Atlassian Corp Appears Ready to Soar

06/14/2019 6:00 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Australian software stock Atlassian Corporation (TEAM) has impressive technical and appears ready to soar.

Australian software stock Atlassian Corporation (TEAM) has turned in an impressive performance on the charts over the past six months. The shares are up nearly 54% over this time frame, with the steady run higher underlined by support at TEAM's rising 20-day and 40-day moving averages (see chart below). The equity did suffer a big bear gap in mid-April after its quarterly earnings report, but this sharp downside move was contained by double-barreled support at the rising 80-day moving average and the psychologically significant $100 level— a major round number that has been successfully tested as support on a couple of occasions since it was first taken out in February.


As of Wednesday morning, in fact, TEAM marked its eighth consecutive session on our internal watchlist of bullish momentum stocks. Schaeffer's Senior Quantitative Analyst Rocky White keeps a running tally of stocks that meet some basic liquidity criteria, have been above their 50-day moving average for the past 20 trading days, and have collected a 5% or better return over the past 40 sessions. Currently, TEAM is among 114 total tickers on this bullish momentum filter.

Even more compelling, as the stock gears up to break through the $130 level, is TEAM's appearance this week on another of White's data scans. On Tuesday morning, the stock showed up on the roster of optionable names that closed within 2% of an all-time high on the charts, while simultaneously sporting unusually low implied volatility levels on short-term options. Specifically, the equity's Schaeffer's Volatility Index (SVI) — a measure of at-the-money, front-month implied volatilities — was docked as low as 40.2%, in the 16th percentile of its 52-week range.

According to White's historical returns, this high stock price/low implied volatility combo has preceded bullish returns for TEAM over the past five years. There have been three prior signals, and two of those have been positive. The stock's average one-month return post-signal is 7.06%, with the median return arriving at 10.45%.

It's particularly interesting, from a contrarian perspective, that this latest signal has sounded just as TEAM is bouncing from solid support, and just as short sellers have ramped up their (increasingly untenable) positions against the stock. Short interest on the Sydney-based enterprise software specialist rose by 22.1% in the past two reporting periods, and now accounts for 8.5% of the equity's float. At the stock's average daily trading volume, it would take over a week for these bears to buy back all their shorted TEAM shares. This points to a healthy supply of pent-up cash on the sidelines that could unwind to fuel TEAM's next leg higher.

For those looking to bet on another bounce in the share price, short-term option prices have crept up slightly since Tuesday's low implied volatility signal sounded, but calls remain extremely low from a volatility perspective relative to the past year's worth of readings. The current SVI for TEAM's front-month options is 46%, which ranks in the modest 25th percentile of its annual range.

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