By Schaeffer’s Investment Research and Great Speculations
The shares of Invitae Corporation (NVTA) are up 1% at $54.73 at last check, approaching yesterday’s record high of $57.12. The biotech stock has carved out a channel of higher highs since it two-year March bottom near $7.40, with shorter-term support coming from its 20-day moving average. Now up 238.9% year-to-date, a historic bull signal flashing could indicate even more upside for NVTA in the coming weeks.
Specifically, the stock’s recent peak comes amid historically low implied volatility (IV), which has been a bullish combination for the equity in the past. According to data from Schaeffer’s Senior Quantitative Analyst Rocky White, there have been three other times in the past five years when NVTA was trading within 2% of its 52-week high, while its Schaeffer’s Volatility Index (SVI) sat in the 20th percentile of its annual range or lower – as is the case with the security’s current SVI of 77%, which sits in the 9th percentile of its annual range. Data shows that Invitae stock averaged a 14.8% return a month later, with 67% of the returns positive. From its current perch, a move of similar magnitude would put the equity just above $62, at yet another record peak.
Meanwhile, a short squeeze could also act as a tailwind, as the 26.08 million shares sold short account for 27.4% of the stock’s available float. In other words, it would take over nine days to buy back these bearish bets at NVTA’s average pace of trading – quite a bit of pent-up buying power.
There is plenty of room for analyst upgrades/price-target hikes as well. Five of the eight analysts in coverage carry a tepid “hold” rating, while the 12-month consensus price target of $46.31 sits at a 15.2% discount to current levels.
Another reason to target NVTA: premium is reasonably priced right now. The security sports a Schaeffer’s Volatility Index (SVI) of 77%, which stands higher than just 9% of readings from the past year. This suggests options traders are pricing in relatively low volatility expectations at the moment. Lastly, NVTA is currently sporting a rank of 76 out of 100 on the Schaeffer’s Volatility Scorecard (SVS). A high SVS reading indicates that the equity has consistently delivered bigger returns than its options implied volatility (IV) levels have predicted, meaning it may be a strong candidate for premium-buying strategies at this time.
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