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Wayfair Signal Says "Buy" Ahead of Earnings

Lillian Currens

The shares of online home goods retailer Wayfair Inc (NYSE:W) have been coasting steadily lower since touching a record high of $173.71 in March, slamming into resistance at the $165 region and recently falling back beneath the $140 area, which acted as support for the stock's post-bull gap lows back in  February. However, Wayfair is primed to make some big moves, with second-quarter earnings due out tomorrow and a historically bullish signal flashing on the charts. 

Per Schaeffer's Senior Quantitative Analyst Rocky White, W just came within one standard deviation of it 52-week moving average -- a trendline the stock has pulled back to six times before in the last 15 years. According to this data, the security was higher three months later the majority of the time, averaging a hefty return of roughly 20%. At its current perch of $133.60, a similar move would have W back atop the $160 region. 

W Chart July 31

W has made some massive earnings moves in the past two years, including a next-day surge of 27.9% last February. The stock has averaged a 14.2% swing the day after a report, regardless of direction, with the options market pricing in an even bigger swing this time around at 20.2%. 

Analysts are approaching W with caution before tomorrow morning's earnings confession, with 14 calling the stock a "hold" or worse, compared to nine handing out "buy" or better recommendations. Plus, Credit Suisse just cut its target price to $165 from $195 yesterday, putting the consensus 12-month target price at $158.48, which is still a nearly 19% premium to current levels. 

Short sellers, on the other hand, are starting to fall off the bearish band wagon, with short interest down 5.8% in the last reporting period. Despite this, the 11.5 million shares sold short still make up 19.2% of the stock's float, and would take eight days to cover at W's average pace of trading, leaving plenty of room for a short squeeze to put extra wind at the security's back.