Holiday Sales Help Gap Inc (GPS) Break From the Bearish Retail Pack

Gap Inc (NYSE:GPS) is leaving fellow retail stocks in the dust, thanks to upbeat holiday sales data

Jan 6, 2017 at 10:35 AM
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Gap Inc (NYSE:GPS) defied the weak holiday sales trend among retailers. Specifically, the casual apparel outlet reported a 3% rise in December sales and upped its full-year adjusted earnings outlook. This prompted J.P. Morgan Securities and Deutsche Bank to raise their respective price targets on the stock to $21 and $24.

That said, both targets are rather unimpressive, considering the stock's current perch. Up 2.4% today, at $23.80, GPS has already surpassed one of these marks, and is within easy shooting distance of the other. The key now, technically speaking, could be whether the shares close above their 20-day moving average, which pressured them lower throughout December.

This morning, options traders are responding to the upbeat news, with intraday volume at five times the norm, and calls easily edging out puts. In fact, options volume is running in the 99th percentile of its annual range, even with open interest already sitting at a 52-week peak.

Yet, open interest in the front three months' series is still put-skewed, from an absolute perspective. GPS' Schaeffer's put/call open interest ratio (SOIR) sits at a top-heavy 1.49. However, the largest accumulation of open interest among these near-term options is at the 24 call strike, totaling over 18,000 contracts. In other words, the stock could struggle to break out of current levels, as the hedges related to these bets unwind their positions.

Perhaps an additional round of bullish brokerage attention could be the key to hurdling the 24 strike. Despite a pair of price-target hikes this morning, Gap Inc (NYSE:GPS) remains plagued by pessimism on Wall Street. Eighteen of 21 analysts tracking the retail stock rate it a "hold" or worse, leaving the door wide open for upgrades.

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