Skechers USA Inc (NYSE:SKX) has been rallying sharply since its late-August lows near $29, up 34%. The shares are now trading at $39.09, within a chip-shot of their July 19 annual high of $40.50, but one signal is suggesting it's time to brace for a pullback in the retail stock.
Specifically, SKX stock's Schaeffer's Volatility Index (SVI) -- which measures at-the-money, front-month implied volatility (IV) -- is currently docked at 33%. This reading ranks in the 4th percentile of its 12-month range, meaning short-term options have priced in lower volatility expectations just 4% of the time in the last year.
According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the last five years that Skechers stock was trading within 2% of its 52-week high while its SVI registered in the 20th annual percentile or lower. Following these prior signals, the equity averaged a one-month loss of 10.6%, with neither return positive.
Given the stock's recent run up the charts, sentiment is upbeat surrounding the footwear specialist. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SKX's 10-day call/put volume ratio of 6.94 ranks higher than 89% of comparable readings taken in the past year, meaning calls have been bought to open over puts at a faster-than-usual clip.
Elsewhere, 63% of analysts maintain a "strong buy" rating on SKX, and the average 12-month price target of $44 is a healthy 13% premium to current levels. Plus, following a recent round of short covering, just 7.14 million Skechers shares are controlled by shorts, or a low 5.4% of the equity's float. This leaves little in the way of buying power to fuel additional upside for the security.