This Signal Predicted Today's Navistar Stock Rally – Schaeffers Research (blog)

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The shares of Navistar International Corp (NYSE:NAV) are among the best of the New York Stock Exchange today, up 12.3% at $28.92. Bolstering NAV stock was some upbeat analyst attention, with Baird upgrading the shares to “outperform” from “neutral,” and lifting its price target by $1 to $33. Further, the analyst thinks Navistar stock could hit $50 a share — nearly twice its current price — in the next few years, stating, “We believe the transformed Navistar is on the verge of driving higher volume, profit margins and earnings.” Below, we’ll discuss how NAV stock stands from an Expectational Analysis point of view — including how options traders are pricing in a bigger-than-usual move ahead of earnings this week — and the technical signal that may have predicted today’s rally.

NAV Stock Recently Flashed ‘Buy’ Signal

The shares of Navistar recently pulled back to their 200-day moving average, which has been a stellar “buy” signal recently. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, the last four times NAV stock came within one standard deviation of this trendline after a prolonged extent above it, the shares were higher one month out every single time. Further, Navistar stock was up 12.13%, on average, a month after this signal — comparable to today’s surge.

navistar nav stock chart

Navistar Options Traders Predict Bigger-than-Usual Earnings Swing

Navistar will report quarterly earnings before the open on Wednesday, June 7. Last quarter, NAV stock suffered a one-day drop of 4.9% after earnings. Going back eight quarters, NAV shares have moved an average of 5.8%, regardless of direction, the day after reporting. This time around, the options market is pricing in a much bigger-than-usual 12.9% swing for Navistar stock, based on implied volatility calculations.

While Navistar options volume tends to be light on an absolute basis, puts bought to open have exceeded calls by a margin of nearly 9-to-1 during the past two weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is in the 71st percentile of its annual range, suggesting options buyers have initiated bearish bets over bullish at a much faster-than-usual clip. 

Wall Street Skeptical of NAV Stock

Elsewhere, the analyst community is also leery of Navistar. Just two brokerage firms consider the equity worthy of a “buy” or better rating, compared to 11 with “hold” or “strong sell” opinions. Plus, short interest represents 14.3% of NAV’s total float, and would take about three weeks to buy back, at the stock’s average pace of trading. Should NAV stock continue today’s bounce off its 200-day moving average, or should Navistar report stronger-than-expected earnings this week, more upbeat analyst attention or a short squeeze could propel the shares even higher.