Why Walgreens Stock’s Recent Rally Could Backfire

Walgreens Boots Alliance Inc (NASDAQ:WBA) Camp was in one World of pain since losing its place in the Dow Jones Industrial Average (DJI) this year. The stock has tried to distance itself from its Nov. 21 record low of $8.08, but has a hefty year-to-date deficit of 62.2%. Additionally, the stock’s recent rally following reports that the pharmaceutical company may be delisted has put WBA directly into a trend line with historically bearish implications.

According to a study by Rocky White, senior quantitative analyst at Schaeffer, WBA just reached its 126-day moving average, which White defines as stock trading that was below the moving average 80% of the time over the past two months and south of which it closed in eight of the last ten sessions, crossing above the trend line before getting within striking distance of the moving average.

Similar clashes have occurred six times in the last three years. A month after these events, the stock was lower 83% of the time, an average loss of 6.3% for that period. A similar move from WBA’s current price of $9.81 would bring it back near record lows.

A decline in options optimism could compound Walgreens Boots Alliance stock’s woes. This comes from the 50-day call/put volume ratio of 3.32 on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX). This ratio is above 97% of annual readings, suggesting that long calls are more popular than usual.

It’s also worth noting that the WBA consistently exceeded volatility expectations last year, as reflected in its report Schaeffer’s Volatility Scorecard (SVS) Score 95 out of 100.