Outdoor Retail Stock Seeing Technical Headwinds

ASO was unable to capitalize on an unwinding of short interest

May 16, 2023 at 2:11 PM

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

Academy Sports and Outdoors Inc (NASDAQ:ASO) recently pivoted lower at the $65 level, which is five times its initial public offering (IPO) price and home to its round $5 billion market cap. Plus, in early May, the shares broke below a trendline connecting higher lows since early December, before proceeding to fail a retest there.

This week, ASO broke below former support at its 80-day moving average -- a key trendline for the shares since their 2020 debut -- as well as its pre-earnings March close that preceded a gap higher. On the intraday hourly graph, the shares dropped below their 325-unit (or 50-day) moving average and their 130-unit (20-day) moving average, which occurred in October 2022 before a period of weakness into November.

ASO May12

Despite short interest falling off in recent weeks, Academy Sports and Outdoors stock has failed to capitalize, pointing to an underlying technical weakness. Furthermore, the shares fell below the put-heavy 60-strike, which now sets it up for moves down to put-heavy strikes at the $50 and $55 levels.

Analysts are overwhelmingly optimistic, leaving little chance of an upgrade to give the stock a boost. Of the 14 in coverage, 13 carry a “strong buy” rating, with just one a “hold.”

Our recommended call option has a leverage ratio of 21 and will double on a 15.8% drop in the underlying equity.

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