Are These 3 Stocks Signaling a Buying Opportunity?

AOL, Inc. (AOL), Boeing Co (BA), and Microsoft Corporation (MSFT) have recently pulled back to historically significant trendlines

Jan 22, 2015 at 10:41 AM
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There are a number of tools traders utilize to identify trends in an underlying equity, and the moving average is one of the most commonly used indicators available. Each week, Schaeffer's Senior Quantitative Analyst Rocky White routes an email devoted specifically to stocks that have recently pulled back to key trendlines -- and whether or not prior signals taken over the past three years have created a buying opportunity. Three equities that stood out on the most recent list are Internet issue AOL, Inc. (NYSE:AOL), blue-chip aerospace firm Boeing Co (NYSE:BA), and software specialist Microsoft Corporation (NASDAQ:MSFT).

AOL, Inc. (NYSE:AOL)

AOL has been trending higher since hitting its most recent low of $37.50 in mid-October, with the shares up 27% to trade at $47.67. After notching an 11-month high of $49.86 on Jan. 9 -- following rumors of a merger with Yahoo! Inc. (NASDAQ:YHOO) -- the stock pulled back to and bounced from its 40-day moving average. In the 12 other times this signal has occurred, AOL has gone on to average a 21-day gain of 6.7%, and is positive 73% of the time.

Despite the stock's upward trajectory, half of covering analysts maintain a "hold" or worse suggestion, while the average 12-month price target of $50.38 stands at a slim 5.7% premium to current trading levels. Additionally, it would take more than a week to cover all of AOL's shorted shares, at average daily trading volumes. Should AOL continue to bounce off its 40-day moving average, a round of upgrades and/or price-target hikes -- or a short-squeeze -- could translate into a fresh wave of buying power.

Daily Chart of AOL Since October 2014 With 40-Day Moving Average

Boeing Co (NYSE:BA)

BA took a big bounce off the $120 mark in mid-December, and has since added 10.9% to trade near $133.71. A portion of these gains are due to a rally off the equity's 80-day moving average earlier this month, and additional upside could be on the horizon. In fact, in the four previous times BA has tested support atop this trendline, the security has averaged a 21-day advance of 8.2%, and has been positive 100% of the time.

Options traders aren't buying BA's recent rally, though. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.89 ranks in the 95th annual percentile. Simply stated, puts have been bought to open over calls with more rapidity just 5% of the time within the past year. A continued run higher by BA could shake some of the weaker bearish hands loose, which may create a tailwind for shares of BA. Looking ahead, BA is slated to report fourth-quarter earnings ahead of next Wednesday's open.

Daily Chart of BA Since November 2014 With 80-Day Moving Average

Microsoft Corporation (NASDAQ:MSFT)

MSFT has been a long-term technical standout, tacking on 28.4% over the past 52 weeks to trade at $46.30. After hitting a 14-year high of $50.04 in mid-November, the stock pulled back to its rising 160-day moving average. This historical trendline could have MSFT ready to resume its longer-term uptrend, considering the previous six times this has occurred, the stock has averaged a 21-day gain of 5.3%, and is positive 80% of the time.

Similar to the other stocks featured here, skepticism is stacked up against MSFT. In the options pits, the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.70 rests in the bearishly skewed 72nd annual percentile. Elsewhere, 46% of covering analysts maintain a "hold" or worse rating, and the consensus 12-month price target of $50.03 represents expected upside of 8% to present trading levels. In the near term, a capitulation among bearish options traders and/or a re-evaluation of ratings among doubtful analysts -- perhaps in the wake of next Monday evening's fiscal second-quarter earnings report -- could generate additional upside for MSFT. Elsewhere, the company said it is developing a head-mounted holographic computer, following yesterday's new operating system announcement.

Daily Chart of MSFT Since January 2014 With 160-Day Moving Average
 

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