Signal Says Software Stock is Primed for Fresh Highs

The shares of Twilio Inc (NYSE:TWLO) are up 1.1%, last seen trading at $323.01, but have taken a breather since their  Oct. 13 record close of $337.88. And while TWLO's 120-day moving average caught a pullback in November, the equity still is down 3.8% in the last three months. The good news is that a shorter-term trendline has stepped up as support, one that if past is precedent, could help the software stock take out those October record highs.

More specifically, Twilio stock is within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, TWLO has tested support at this trendline eight other times over the past three years. The stock was higher a month later 100% of the time, and averaged an 8.7% gain for that time period. A move of similar magnitude from TWLO's current perch would put the equity at a brand new all-time high of $351.11.

In the options pits, there's a strong preference for calls at the moment. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows the stock sports a 10-day call/put volume ratio of 2.99, which ranks higher than 90% of readings in its annual range.

Short sellers have been hitting the exits, and a continued exodus could fuel tailwinds. In fact, short interest is down 4.4% in the last reporting period. However, the 8.70 million shares sold short still account for a healthy 7.4% of the stock's available float. 

What's more, options traders are pricing in relatively low volatility expectations at the moment, per the security's Schaeffer's Volatility Index (SVI) of 54%, which sits in the 27th percentile of all other annual readings. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) sits at a high 92 out of 100. This means the stock has greatly exceeded option traders' volatility expectations during the past year -- a boon for options buyers.