The equity could soon rally towards its record high
Grocery retailer Kroger Co (NYSE:KR) is down 1.2% at $40.45 this afternoon, though it earned a price-target hike from Morgan Stanley to $34 from $31 earlier. Despite the bull note, the analyst in coverage said the stock is starting to normalize after a strong 2020, noting that an industry sales slowdown in 2022 is unappreciated on Wall Street. There may still be hope for the security in the short-term, though, as KR just pulled back to a trendline with historically bullish implications, which could boost the shares in the coming weeks.
More specifically, Kroger stock just came within one standard deviation of its 80-day moving average, after spending some time above this trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, nine similar signals have occurred in the past three years. The security enjoyed a positive return one month later in 89% of those cases, averaging a 4.5% gain. From its current perch, a similar move would put KR over the $42mark, which is closer to its Sept. 2, record high of $47.99.
Short sellers have already been hitting the exits, though Kroger stock still looks primed for a short squeeze. Short interest is off 14.5% in the last two reporting periods, yet the 38.37 million shares sold short make up 5.2% of the equity's available float, or nearly a week's worth of pent-up buying power.
An unwinding of pessimism in the options may help the shares, too. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), KRs 50-day put/call volume ratio stands higher than 98% of readings from the past year, meaning long puts have been getting picked up at a quicker-than-usual clip.
Echoing this, Kroger stock’s Schaeffer's put/call open interest ratio (SOIR) of 1.18 sits higher than 82% of reading from the past 12 months. This indicates short-term options traders have rarely been more put-biased.
Now seems like a good opportunity to weigh in on KR's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 24% sits in the relatively low 15th percentile of its annual range, suggesting options players are pricing in low volatility expectations for the stock right now.