What We're Trading: Stericycle Inc (SRCL) Technical Backdrop Turns Bullish

Put players have been pounding Stericycle Inc (NASDAQ:SRCL), despite the industrial stock's attractive technical setup

Jan 18, 2017 at 9:36 AM
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Medical waste management specialist Stericycle Inc (NASDAQ:SRCL) was downgraded by Goldman Sachs back in November, an event that corresponds with the first of double-bottom lows for the stock at the end of 2016. Moreover, this bottom occurred near the $75 area, which is half the shares' all-time high. More recently, the shares broke through both the 80- and 100-day moving averages for the first time since March 2016. Not only that, but SRCL was removed from the Nasdaq 100 Index (NDX) in December, and our studies suggest such stocks tend to outperform going forward.

Daily Chart of SRCL Jan 13

 

As the stock's technical setup turns more bullish, bearish traders may be caught off guard. For instance, short interest equates to more than six days' worth of buying power, going by average daily volumes. However, these bearish bets declined during the past two reporting periods. SRCL could continue to rise as short sellers cover their positions.

This pessimism is seen elsewhere. For one, the stock's Schaeffer's put/call open interest ratio (SOIR) comes in at 1.35, ranking above three-fourths of readings from the past year. This indicates near-term options traders are more put-skewed than normal. Plus, the majority of analysts have a "hold" or "strong sell" opinion on the stock. As such, SRCL could benefit if sentiment begins to shift across Wall Street.

Meanwhile, the stock has a Schaeffer's Volatility Index (SVI) of 23%, which ranks in the 18th annual percentile, on top of a Schaeffer's Volatility Scorecard (SVS) of 82. In other words, low volatility expectations are currently being priced into Stericycle Inc (NASDAQ:SRCL) options, despite the fact the stock has tended to make bigger-than-expected moves on the charts during the past year. Moreover, our recommended call option sports a leverage ratio of 5.5, meaning it will double in value on an 18.1% gain in the underlying shares.

Subscribers to Schaeffer's Weekend Series service received this SRCL commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Series is one of our most popular trading services.
 

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