Walgreens Boots Alliance Inc (NASDAQ:WBA) stock has struggled significantly since its removal from the Dow Jones Industrial Average (DJI) this year, accumulating a 62.2% year-to-date loss. While the stock attempted to recover from its November 21 record low of $8.08, a recent rally fueled by potential privatization talks has led WBA directly into a historically bearish trendline.
Table Content:
WBA Encounters a Historically Bearish Moving Average
According to quantitative analysis by Schaeffer’s Senior Quantitative Analyst Rocky White, WBA has encountered its 126-day moving average. This specific scenario is defined by the stock trading below the 126-day moving average for 80% of the past two months and closing below this trendline in eight out of the last ten trading sessions.
Over the past three years, six similar occurrences have preceded negative price action. In 83% of these instances, WBA stock was lower one month later, with an average loss of 6.3%. If this historical pattern repeats, WBA could fall back toward its record lows from its current price of $9.81.
Options Activity and Volatility Expectations May Exacerbate Downside Risk
The sentiment in the options market could further contribute to potential downside pressure on Walgreens Boots Alliance stock. The 50-day call/put volume ratio of 3.32 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates a significantly higher than usual preference for long calls. This ratio ranks above 97% of all readings from the past year.
Furthermore, WBA’s Schaeffer’s Volatility Scorecard (SVS) of 95 out of 100 reveals that the stock has consistently outperformed volatility expectations over the past year. This high SVS score suggests that options traders may be underestimating the potential for future price swings, which could amplify any negative catalysts.
Conclusion: WBA Faces Significant Headwinds
Walgreens Boots Alliance stock is at a critical juncture. While the potential for privatization offers a glimmer of hope, the historical performance following encounters with the 126-day moving average, coupled with elevated call activity in the options market, suggests a bearish outlook for WBA in the near term. Investors should proceed with caution and closely monitor price action for confirmation of a potential breakdown below the critical support level around the prior record lows.
