Cleveland-Cliffs Stock Could Soon Notch Multi-Year High

CLF looks ripe for a short squeeze, too

Digital Content Manager
Oct 19, 2021 at 2:44 PM
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Just one week after call traders blasted Cleveland-Cliffs Inc (NYSE:CLF) on its $775 million acquisition of Ferrous Processing and Trading, the steel and iron producer is in the spotlight again. The security is down 0.8% at $21.22 at last check, after it received a price-target cut from Morgan Stanley to $21 from $26. However, this pullback may prove to be a short-lived one, as the equity is near a historically bullish trendline that may soon push it higher. 

More specifically, Cleveland-Cliffs stock just came within one standard deviation of its 160-day moving average, after some time spent above this key trendline. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, two similar signals have occurred in the past three years. The security enjoyed a positive return one month later, averaging a jaw-dropping 44.9% gain. From its current perch, a similar move would put CLF back over the $30 mark -- a level the equity hasn't breached since early 2013.

CLF 160 Day

The security looks ripe for a short squeeze, too. Short interest rose 4.4% during the most recent reporting period, and the 45 million shares sold short now account for 9.9% of the stock's available float. Plus, the brokerage bunch is still split towards CLF, given three of the six analysts in question carry tepid "hold" rating, leaving plenty of room for upgrades.

An unwinding of pessimism in the options pits could also work in Cleveland-Cliff stock's favor. This is per the equity's 50-day put/call volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which stands higher than 88% of annual readings. This means long puts have been getting picked up at a faster-than-usual clip. 

Now could be the ideal opportunity to bet on CLF's next move with options. The stock's Schaeffer's Volatility Index (SVI) of 60% sits higher than only 11% of readings from the last 12 months, indicating the options market is pricing in low volatility expectations at the moment.

Plus, the security has exceeded options traders' volatility expectations in the past year. This is per Schaeffer's Volatility Scorecard (SVS), which sits at 80 out of a possible 100.


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