E-commerce platform Square Inc (NYSE:SQ) has had an exceptional year, most recently generating buzz for its ventures into bitcoin, which only added to the shares’ impressive performance in 2017. However, following Wednesday’s sector-wide selloff in tech stocks, the shares pulled back to a trendline that has had historically bullish implications. Below, we will take a look at this potential buy signal, and examine how Square stock could fare in December.
Square stock has etched out a channel of higher highs all year. In 2017 alone, the shares have nearly tripled — including today’s 3.4% pop to trade at $40.01, and touched a record high of $49.56 on Nov. 24. Since hitting this notable milestone, though, the tech stock has pulled back to within one standard deviation of its 40-day moving average, after trading above the trendline for nearly three months.
According to Schaeffer’s Senior Quantitative Analyst Rocky White, following the last five pullbacks to the 40-day moving average in the past three years, the payment processor was up an average 14.15% one month later, and was higher 80% of the time. If past is precedent, a move of similar magnitude could put Square stock near the $46 level within the next three weeks.
Despite Square’s impressive year, a number of analysts are still skeptical toward the equity. Of the 30 brokerages covering SQ stock, 13 rate it a “hold” or “strong sell.” Renewed technical performance could have analysts re-evaluating their bearish outlooks.
Short-term options traders are more call-skewed than usual toward SQ, per the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 0.71. Not all of this activity has been bullish, though.
Digging deeper, the December 45 call has seen the biggest rise in open interest during the past 10 days, with nearly 32,500 contracts added. Trade-Alert points to mostly sell-to-open activity — due largely to a massive 22,200-contract block that was initiated on Nov. 15. If this is the case, the expectation is for SQ to stay below $45 through December options expiration.
Nevertheless, Square stock has tended to reward premium buyers over the past year, based on its Schaeffer’s Volatility Scorecard (SVS) of 89. In other words, it has regularly made bigger-than-expected moves on the charts on the past year, compared to what options traders had priced in.
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