Social Media Stock Ready To Break Out Thanks To Bullish Trendline

Pinterest (PINS) has dropped to its lowest level since June but is now showing technical signs of a potential recovery, with a historically bullish trendline indicator suggesting an average 12.8% gain over one month based on past occurrences. This potential rebound, which could push shares towards $38, may be amplified by an unwinding of significant bearish sentiment among short-term options traders, as indicated by a 96th percentile put/call ratio, coupled with currently low implied volatility expectations.

Analysis

Pinterest (PINS) has retreated to a key technical support level around $33, its lowest point since June, following five consecutive trading losses. A historically bullish signal has emerged, as identified by Schaeffer’s Senior Quantitative Analyst, with the stock now trading near its 260-day trendline. In four similar instances over the past three years, this signal preceded an average one-month gain of 12.8%, which would project a move towards the $38 resistance level. The potential for a rebound is further supported by contrarian indicators in the options market. The security's Schaeffer’s put/call open interest ratio (SOIR) of 1.11 is at an extreme, ranking in the 96th percentile of its annual readings, which signifies a heavy bearish bias among short-term traders that could unwind and fuel an upward move. Additionally, the stock's Schaeffer's Volatility Index (SVI) of 39% is in the low 12th percentile, indicating that options are pricing in low volatility expectations and are currently relatively inexpensive.

Key Decisions for Investors

• Given the historically reliable bullish technical signal suggesting an average 12.8% one-month gain, investors might consider the pullback to the $33 support level as a tactical entry point.
• The extremely bearish options sentiment, evidenced by the SOIR in the 96th percentile, presents a contrarian opportunity, as an unwinding of these positions could amplify any potential rebound.
• With implied volatility in the 12th percentile of its annual range, options are relatively inexpensive, suggesting that bullish investors could consider using call options to establish a defined-risk position to capitalize on a potential move toward the $38 resistance level.