Southwest Airlines (LUV)
The airline sector has lost quite a bit of altitude in 2009, with losses flying in the face of lower fuel prices and a 4-week-long rally in the broader market. Compared to the S&P 500 Index's (SPX) year-to-date loss of roughly 7%, the AMEX Airline Index (XAL) has plunged more than 33% since January. Even financial stocks, plagued by toxic assets and the global credit crisis, are faring better, with the AMEX Select Financial Services Index (IXM) dropping 25% on a year-to-date basis. What's more, the XAL is now trading near long-term resistance near the 16 level, with its 10-week moving average descending into the region. A rejection here could send the index down for a retest of its July 2008 and March 2009 lows near the 12.50 level.
Surprisingly, this abysmal performance has fallen on deaf ears among investors. The XAL's Schaeffer's put/call open interest ratio (SOIR) currently arrives at 0.80, with calls outnumbering puts among near-term options. This ratio also ranks in the lower half of its annual range, underscoring the bullish leanings among the speculative options crowd. Finally, Wall Street also views the group favorably, as only 6.5% of the 398 analyst rankings on the airline sector are "sells." An unwinding of this optimism could provide additional selling pressure for the XAL.
One member of the airline sector that is particularly poised to suffer from an unwinding of this heavy-handed bullish sentiment is Southwest Airlines (LUV). The shares are off more than 20% in 2009, extending their 52-week decline to more than 45%. The security has recently rebounded from its March lows, overtaking former resistance at its 10-week moving average. However, LUV has flown smack into its declining 20-week trendline and technical resistance at the 7 level. The latter potential technical hurdle provided support for LUV from December 2008 through mid-February, and could now switch roles and act as resistance.
Meanwhile, technical support for the equity is thin at best. Short-term support arrives at the 6 level, an area that has only recently lent a helping hand to LUV shares. Below this tentative area is the stock's March low near the 5 level.
On the sentiment front, the situation in the options pits would be hard-pressed to be more bullishly aligned. The current SOIR for LUV rests at 0.63, only 2 percentage points from an annual low, pointing to excessive optimism from the speculative options crowd. Additionally, the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) 10-day call/put volume ratio arrives at a whopping 27.83, meaning that nearly 28 calls have been bought to open for every 1 put purchased on these exchanges during the prior 2 weeks. This ratio also ranks above 98% of all such readings taken in the past 52 weeks, highlighting a wellspring of optimism for this underperforming security.
Digging into the stock's open interest configuration, peak call open interest resides at the out-of-the-money 7.50 strike in the front 3 months, totaling more than 12,000 contracts. Comparatively, peak put open interest numbers fewer than 6,500 contracts at the out-of-the-money 5 strike for the same time frame. This skew toward out-of-the-money calls indicates that investors have high expectations for LUV.
Among short sellers, nearly 4% of LUV's float is sold short, but this figure is on the rise. During the most recent reporting period, the number of LUV shares sold short rose by 5.7% to roughly 27 million. A continuation of this trend could increase selling pressure on the equity.
Finally, only 3 of the 12 analysts following LUV rate the shares a "sell," even though the stock has underperformed the SPX by about 18% during the past 60 trading days on a relative-strength basis. Any downgrades from this group could spell trouble for LUV.
Ttraders should consider an in-the-money (10 strike) put option – the May put (premium is 36% of the stock price) or June put (premium is 38% of the stock price) – to take advantage of this opportunity that is attractive from our Expectational Analysis® methodology perspective.
Continental Airlines, Inc. (CAL)
Another poor performer in the airline sector is Houston, Texas-based Continental Airlines, Inc. (CAL). Plagued by intermittent resistance at its 10-week and 20-week moving averages, CAL has fallen more than 49% during the past 52 weeks, dropping some 43% on a year-to-date basis. While the stock has rebounded from its March lows, CAL has encountered resistance at the 10 region - an area that had provided support on numerous occasions between July 2008 and late February. What's more, this region is being reinforced by the equity's falling 10-week trendline, which CAL has not closed a week above since January.
Much like its peers in the airline sector, CAL maintains a wealth of bullish sentiment despite its sickly price action. Currently, the stock's SOIR of 0.31 ranks below 99% of all those taken during the past year. Furthermore, CAL is trading below peak call open interest of roughly 5,000 contracts at the 12.50 strike in the front 3 months of options. Meanwhile, peak put open interest for the same period totals roughly 6,000 contracts at the 7.50 strike. This skew toward overhead call options indicates that the speculative options crowd is not expecting CAL to fall much further.
Wall Street is also on the bullish bandwagon, as Zacks.com reports that 8 of the 10 analysts following CAL rate the shares a "buy" or better. Should these bullish brokerage firms begin to reassess their positions, downgrades could extend the equity's downtrend over the intermediate term.
JetBlue Airways Corp. (JBLU)
Our final under-the-weather stock is JetBlue Airways Corp. (JBLU). Shares of the Forest Hills, New York-based discount airline have underperformed their sector peers, falling 38% in 2009 compared to the XAL's 33% plunge.
Like the rest of the airline sector, however, JBLU finds itself staring up at potential resistance from its 10-week moving average. More troubling is that this trendline has moved into the 4.50 region - an area of long-term support and resistance for JBLU, and one that has held the equity in check since mid-February. Meanwhile, technical support lies near the 3 level, home to the stock's July and October 2008 lows, as well as its March 2009 nadir.
Still, investors refuse to accept JBLU's decline. For instance, the stock's SOIR of 0.35 ranks above only 16% of all those taken during the past year, indicating a bullish bias from the speculative group. Meanwhile, short interest declined by a sizable 24.9% during the most recent reporting period, but JBLU shares failed to take advantage of the added buying pressure.
Finally, only 1 of the 11 analysts following the shares rates them a "sell." If the stock is rejected once again by overhead resistance in the 4.50 area, JBLU could quickly revisit support near the 3 level.
Bears Bet Against Uptrending AutoZone, Inc.
Posted: 4/3/2009 12:43:53 PM
BusinessWeek
"Marcial: AutoZone Is in the Fast Lane"
Published: 4/1/2009
Brief Summary:
This article takes note of the strong price action from AutoZone, Inc. (AZO: sentiment, chart, options), with the author observing that the auto parts retailer "looks like it is in a bull market of its own." The company is benefiting from a slowdown in new auto sales, which has prompted an increase in the number of aging cars on the road. Additionally, cheap gasoline prices have led to an increase in driving. In other words, the fundamental setup is nearly ideal for AZO to sell more of its auto parts and accessories.
Its success amid an economic recession means that AZO is able to expand its geographic reach at a time when other retailers are shuttering stores and scaling back expansion plans. Analysts cited in the article believe that the company's healthy growth and robust margins should fuel long-term success, even if the economy begins to recover.
Contrarian Takeaway:
There's certainly nothing to complain about when it comes to AZO's technical performance. The stock has rallied 34.4% during the past 52 weeks, and the shares are riding high along the support of their 10-week moving average.
Despite this impressive uptrend, the security has surprisingly few fans on the Street. Zacks reports that 11 out of 18 analysts maintain a "hold" or "sell" rating, leaving ample room for potential upgrades. Investors are also skeptical of AZO; short interest accounts for a hefty 11.5% of the stock's float, and option traders on the International Securities Exchange (ISE) have purchased 2.61 times more puts than calls during the past 10 days.
As the equity continues to climb higher, the unwinding of this widespread bearish sentiment could contribute to additional gains. During the short term, look for AZO's uptrend to accelerate.
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BERNIE SCHAEFFER'S OPTION ADVISOR - MULTIPLE WAYS TO PROFIT |
| Highest Option Volume for the Week Ending Monday, April 06, 2009 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | Put/Call Ratio | ||
| Spdrs(SPY) | 513,484 | 656,141 | 1,169,625 | 1.28 | ||
| General Electric Co(GE) | 197,500 | 322,586 | 520,086 | 1.63 | ||
| Nasdaq 100 Index Trckng Stck(QQQQ) | 174,057 | 330,211 | 504,268 | 1.90 | ||
| Research In Motion Ltd(RIMM) | 320,991 | 164,327 | 485,318 | 0.51 | ||
| Citigroup Inc(C) | 236,399 | 164,892 | 401,291 | 0.70 | ||
| S&P 500 Index(SPX) | 144,074 | 224,165 | 368,239 | 1.56 | ||
| Sel Sec Spdrs Fd Financial(XLF) | 206,298 | 120,630 | 326,928 | 0.58 | ||
| Apple Inc(AAPL) | 94,831 | 97,011 | 191,842 | 1.02 | ||
| Bank of America Cp(BAC) | 135,814 | 51,532 | 187,346 | 0.38 | ||
| Ishares Russell 2000 Index(IWM) | 46,219 | 124,869 | 171,088 | 2.70 | ||
| Highest Option Volume Compare to Average Volume | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | 5-week Avg Volume | Volume Ratio | Put/Call Ratio |
| Affiliated Computer Svcs (ACS) | 1,725 | 16,817 | 18,542 | 5,444 | 0.10 | 9.75 |
| Cubist Pharmaceuticals Inc (CBST) | 42,494 | 5,919 | 48,413 | 13,480 | 7.18 | 0.14 |
| Cinemark Holdings (CNK) | 5,054 | 7,861 | 12,915 | 3,273 | 0.64 | 1.56 |
| Powershares DB Commodity Index Tracking Fund (DBC) | 92,610 | 6,718 | 99,328 | 30,863 | 13.79 | 0.07 |
| Forest Laboratories Inc (FRX) | 37,565 | 4,021 | 41,586 | 14,202 | 9.34 | 0.11 |
| Hatteras Financial (HTS) | 73,496 | 1,583 | 75,079 | 21,383 | 46.43 | 0.02 |
| International Game Technology (IGT) | 26,191 | 1,323 | 27,514 | 9,082 | 19.80 | 0.05 |
| Monarch Casino & Resort Inc (MCRI) | 7,834 | 4,139 | 11,973 | 3,227 | 1.89 | 0.53 |
| Protein Design Labs Inc (PDLI) | 3,258 | 2,901 | 6,159 | 2,109 | 1.12 | 0.89 |
| Vivus Inc (VVUS) | 5,516 | 6,089 | 11,605 | 3,137 | 0.91 | 1.10 |
*Minimum 10,000 contracts in weekly volume
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