Workday Stock Could See a Short-Term Bounce

A bullish signal flashing for WDAY might mean a short-term bounce

Cloud-based software name Workday Inc (NASDAQ:WDAY)suffered a sharp sell-off from its July 12 high of $226.83, breaking south of support at its $195 region in early-August. WDAY was briefly contained by the $195 and $185 areas, but breached this floor following its late-August earnings report, hitting a seven-month low of $166 just yesterday. WDAY today is making modest gains, up 1.2% at last check.

This isn't the first time Workday has run into this trendline, just last year the 320-day served as a springboard for the security's fourth-quarter lows, and according to data from Schaeffer's Senior Quantitative Analyst Rocky White, three similar pullbacks have occurred in the last three years. WDAY was higher one week later after each of these signals, averaging an impressive 8.3% gain. From its current perch at $172.76, a move of the same magnitude would put the equity back north of its post-earnings plunge, at $187.10.

On the other hand, WDAY was higher one month later only after only two times, averaging an 8.4% return. This suggests that most gains from this signal have been essentially immediate.

Should a short-term bounce spook traders, a short-squeeze situation could put even more wind at the security's back. While short interest has shed nearly 25% in the last two reporting periods, it still represents 4.4% of the stock's available float, and nearly a week of trading, at WDAY's average pace.

Considering this, now might be the time to speculate on Workday's next bounce with options. Workday's Schaeffer's Volatility Index (SVI) of 34% is in the 29th percentile of its annual range. This means near-term option traders are pricing in relatively low volatility expectations.