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Why Investors Shouldn't Sweat Five Below Stock's Pullback

Discount retailer Five Below Inc (NASDAQ:FIVE) is down 2.1% to trade at $137.77 this afternoon, as the broader market wrestles with surging bond yields ahead of tomorrow's interest rate decision. The shares have bounced back from their July 5, two-year low of $109.49, adding 21.3% so far this quarter, though year-to-date FIVE remains down 33.5%. Traders shouldn't sweat today's pullback, though, as it has placed the stock closer to a historically bullish trendline.

 

Digging deeper, Five Below stock is currently within one standard deviation of its 40-day moving average, according Schaeffer's Senior Quantitative Analyst Rocky White's latest study. The equity has seen five similar signals over the last three years, and was higher one month later 80% of the time, averaging a 10.1% gain. A comparable move from its current perch would place FIVE back above the $151 level for the first time since early May.

 

FIVE 40 Day
FIVE 40 Day

The security could also benefit from a sentiment shift in the options pits, which lean bearish. Over at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 2.78 ranks higher than all but 1% of readings from the past year. This means puts are getting picked up at a much faster-than-usual pace.

It is also worth noting short interest fell 8.8% in the last two reporting periods, but the 4.84 million shares sold short still represent 8.9% of FIVE's available float. It would take over one week to buy back these bearish bets, at the security's average pace of trading.