Why Pure Storage Stock Looks Ready for a Rebound

The stock could benefit from an unwinding of pent-up pessimism

Deputy Editor
Jan 5, 2022 at 1:23 PM
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Software name Pure Storage Inc (NYSE:PSTG) was a bit of a success story in 2021, adding almost 44% during the year, and enjoying several bull gaps, as well as a record high of $35.09 on Dec. 28. The shares look to be taking a breather as they step into the new year, as they head for their seventh-daily drop. However, investors shouldn't fret over the selloff just yet, as a historically bullish trendline still sits just underneath, and could mean more upside for the stock in the coming month. 

To be more specific, PSTG just came within one standard deviation of its 40-day moving average after a lengthy period above the trendline, per a study from Schaeffer's Senior Quantitative Analyst Rocky White. Over the past three years, the stock has seen seven similar instances, and was higher one month later in 86% of these instances, averaging a notable 10.8% return. A similar swing from its current perch would put Pure Storage stock just below the $35 level and back within reach of its record peak. 

pstg jan 5

An unwinding of pessimism in the options pits could put additional wind at the equity's back. The stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.35, which stands higher than 18% of readings from the past 12 months. This implies these short-term traders are much more put-biased than usual. 

Short sellers, meanwhile, have been jumping ship, but the 17.28 million shares sold short make up a comfortable 6.3% of  the stock's available float, and would take almost at week to cover at PSTG's average daily pace of trading. This could help the security higher, should even more of these bears begin to hit the exits. 

Now looks like an ideal time to speculate on PSTG's next move with options. Pure Storage stock's Schaeffer's Volatility Index (SVI) of 38% stand higher than only 6% of annual readings, suggesting options players are pricing in relatively low volatility expectations at the moment. What's more, the stock's Schaeffer's Volatility Scorecard (SVS) stands at 81 out of a possible 100. This means Pure Storage stock has tended to outperform said expectations lately. 

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