Previous pullbacks to DKS' 40-day moving average have preceded rallies
Sports retailer Dick's Sporting Goods Inc (NYSE:DKS) has recovered spectacularly from its May 25, annual low of $63.45, and has added more than 37% over the last three months. Today, the stock was last seen down 2% to trade at $106.28, dragging it 7.% lower year-to-date. However, this pullback has put DKS within striking distance of a historically bullish trendline that could see the security once again contest with its 2022 breakeven mark.
Specifically, over the past three years, there were six other occasions where DKS was within one standard deviation of its 40-day moving average after an extended stint above it, according to Schaeffer's Senior Quantitative Analyst Rocky White. One month after testing this trendline, the security was higher half of the time, and sported an average return of 6.4%.
Should Dick's stock rally, a short squeeze could be in play. Short interest fell by 6.5% in the two most recent reporting periods, yet the 13.84 million shares still represent 26.2% of the total available float and eight days of pent-up buying power.
Meanwhile, options traders are exceptionally put-biased, based on DKS' 10-day put/call volume ratio of 1.90 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which ranks in the 92nd percentile of its annual range. In other words, DKS options buyers have been initiating bearish bets over bullish at a faster-than-usual pace during the past two weeks, and an unwinding of this pessimism could have additional bullish implications.
Short-term options on the retail stock are relatively cheap, too. Specifically, its Schaeffer's Volatility Index (SVI) of 48% ranks in the 19th percentile of its annual range.