Drug Stock May Be Overdue for a Short Squeeze

The shares of Halozyme Therapeutics, Inc. (NASDAQ: HALO) are down 1.4% to trade at $28.12 at last check. However, just three days ago the security hit an all-time-high of $29.34, and the stock now sports a 64% lead year-over-year lead, with support at the 60-day moving average. More upside may be on the horizon, though, as its recent peak comes amid historically low implied volatility (IV) -- a combination that has been a bull signal in the past.

Specifically, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the past five years when the stock was trading within 2% of its 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th annual range or lower -- as is the case with HALO's current SVI of 36.5%, which sits in the 6th percentile of its 12-month range.

The data shows that one month after these signals, the biotechnology name was higher, averaging a one-month return of 9.4%. From its current perch, a move of similar magnitude would put the stock just above $32, at yet another record high. 

Despite this impressive price action, short interest rose 3.2% during the last reporting period. The 16.22 million shares sold short now account for 12.8% of the stock's available float, and would take over two weeks to cover at the equity's average pace of trading. Should some of these bearish bets begin to unwind, a short squeeze could drive the stock even higher, too.