Drug name The Medicines Company (NASDAQ:MDCO) has had a noticeably sharp turnaround this year. The good news is that this torrid rally is far from over, if this historical indicator rings true.
More specifically, MDCO is now within 2% of its 20-day moving average. Since its inception, there have been four other times when the stock pulled back to this trendline, after which it was higher one month later three times, per data from Schaeffer's Senior Quantitative Analyst Rocky White. In fact, the drug stock racked up an average one-month gain of 8.1% after these signals.
From its current perch of $35.85, a move higher of similar proportion would have MDCO just under $40 for the first time since early September. As alluded to above, it's been a roller-coaster 12-months for the drug stock. After an annual high of $41.57 on July 17, MDCO plummeted for the rest of 2018, falling as low as $16.69 on Dec. 21. But in 2019, the security has been on fire, nearly doubling in value, guided by its ascending 20-day trendline.
A short squeeze could keep the wind at the stock's back. Short interest grew by only 0.4% in the most recent reporting period to 19.65 million shares. This takes up a whopping 28% of MDCO's total available float, and nearly 17 days' worth of pent-up buying power, at its average pace of trading.
In the options pits, calls are preferred, despite limited absolute volume. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 4,080 calls were bought to open in the past two weeks, compared to just 333 puts. While some of this activity is likely at the hands of traditional options bulls, it's also possible shorts have been initiating an options hedge against any additional upside risk, given the short interest tied up in the stock.