Bear Signal Calls BIG Stock’s Rally Reversal

The shares of discount retailer Big Lots (BIG) have been skimming along right underneath the $29 region — home to BIG’s year-to-date breakeven level — since an earnings beat launched the stock higher earlier this month. While this bull gap has put Big Lots on course for its best month since March 2009, the security has yet to topple its aforementioned YTD breakeven, and what’s more, this post-earnings pop just put it in line with a historically bearish trendline.

Specifically, BIG just came within one standard deviation of its 200-day moving average after a lengthy period south of here. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, eight similar run-ups have happened in the last three years. One month later, the stock was higher just 14% of the time, and averaged a 10.38% drop. At its current perch of $28.25, a similar move would put the security at $25.32 — right below its post-bull-gap closing price.

Bear Signal Calls BIG Stock’s Rally Reversal

Daily stock chart BIG


Despite Big Lot’s bang-up month, short sellers have held fast to their bearish convictions. In fact, during the past two reporting periods, short interest rose 3.8%, with the 7.93 million shares sold short representing a solid 20.6% of the stock’s available float. At the stock’s average pace of trading, it would take a week to cover these pessimistic positions.

In the same vein, short-term options traders have been picking up puts at a slightly more zealous pace than what is typically seen, as evidenced by Big Lot’s Schaeffer’s put/call open interest (SOIR) 1.61, which sits higher than 72% of all other readings from the past year. That being said, options are looking attractive right now, with BIG’s Schaeffer’s Volatility Index (SVI) of 44% sitting in the relatively low 20th percentile of its annual range. This implies that options traders are pricing in low volatility expectations.

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