BILI Trendline Could Prove Fruitful for Bulls

Bilibili stock has pulled back to its historically bullish 20-day moving average

Assistant Editor
Jul 8, 2020 at 3:17 PM
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It's been a long time since we've checked in on Bilibili Inc (NASDAQ:BILI), but the equity is just two days removed from an all-time high of $51.25 and just yesterday, Jefferies hiked its price target to $58 from $45. What's more, BILI just pulled back to a trendline that, when paired with the other recent activity, could put even more wind at the equity's back.

More specifically, Bilibili stock just came within one standard deviation of its 20-day moving average after a lengthy period above the trendline. Four similar signals have occurred during the past three years, according to Schaeffer's Senior Quantitative Analyst Rocky White. BILI was higher one month later after three of these signals, averaging a one-month return of 18.1%. A move higher of similar magnitude would put BILI above $54 and at new record highs, based on its current perch of $45.97.

BILI Chart July 8

What's more, implied volatilities on the equity are at relatively low levels. The equity's Schaeffer's Volatility Index (SVI) of 65% registers in the 30th percentile of its annual range meaning BILI options can be had at a relative bargain for the time being. Plus, if the SVI holds near its two-year average of 57.8% over the next month, White's modeling shows that an at-the-money BILI call option could potentially return 177% on another expected bounce from support at the 20-day trendline. In other words, prospective call buyers could triple their money on an 18.1% gain in the shares.

An unwinding of short interest could push the stock higher, too. In the last two reporting periods, short interest rose 28.8%. The 21.36 million shares sold short make up a solid 8.9% of BILI's available float. Plus, it would take almost four days to buy back these bearish bets at the security's average pace of trading. 

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