In a low-volatility environment, Xylem (XYL) stands out as a stock with significant forecast potential. Both stock price and short interest have risen, historically signaling a likely upside move. With options implying only a 4% move, the stock model suggests greater potential, making XYL an interesting name this earnings cycle.

When analyzing the earnings model, we find that most stocks have either no forecasts or very small ones.

Recently, the S&P and many stocks have been trading in a range, resulting in near-zero returns over the past week.

There’s a correlation between stock prices and short interest. When the stock price remains steady, short interest tends to remain constant as well.

Compared to previous earnings cycles, underlying data has been relatively constant resulting in fewer earnings forecasts.

The most interesting name right now is Xylem (XYL).

Most of the forecasts are driven by the short side, not the long side, meaning this isn’t just a momentum reversal trade.

The options market is pricing in a 4% stock price move, signifying similar potential returns with lower risk.

Both the stock price and short interest have risen recently, and there’s a positive correlation between the two and the stock price’s movement afterwards, so an up move is more likely.

This suggests that even if only one the two models (return and short interest) model holds true, the trade can still be profitable as the forecasts are redundant.

Despite a lack of movement in most stocks, Xylem’s short interest and stock price have moved enough to generate a significant forecast.

The expected move from our model is much larger than the expected move from options, which is just 4%.

Over the longer term, there’s no correlation between the stock price and short interest.

The stock has been flat while short interest has fallen by nearly 50%. However, the short interest has risen over the past few months, returning to mid-range levels.

Xylem (XYL) is one of the few names generating a significant forecast in an otherwise stagnant market. Short interest and stock price are rising in tandem, and past patterns suggest an upside move is more likely. With implied volatility lower than stock model expectations, this setup could present an opportunity.

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