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Software Sector Swoon Sets Up Buy Signal for COUP Stock

Josh Selway

Software stocks got hit hard on Wednesday, and the sector-wide pullback has some names flashing what historically have been solid buy signals. For instance, Coupa Software Inc (NASDAQ:COUP) lost 9.3% yesterday, its worst day since last December. COUP shares were last seen down another 2.9% today at $136.18, actually putting them below the 80-day moving average, a trendline that served as support in the past.

coup stock oct 17

But just because COUP has fallen below the 80-day doesn't mean it isn't due for a big move higher -- just look at the price action at the end of September when the shares moved below the trendline, only to quickly shoot higher. Overall, data from Schaeffer's Senior Quantitative Analyst Rocky White shows five previous pullbacks of this type to the 80-day in the past three years, and the stock has averaged a 21-day gain of 9.3% following those signals.

Another quick move higher could catch some options traders off guard, since put buying has picked up somewhat at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). While the 10-day put/call volume ratio across these exchanges of 0.96 still shows call buying with a slight edge in the past two weeks, this reading ranks in the 87th annual percentile, meaning this level of put buying is unusual.

Peak open interest is on the put side, too, with 6,493 contracts sitting at the November 125 put, although data shows mostly sell-to-open action here, meaning traders see this level serving as support. In today's trading, new positions are opening at the November 145 call.

Outside the options pits, bears keep piling on. Short interest rose 22.5% in the last reporting period, and now accounts for 16.4% of COUP's float.