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History Says Buy the Dip on This Etailer

Patrick Martin

Online retailer Etsy Inc (NASDAQ:ETSY) has struggled recapture its technical tenacity from earlier in the year. Fortunately, there's a reliable signal sounding that indicates a another breakout could be imminent, if history is any guide.

More specifically, Etsy stock is now within 2% of its 160-day moving average. Since its inception, there have been eight other times when the stock pulled back to this trendline, after which it was higher one month later all eight times, per data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, the e-tail stock racked up an average one-month gain of almost 16% after these signals.

ETSY Stock Chart

At last check, ETSY was up 2.7% to trade at $62.06, so a move of similar proportion would put the stock around $72. This would topple the $70 level that has emerged as a stiff ceiling since ETSY's March 4, record high of $73.34. Year-to-date, the equity is up 31%. 

A rally could also send a contingent of short sellers to the exits, fueling more upside. Short interest is at its highest point since April 15, and accounts for a healthy 8.3% of ETSY's total available float. At the stock's average pace of trading, it would take shorts more than four days to buy back their bearish bets.

Now might be an opportune time to speculate on Etsy's next move with options. The equity's Schaeffer's Volatility Index (SVI) of 43% that ranks in the 8th percentile of its annual range, suggesting that near-term option traders are pricing in relatively low volatility expectations.