Nordstrom Stock Explores New Lows After Bear Note

Short interest on JWN has drastically increased over the past two reporting periods

Managing Editor
Aug 15, 2019 at 9:50 AM
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Shares of retail giant Nordstrom, Inc. (NYSE:JWN) are moving lower again this morning, extending yesterday's Macy's (M)-induced sell-off, as traders digest a fresh bear note out of Wedbush. Ahead of Nordstrom's own earnings report next week, the brokerage firm cut its price target on JWN stock to $24 from $35 -- a nearly 8% discount to Wednesday's close of $26.02, and in territory not charted since 2009.

At last check, Nordstrom shares are down 1.5% to trade at $25.64, flirting with nearly 10-year lows. JWN yesterday dropped 10.7%, marking its worst session of 2019. Since a November bear gap, the security has been ushered lower by its 30-day and 80-day moving averages, with JWN now nearly 50% in the past 12 months.

Coming into today, 12 of 13 brokerage firms issued a "hold" or worse rating for JWN. However, more price-target cuts could be on the horizon. The consensus 12-month price target of $34 represents a premium of more than 30% to the equity's current price.

On the other hand, in the options pits, optimism seems prevalent. This is per the stock's 10-day call/put volume ratio of 1.99 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio ranks in the 80th annual percentile, indicating nearly two calls have been purchased for every put on JWN during the past two weeks.

However, some of those calls -- particularly at out-of-the-money strikes -- may have been purchased by shorts seeking an options hedge in the event of a rebound. Short interest on the security rose 21.4% during the past two reporting periods, and now accounts for nearly 25% of the stock's total available float. At JWN's average pace of trading, it would take more than a week for shorts to buy back their bearish bets.

As alluded to earlier, Nordstrom will report earnings next Wednesday, Aug. 21. History favors the bears, as JWN shares have dropped after four of the last five earnings, enduring a one-day decline of 9.2% after the company reported in May.

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