Chinese video-sharing site Bilibili Inc (BILI) has been locked in a slow and steady uptrend, writes Elizabeth Harrow, Schaeffer's Investment Research.
Chinese video-sharing site Bilibili Inc (BILI) has been locked in a slow and steady uptrend with the U.S.-traded shares up nearly 54% over the past six months. The stock's bullish momentum recently paused near $20. BILI peaked intraday on Feb. 28 at $21.50, just shy of a 50% year-to-date return.
However, the equity's post-earnings pullback has been caught by its 40-day moving average, located around $17.50. The stock on Monday traded within one standard deviation of this trendline, sending up a signal that's flashed just two other times in the past three years, according to Schaeffer's Senior Quantitative Analyst Rocky White. And judging by past returns, this could present a prime opportunity to join BILI on its next leg higher.
Specifically, after the last two times BILI tested support at its 40-day trendline after a lengthy stretch above it, the stock was trading higher one month later on both occasions. What's more, the security's average 21-day return following previous such 40-day pullbacks is a healthy 9.71%. Based on Monday's close, a comparable post-signal rally this time around would place BILI at $20.65 by this time next month.
While two prior signals is a fairly meager sample size, the stock's sentiment backdrop lends fuel to the case for a short-term rally for BILI. Short sellers are already in covering mode, with short interest down 23.8% over the past two reporting periods. However, these bearish bets still represent 14.1% of the stock's float, representing a healthy supply of sideline cash that could provide a tailwind for the shares as these shorts continue to throw in the towel on their losing bets.
Likewise, puts are unusually popular at the moment, per Trade-Alert. Total put open interest of 33,041 contracts registers in the 96th percentile of its annual range, while call open interest of 34,646 contracts arrives in the tamer 70th annual percentile -- pointing to a heavier-than-usual skew toward puts among options traders.
Those looking to bet on a short-term bounce on BILI via the stock's call options can currently do so on the cheap, from a volatility standpoint. The equity's 30-day at-the-money implied volatility of 60% registers in the 1st percentile of its annual range, which means that short-term option premiums have priced in lower volatility expectations only 1% of the time in the last 52 weeks.
