Bull Signal Flashing on Struggling Aerospace Stock

Aerospace name Red Cat Holdings Inc (NASDAQ:RCAT) stock has sharply pulled back from its Jan. 22 record peak of $18.02, off nearly 8% in February alone. However, more gains could be in store, as investors remain drawn to the equity's strategic military projects and the shares near a historically bullish trendline.

According to Schaeffer's Senior Quantitative Analyst Rocky White, RCAT is within 0.75 of its 50-day moving average's 20-day average true range (ATR), after remaining above this level 80% of the time in the past two weeks and 80% of the last 42 trading sessions.

This signal has occurred four other times in the past decade, after which RCAT was higher one month later every time with an average pop of 5.9%. A similar move from the stock's current perch of $12.39 would put the shares back above $13.12.

Shorts have been retreating, with short interest down 11.8% during the past two reporting periods. The 20.81 million shares sold short account for 19.8% of the stock's float, or nearly two days' worth of pent-up buying power.

What's more, RCAT sports a 50-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that sits in the 98th percentile of its annual range. In simpler terms, this hints at a much healthier-than-usual appetite for bearish bets of late. Should this bearish sentiment unwind, it could trigger an opportunity for call traders to enter the ring.