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Dow Stock's Bull Signal Has Never Been Wrong

Lillian Currens

The shares of blue-chip name Verizon Communications Inc (NYSE:VZ) have taken a breather since nearly taking out their all-time high in late March, trading up to $61.58. The telecom concern has been bouncing atop the $56 region of late, and VZ just pulled back to a long-term bull signal on the charts that could send the equity higher, if history is any indicator.

Specifically, Verizon just came within one standard deviation of its 10-month moving average after a lengthy period atop the trendline. According to Schaeffer's Senior Qualitative Analyst Rocky White, this signal has flashed seven times in the past fifteen years. The stock ended higher after each signal, with an average gain of nearly 5%. From VZ's current perch of $56.34, a similar move would put the security right near the $59 area, a region it hasn't touched since its late-March spike. 

VZ Chart Apr 9

The door is wide open for upgrades too. Analysts have been skeptical on Verizon of late, with 10 calling it a tepid "hold," and only five saying "strong buy." Plus, the consensus 12-month target price is at a slim 5.9% premium to current levels. Should the stock see some positive price action on the charts, price-target hikes could put even more wind at the equity's back. 

Options traders are already awaiting VZ's next big bounce, however. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Verizon sports a 50-day call/put volume ratio of 3.47. This ratio sits in the 98th percentile of its annual range, hinting at a much larger-than-usual appetite for bullish bets of late.

Despite this, option premiums are still cheap. The equity's Schaeffer's Volatility Index (SVI) of 17% stands in the 22nd percentile of its annual range, implying that near-term options traders are pricing in relatively low volatility expectations.