Following a plunge of 43% in 2008, the Semiconductor HOLDRS Trust's advance of roughly 8% so far in 2009 looks positively heartwarming. In fact, the SMH has bested the S&P 500 Index (SPX) by more than 15% on a relative-strength basis during the past 20 trading days. Technically, the trust hit bottom in late November 2008, and has proceeded to trend sideways between support near the 16 level and resistance in the 19 area during this time frame. However, the shares are currently hovering near the upper rail of this trend channel, creating the potential for short-term weakness.
Compounding the situation is a wealth of investor optimism, with traders looking for the semiconductor sector to break out of its trading range to the upside. The SMH's current Schaeffer's put/call open interest ratio (SOIR) of 0.51 indicates that calls nearly double puts among near-term options. What's more, this ratio also rests below 76% of all those taken in the past year, meaning that option speculators have rarely been more bullish during the prior 12 months. Additionally, Zacks reports that only 11.8% of the analyst rankings bestowed on SMH stocks are "sells," despite the lackluster technical performance. This configuration leaves the sector vulnerable to potential downgrades, or an unwinding of lingering optimism from options traders, which bodes ill for the semiconductor sector as it approaches stiff overhead technical resistance.
Sector bellwether Intel Corp. (INTC) has attracted quite a bit of attention from the brokerage community during the past week. On March 18, the company was downgraded to "buy" from "strong buy" at S&P Equity Research, while Needham upgraded the shares to "buy" from "hold." The next day, Intel declared a quarterly dividend of 14 cents per share, but was smacked lower by a Raymond James downgrade to "outperform" from "strong buy."
Overall, it would seem that many in the analyst community are beginning to question the company's wherewithal amid the current global economic crisis. As such, INTC finds itself in a rather precarious position, in terms of coverage among brokerage firms. Specifically, the best stock has attracted 19 "buys," 8 "holds," and just 2 "sells," according to Zacks. Any downgrades from this bullish bunch could spell trouble for the equity.
From a technical perspective, more trouble is the last thing that INTC bulls need at the moment. Following the recent rally in the broader market, the security is once again trading near the 15.50 level, the upper rail of a trading range it has occupied since mid-November 2008. What's more, the best stock's 32-week moving average is quickly descending into the region, and could provide an additional layer of overhead resistance. The lower rail of this trading range lies near the 12 level, and another reversal for INTC could send the equity plunging back toward this key support level.
In the options pits, speculative investors remain complacent toward INTC. The equity's SOIR, which compares put open interest against call open interest among options that expire in less than 3 months, stands at 0.74. This ratio falls near the midpoint of its annual range, and suggests that options traders may be content to allow INTC to remain within its current trading range.
However, data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) indicate that options traders are becoming more bullish toward the shares, as calls bought to open have outnumbered puts purchased on their exchanges during the past 10 trading sessions.
Finally, short sellers decreased their positions by nearly 12% during the most recent reporting period, leaving INTC with less than 2% of its float sold short. There are 2 takeaways from this indicator. First, the best stock was unable to break out of its trading range despite the added buying pressure from short covering. Second, there is now little in the way of fuel left in the tank, so to speak, so additional short covering would have a minimal impact on the equity. In fact, if INTC were to reverse course in the 15.50 area, we could see these bears return, thus increasing selling pressure on the security.
To take advantage of a pullback in the shares, traders should consider an in-the-money (15 strike) put option – the May put or July put – to take advantage of this opportunity that is attractive from our Expectational Analysis® methodology perspective.
Texas Instruments Inc. (TXN)
The shares of Texas Instruments Inc. (TXN) have also remained tightly range-bound during the past several months, and, like sector leader Intel, TXN is also trading near the upper rail of its trend channel.
Since November, the equity has ricocheted between overhead resistance at the 16.50 level and support in the 14 area. Mid-February offered TXN a chance to escape this slow sideways grind, but the best stock was stopped cold by resistance at the 17.50 level.
The situation is about to get more constricting for TXN, however, as the stock's 32-week moving average is quickly moving into the region. A rejection here could send the security back to support at the 14 level.
Unlike Intel, the sector's golden boy, TXN has attracted a wealth of pessimism across the board. The stock's SOIR of 1.58 indicates that puts outnumber calls among near-term options, and rests at an annual peak.
On Wall Street, analysts have doled out 9 "buys," 12 "holds," and 5 "sells," according to Zacks. While this configuration leans toward the bearish end of the spectrum, there is still room for additional downgrades from the remaining bullish brokerage firms.
Eagle Bulk Shipping Inc. (EGLE)
The shares of New York-based Eagle Bulk Shipping Inc. (EGLE) dropped on Friday, thanks to a virtual analyst assault. More specifically, Wachovia downgraded the best stock to "market perform" from "outperform," citing a plethora of potential company-specific or sector-specific catalysts in the near-to-intermediate term.
Most notably, the bearish note was attributed to Chinese ore prices, which the analyst says may ease in coming months due to elevated inventories. The price erosion could weigh on dry bulk rates, the broker says, pushing them lower in the near term. "While dry bulk top stocks may continue to trade on improving global sentiment and optimism over additional Chinese stimulus, we believe dry bulk's risk/reward profile has normalized following our upgrade last month, and we advise clients to move to the sidelines for the time being," Wachovia said in a note to clients.
In light of the news, the shares of EGLE took a nosedive. However, negative territory is far from unfamiliar to the best stock investment, which has underperformed the S&P 500 Index (SPX) by 24% during the past 60 trading sessions. In fact, since kissing the 36 region in May 2008, the security has backpedaled more than 88%.
The shipping issue is now seeking support in the 3-to-4 neighborhood, which has provided some footing since October 2008. However, the shares of EGLE remain pressured beneath double-barreled resistance at their 10-week and 20-week moving averages, which have capped all but 1 of the security's rally attempts during the past few months.
Regardless of the stock's sedation on the charts, an ample amount of analysts remain hopeful toward EGLE. The dry bulk diva still harbors 3 "buy" or better ratings, according to Zacks, while Thomson Reuters pegs the equity's average 12-month price target at $8.38. The security hasn't tagged a weekly close atop this area since November 2008, and the shares would need to more than double to achieve this generous goal.
In addition, though most near-term options traders are skeptically skewed toward the best stock, speculators are flocking to the bullpen.
The security's SOIR of 0.90 rests in the 91st annual percentile, suggesting that most short-term options players are bearishly biased toward EGLE. However, during the past couple of weeks, speculators on the ISE have bought to open more than 4 times as many calls than puts on the stock market. Furthermore, compared to similar readings taken during the past year, the equity's ISE 10-day call/put volume ratio ranks in the 71st percentile. In other words, traders on the ISE are scooping up calls at a faster pace than usual.
Nevertheless, there is 1 group that has taken notice of EGLE's tame technical performance of late: short sellers. Short interest on the equity has skyrocketed recently, surging 42% during just the past month. These bearish bets now account for 7.85 million EGLE shares, or 17% of the security's total available float.
Overall, despite the shares' stagnation in recent months, there are still traces of optimism on the Street. Should fundamental concerns or trendline resistance continue to plague the stock market, the bulls could jump ship, placing additional selling pressure on the shares. What's more, an extension of EGLE's quest for new lows could inspire the shorts to add to their winning positions – providing another potential catalyst to the downside.
Brief Summary:
This upbeat article discusses the prospects for The TJX Companies, Inc. (TJX: sentiment, chart, options), which operates discount retail chains T.J. Maxx and Marshall's. Although the shares have already rallied 33% from their November 2008 lows, the author claims that TJX "can still deliver generous returns if investors are patient."
The retailer's sales haven't been unaffected by the recession, but the article asserts that the off-price chains under TJX's umbrella have weathered the storm better than many of its rivals. "Consumers are still trading down," observes the author, and the struggles of its higher-end rivals have created an opportunity for TJX to ramp up its market share.
Despite a lack of earnings visibility for the fiscal year ahead, this optimistic write-up suggests that TJX could prove to be a valuable investment in the long run.
Contrarian Takeaway:
In fact, investors might not have to wait as long as the author suggests to reap the benefits of a TJX investment. The security is trending higher along support from its 10-day and 20-day moving averages, and recently muscled atop former resistance from its 10-week and 20-week trendlines.
Now that the equity has cleared these technical hurdles, short sellers are rushing for the exits. The number of TJX shares sold short dropped by more than 10% during the most recent reporting period, and a continuation of this short-covering activity could contribute to additional gains.
There's also room for pessimism to unwind among analysts and options players. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.10 is hovering just 1 percentage point from an annual bearish peak, and Zacks reports that 7 out of 9 analysts maintain a skeptical "hold" rating on TJX.
As the remaining bears on Wall Street gradually capitulate to the retailing issue's strong price action, look for TJX to continue its ascent during the short term.
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BERNIE SCHAEFFER'S OPTION ADVISOR - MULTIPLE WAYS TO PROFIT |
| Highest Option Volume for the Week Ending Monday, March 23, 2009 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | Put/Call Ratio | ||
| Spdrs(SPY) | 333,652 | 524,210 | 857,862 | 1.57 | ||
| S&P 500 Index(SPX) | 222,451 | 400,980 | 623,431 | 1.80 | ||
| Citigroup Inc(C) | 243,123 | 158,717 | 401,840 | 0.65 | ||
| Nasdaq 100 Index Trckng Stck(QQQQ) | 150,944 | 137,173 | 288,117 | 0.91 | ||
| Bank of America Cp(BAC) | 190,114 | 76,261 | 266,375 | 0.40 | ||
| Sel Sec Spdrs Fd Financial(XLF) | 160,405 | 101,894 | 262,299 | 0.64 | ||
| General Electric Co(GE) | 94,737 | 101,708 | 196,445 | 1.07 | ||
| Ishares Msci Emerging Markets(EEM) | 34,436 | 116,868 | 151,304 | 3.39 | ||
| Apple Inc(AAPL) | 42,908 | 63,559 | 106,467 | 1.48 | ||
| JP Morgan Chase & Co(JPM) | 59,099 | 46,526 | 105,625 | 0.79 | ||
| Highest Option Volume Compare to Average Volume | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | 5-week Avg Volume | Volume Ratio | Put/Call Ratio |
| American International Group (AIG) | 101,495 | 13,470 | 114,965 | 31,760 | 7.53 | 0.13 |
| Citigroup Inc (C) | 2,395,424 | 915,840 | 3,311,264 | 1,274,904 | 2.62 | 0.38 |
| Chubb Cp (CB) | 55,316 | 7,305 | 62,621 | 22,504 | 7.57 | 0.13 |
| Powershares DB Agriculture Fund (DBA) | 47,076 | 3,377 | 50,453 | 15,519 | 13.94 | 0.07 |
| Earthlink Inc (ELNK) | 3,736 | 16,541 | 20,277 | 5,740 | 0.23 | 4.43 |
| Healthnet Inc (HNT) | 27,005 | 6,902 | 33,907 | 13,321 | 3.91 | 0.26 |
| Sun Microsystems Inc (JAVA) | 212,630 | 189,411 | 402,041 | 120,996 | 1.12 | 0.89 |
| Lions Gate Entertainment Cp (LGF) | 63,260 | 3,536 | 66,796 | 19,087 | 17.89 | 0.06 |
| Midcap Spdrs (MDY) | 86,252 | 8,790 | 95,042 | 31,403 | 9.81 | 0.10 |
| Sel Sec Spdrs Fd Materials (XLB) | 138,159 | 16,758 | 154,917 | 52,397 | 8.24 | 0.12 |
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