deputy Editor
Mar 24, 2020 at 3:18 PM
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Yum China Holdings Inc (NYSE:YUMC) is making news today after the China-based fast food firm this morning said it was seeing early stages of recovery following the peak of the coronavirus outbreak in the region. The KFC parent announced that 95% of its stores are either fully or partially open, and added that while same-store sales are still in decline, the fallout is much lighter than the 40-50% drop the firm saw during the Chinese New Year holiday period. The equity is up 4.5% at $43.11 in afternoon trading. 

On the charts, the stock appears to have lost steam at its 40-day moving average, which has kept a tight lid on shares since a late-January bear gap. From a historical perspective, however, run-ups to this trendline have been bullish in the past. A study from Schaeffer's Senior Quantitative Analyst Rocky White shows two similar signals in the past three years. One month after both of these instances, YUMC was higher, averaging a one-month return of 4.04%. A similar move from its current perch would put the equity at $44.85. 

YUMC March 24

Despite an incredibly rocky past few months, analysts are still optimistic on YUMC. Five call the restaurant specialist a "buy" or better, two say "hold," and there isn't a single "sell" to be seen. Adding to this, the consensus 12-month target price of $50.99 is an 18.1% premium to current levels. 

There is still plenty of pessimism wrapped tightly around YUMC elsewhere, though. Short interest is up 17.6% in the last two reporting periods and now makes up 4.2% of the stock's available float, which is over a week of trading at its average daily pace. Echoing this, Yum China sports a 10-day put/call volume ratio of 10.95 at International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 90th percentile of its annual range. 

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