Don't Sweat the ETSY Selloff, Says Bull Signal

This bull signal has rarely been wrong

Deputy Editor
Feb 23, 2021 at 12:59 PM
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The shares of Etsy Inc (NASDAQ:ETSY) are down 2.6% at $208.01 at last check, just a few days ahead of the e-tailer's fourth-quarter earnings report, due out after the close on Thursday, Feb. 25. The equity is a little over two weeks removed from it's all-time high of $239.47, and now facing pressure from its ascending 30-day moving average. Today's dip, which plays a big hand in the stock's 8.6% pullback week-to-date, has brought ETSY back to its 40-day moving average, a trendline with historically bullish implications. 

ETSY Chart February 23

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, Etsy  shares have pulled back to this moving average five times in the last three years. One month after the signal, they have averaged a gain of 10.3%, and have been positive 80% of the time. From Etsy stock's current perch, a move of this magnitude would put the security at $229.44, well on its way toward reclaiming its aforementioned record high.

Short sellers are hitting the exits in droves, though there is plenty of pessimism left to be unwound. Short interest fell 27.4% during the last two reporting periods, but the 6.16 million shares sold short still account for a healthy 5.1% of the the security's available float.

Option traders, meanwhile, have been bit more bearish than usual. While call volume is still outpacing put volume, the equity's 50-day put/call volume ratio stands higher than 83% of readings from the past year. This means puts are being picked up at a quicker-than-usual clip. 

It's also an attractive time to purchase premium on ETSY options. The stock's Schaeffer's Volatility Index (SVI) of 61% sits in the low 12th annual percentile. Additionally, the security's Schaeffer's Volatility Scorecard (SVS) is lofty, sitting at a whopping 90 out of a possible 100, which means Etsy stock has tended to exceed volatility expectations during the past year -- a boon for option buyers.


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