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China's TAL Stock Flashes Buy Before Earnings

Josh Selway

Among the more under-covered names reporting earnings next week is China-based TAL Education Group (NYSE:TAL). The company, which focuses on educational technology services, reports earnings before the open next Thursday, April 25. The event is notable due to TAL stock's post-earnings volatility from recent quarters -- and it doesn't hurt that the shares just flashed a historic buy signal.

By the numbers, the shares have posted four double-digit percentage moves the day after earnings in the past two years. On average, TAL has moved 8.7% after earnings.

While the Schaeffer's put/call open interest ratio (SOIR) is sure to change some next week after the expiration of April options today, the current reading of 3.68 is still quite notable, especially when you consider it ranks in the 94th annual percentile, and that much of this open interest resides outside the April series. For instance, the May 30 put holds a significant 9,712 contracts, and there are 5,214 options at the May 32 put. 

From a broader view, the security has shown a strong consistency to make moves bigger than the options market has priced in. This is evidenced by the Schaeffer's Volatility Scorecard (SVS) of 86 out of 100, which is good news for premium buyers.

TAL shares are currently in an interesting spot on the charts, too. At $33.85, they just fell below a 50% Fibonacci retracement of the decline from the 52-week high to 52-week low. This comes after the 61.8% Fibonacci retracement level acted as stiff resistance recently.

However, TAL is now within one standard deviation of its 70-day moving average, after a lengthy stretch above this trendline. Over the past three years, there have been seven similar pullbacks to this moving average, after which TAL was higher three weeks later 86% of the time, with an average gain of 7.43%, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

tal stock chart