Retail Stock Signal Has Never Been Wrong

The stock is down nearly 10% in September

Deputy Editor
Sep 14, 2023 at 12:59 PM
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American Eagle Outfitters Inc (NYSE:AEO) was one of a select few stocks that sat out of the broader market's August pullback, with the shares adding 20.7% last month. September is a different story, however, with AEO down nearly 10% already this month; and though it was last seen 2.5% higher at $15.27, a historically bullish signal indicates that this pullback could be a fresh start start for the retail name. 

This is because American Eagle Outfitters stock just came within one standard deviation of its 50-day moving average after a lengthy period above the trendline. Per Schaeffer's Senior Quantitative Analyst Rocky White, there were three similar instances in the past three years. The security was higher after all of these occurrences, averaging a one-month pop of 22.7%. A similar move from its current perch would put AEO back above $18.75, or its highest level since March 2022.

AEO Chart September 142023

An unwinding of pessimism amongst the brokerage bunch could add even more tailwinds. Of the 10 in coverage, just two call the security a "strong buy." What's more, the shares sold short account for 8.8% of American Eagle stock's available float, so a short squeeze could be in the fold. 

A further shift in sentiment in the options pits could also bode well for the security. At the  International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AEO sports a 10-day put/call volume ratio of 1.72, which stands higher than 76% of readings from the past 12 months. In other words, calls are being picked up at a quicker-than-usual clip of late. 

These options are affordably priced at the moment, too. This is per the stock's Schaeffer's Volatility Index (SVI) of 35% that sits higher than just 1% of annual readings, meaning these traders are currently pricing low volatility expectations.


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