It's been almost exactly a month since online retail specialist Shopify Inc. (SHOP) announced its first-quarter earnings results, and the stock has rallied more than 20% from its April 29 pre-event close at $225.79. The shares remain poised atop support at their 10-day and 20-day moving averages, which have ushered SHOP to a gain of 100% in 2019. Shopify shares have lately been consolidating some gains around the site of that year-to-date double as they wait for those supportive short-term trendlines to catch up with their progress, but SHOP tagged a new record high of $285.96 as recently as Tuesday, May 28, and a promising buy signal just flashed that suggests it's not too late to take part in the equity's massive uptrend.
Specifically, Schaeffer's Senior Quantitative Analyst Rocky White reports that there have been nine other instances in the stock's history where SHOP has been trading within 2% of a 52-week high at the same time that its Schaeffer's Volatility Index (SVI) — a measure of short-term options volatility — has been in the lower fifth of its annual range. And following previous such high stock price/low implied volatility combos, SHOP has tended to rocket higher over the next month.
Following those nine prior signals, Shopify stock was trading higher one month later 78% of the time. The equity's average one-month return post-signal is a hefty 9.87%, with a median return of 10.15%. Based on SHOP's current price, another "average" performance following this latest signal would place the shares around $305.58 one month from now -- at new all-time highs.
Despite SHOP trading at record peaks, there's still a fair amount of skepticism that could unwind to support future upside. Short interest fell by 14% during the most recent reporting period, but still accounts for 5.9% of the equity's float, or 3.4 times its average daily trading volume. A continued capitulation by these bears should provide a steady underpinning of demand for SHOP.
Likewise, options traders have been favoring puts over calls on Shopify by a wide margin. Schaeffer's put/call open interest ratio (SOIR) of 2.55 indicates that puts more than double calls among options set to expire within three months, and this ratio ranks above 96% of others taken during the past year -- pointing to an extremely strong skew toward puts over calls among speculative players.
Meanwhile, there's also room for sentiment to improve among analysts. Even with SHOP having doubled on a year-to-date basis, there are still nine brokerage firms maintaining a downbeat "hold" or "sell" rating on the stock. Any upgrades from this group could help spark new buying pressure for Shopify.
And that low SVI means that short-term options are attractively priced, from a volatility standpoint -- so prospective bulls looking to play call options on SHOP's latest buy signal can take part in the next leg higher without risking an undue amount of capital to time decay. The current SVI of 43.7% registers in the 19th percentile of its annual range, meaning front-month options have priced in lower volatility expectations just 19% of the time in the past 52 weeks.
