Trade Idea: Buy Signal on Waste Management, Target of Short Sellers

12/28/2018 6:00 am EST


Karee Venema

Financial Writer, Schaeffer's Investment Research

Shares of Waste Management, Inc. (WM) rallied to a record high of $95.49 in early December, before pulling back sharply with the broader stock market -- down 1.3% Thursday at $85.78, writes Karee Venema. Todd Salamone of Schaeffer's is presenting at MoneyShow Orlando.

However, the waste removal stock is now trading near a trendline with historically bullish implications, hinting at a strong start to the new year.

Specifically, WM has retreated to its 320-day moving average, which served as a springboard in late October. What's more, the trendline is currently located near $86.30, a region that coincides with the stock's year-to-date breakeven level, late-July bull gap lows, and a 50% Fibonacci retracement of its 2018 high and low.

waste management stock chart dec 27

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the last three years Waste Management stock came within one standard deviation of its 320-day moving average after a lengthy stretch above it. The equity went on to average a one-month gain of 9.92%, with both of those returns positive.

A capitulation from some of the weaker bearish hands could create tailwinds for the shares. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WM's 10-day put/call volume ratio of 1.40 ranks in the 80th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip, albeit amid relatively low absolute volume.

Plus, Waste Management has been a popular target of short sellers. Short interest jumped 40.4% in the most recent reporting period to 6.73 million shares. Another strong bounce off the 320-day trendline could put some of these bears underwater, and it would take them nearly three days to cover, at WM's average daily pace of trading.

View Schaeffer’s Investment Research for stock and options ideas, options education, and market commentary here

Todd Salamone of Schaeffer’s Investment Research: How to trade options like the pros in a webinar here.
Recorded: TradersExpo Las Vegas, Nov. 13, 2018.
Duration: 49:23.

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