Dow Stock Flashing Three Bearish Signals

Walgreens stock is staring up at a long-term ceiling

Managing Editor
Jun 18, 2021 at 8:00 AM
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Lost in the Reddit-fueled meme stock craze is that the summer doldrums are upon us. When a stock shows up on one of Schaefer's internal metrics, whether bullish or bearish, its eyebrow raising. When it shows up on two, its worthy of a deeper look. When there are three bearish signals, alarm bells go off. With that in mind, let's explore three signals that, if past is precedent, could mean a cruel summer is ahead for Dow stock Walgreens Boots Alliance Inc (NASDAQ:WBA).

It's been a pretty quiet stretch for Walgreens stock, per its 60-day historical volatility (HV) of 22.7% -- which stands in the 1st annual percentile. While WBA is the second-best Dow stock in 2021 and boasts a 33.6% year-to-date gain, its spent the last few months consolidating below an April 6 annual high of $57.05. Just below here is WBA's 160-week moving average, a trendline with historically bearish implications. The shares have come within one standard deviation of this trendline seven other times in the last 15 years, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. Four weeks after those signals, the stock was higher only 29% of the time and averaged a negative return of 3.4%. Three months out, WB averaged a negative return of 5.5%, with only 33% of the returns positive.

WBA COTW

Walgreens stock also showed up on White's list of the worst-performing stocks on the S&P 500 Index (SPX) in June. According to White's, WBA has averaged a negative average return of 0.2% in the month of June over the last 10 years, with only 30% of those 10 returns positive. What's more, WBA is the only Dow stock on the list.

White also dug into equity returns from May 1 to Aug. 31 going back to 2010. WBA's summer seasonality averages a negative return of 6%. From its current perch, a similar move would put the security below $53, and extend the channel of lower highs it has carved out since hitting a record high of $97.30 in August of 2015.

That's three quantitative analyses working against WBA. However, at Schaeffer's we adhere to our contrarian Expectational Analysis principles -- namely, performing an objective review of the stock's technical outlook and sentiment backdrop to find possible opportunities for an options play, and avoiding the urge to "force" a trade where one does not necessarily exist. With that in mind, most analysts are already bearish on Walgreens stock, with 10 of 12 brokerages in coverage maintaining "hold" or "sell" ratings. Plus, the pharmacy giant has been integral in the U.S.' Covid-19 vaccine rollout and will continue to be a prominent player in helping Americans get their shots this summer. Just last week, Walgreens announced it was extending its pharmacy hours in over 4,000 locations to increase the flexibility of walk-in vaccine appointments.

Whether you believe there are enough tailwinds to keep WBA chugging along or that the stock will fall victim to a plethora of seasonality headwinds, now is an affordable time to load up on short-term WBA options. The equity's Schaeffer's Volatility Index (SVI) is hovering right around 25% as of this writing, which arrives in the 6th percentile of its annual range. Likewise, Trade-Alert pegged the stock's 30-day at-the-money (ATM) implied volatility (IV) at 30.4% in late trading on June 10 -- in the low 27th annual percentile, and not far removed from the 52-week low of 23.9%.

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Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, June 13.

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