Why Higher Highs Could Be In Store For Time Warner Stock

Media behemoth Time Warner TWX -0.75% has put in an impressive year on the charts. Since the start of 2016, the shares have rallied 19.4%, managing a series of higher highs along the way, including a 52-week peak above $80 last month.

While TWX has pulled back some in recent weeks, bulls will be happy to know that the stock’s rising 160-day moving average sits just below. The significance of this trendline can’t be overstated. The last six occasions in which TWX has approached this level over the previous three years, it’s posted positive 21-day returns each time — with an average advance of 4.5%, according to Schaeffer’s Senior Quantitative Analyst Rocky White. Furthermore, this same moving average helped guide the stock to its all-time highs last July.

This promising technical setup isn’t the only reason to like Time Warner at the moment. From a contrarian standpoint, as well, the shares are well-positioned for extended upside in the near future. For instance, bearish option traders have been swarming TWX during the past two weeks. This is evidenced by the stock’s alarmingly high 10-day put/call volume ratio of 8.29 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX), which represents a 12-month high.

Looking closer, the top three TWX options during the past two weeks, going by open interest added, were puts. What’s more, these contracts – namely, the weekly 9/30 73- and 76.50-strike puts, as well as the October 72.50 put — all sit just below the stock’s current price level, and are set to expire within the next month. As such, TWX stock should get a lift, as the hedges related to these bearish positions begin to unwind ahead of expiration.

This seemingly skeptical outlook is shared by plenty of analysts, too. By the numbers, nine brokerage firms still rate TWX just a “hold,” meaning there’s a chance for bullish notes to drive the stock higher. What’s more, short interest on the stock has been halved since early February — yet Time Warner’s short-interest ratio comes in at a healthy 3.50. In other words, there’s still a healthy amount of sideline cash available to drive TWX higher on the charts, if this short-covering trend continues.

Read full story at http://www.forbes.com/sites/greatspeculations/2016/09/23/why-higher-highs-could-be-in-store-for-time-warner-stock/#1f15e0d12ad7