Forbes/Schaeffer's Options Report
WEEK OF Monday, September 28, 2009
please forward this to a friend! |
SPECIAL OFFER
| Option Idea of the Week: Mylan Inc. (MYL) |
Despite the wave of buying pressure sweeping across Wall Street since the March bottom, traders have had to seemingly drag the pharmaceuticals sector screaming and kicking higher. Specifically, the AMEX Pharmaceuticals Index (DRG) has added a mere 4.4% since the beginning of the year, compared to the S&P 500 Index's (SPX) gain of more than 15.5% for the same period. However, there is potential for the group to gain momentum as the economic recovery picks up the pace. On the technical front, DRG maintains key support at its 10-week moving average, and has recently overtaken formerly staunch resistance in the 280 region. Meanwhile, there is ample sideline money available to push the sector higher. The composite Schaeffer's put/call open interest ratio (SOIR) for DRG components rests at 0.08, in the upper half of its annual range. Elsewhere, composite short interest for the pharmaceuticals sector rests near its highest level of the past year. An unwinding of these short positions could provide additional buying pressure. Digging into the pharmaceuticals sector, we find several potential candidates that appear primed for bullish trading opportunities. One stock that has performed particularly well is Mylan Inc. (MYL). According to Hoover's, MYL is a top global manufacturer of prescription generic drugs. The company's customers include wholesalers, distributors, retail drugstore chains, and government agencies. The firm's Matrix division is a top producer of active pharmaceutical ingredients (APIs) for generic drugs. Mylan also makes branded specialty pharmaceutical products through its Dey division. Technically speaking, the stock has been in a steep uptrend since October 2008, rallying more than 180% from its low near $5.75 per share. The equity is currently up more than 62% so far in 2009, easily outperforming the SPX during the same period. What's more, MYL has ridden support at its 10-week and 20-week moving averages to yet another 52-week high. The shares are now trading above former resistance at the 16 level, and could use this region as a springboard for additional gains. 
Jumping on this strong technical performance, options players are placing bets on a continued run higher. MYL's Schaeffer's put/call open interest ratio (SOIR), which compares put open interest against call open interest among options that expire in less than three months, stands at 0.51. This low reading indicates that call open interest nearly doubles put open interest among near-term options. What's more, this ratio is also lower than 80% of all those taken during the past year, indicating that options traders have been more optimistic only 20% of the time in the prior 52 weeks. That said, data from the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE) reveals that there is still room for capitulation among options traders. Specifically, MYL's 10-day ISE/CBOE put/call ratio of 0.84 ranks above 81% of all those taken during the past year, meaning that the bullish bandwagon has plenty of room for additional investors. Checking in on MYL's open interest configuration also reveals a bearish undercurrent. For instance, peak put open interest of 5,887 contracts resides at the deep out-of-the-money October 12.50 strike. Meanwhile, peak call open interest for the October series resides at the in-the-money 15 strike, totaling 22,210 contracts. Clearly, options traders are not expecting MYL to rally much higher. The biggest concern that the shares face on the sentiment front is from the brokerage bunch. Specifically, Wall Street has doled out six "buys," three "holds," and no "sell" ratings. This configuration leaves the door open for potential downgrades, but the risk of such moves should be mitigated by the stock's strong price action. To take advantage of a continued capitulation by the bears to MYL's uptrend, options players should consider the equity's January 2010 15 call (premium represents 12.2% of stock price).
SPECIAL OFFER
| Stocks with Notable Option Activity for the Week Ending September 28, 2009 |
PSS World Medical Inc. (PSSI) Another pharmaceutical company that looks promising is PSS World Medical Inc. (PSSI). For the record, PSSI distributes medical supplies, equipment, and pharmaceuticals to doctors' offices, long-term care facilities, and home health care providers nationwide through a network of about 40 distribution centers, according to Hoover's. The company operates in two business segments. Its Physician Sales & Service unit distributes products to primary care doctors, while its Elder Care segment sells medical supplies to nursing homes and home health care providers. While not as impressive as MYL, PSSI has gained more than 13% so far in 2009, keeping pace with the SPX during this time frame. That said, the shares have gained momentum since the March bottom, rallying more than 60% since March 19. Throughout this rally, PSSI has enjoyed the solid support of its rising 10-week moving average. The shares have bested former resistance in the round-number 20 region, and recently toppled long-term resistance in the 22 area. This technical hurdle has held PSSI in check since January 2007, but a breakout to the upside could bring with it a surge in buying pressure. Investors remain defiantly bearish on PSSI, however. The stock's SOIR of 1.39 indicates that puts outnumber calls among near-term options. Furthermore, this ratio ranks in the 88th percentile of its annual range, indicating a decidedly negative slant from this speculative group. Short sellers are also betting heavily against the security. Following a 2.3% increase in the number of PSSI shorted shares during the most recent reporting period, more than 7.5% of the stock's float has been sold short. The stock's recent breakout above the 22 level could spook these bears into buying back their positions to limit losses, potentially creating a short-squeeze situation. Finally, PSSI has garnered five "buys," three "holds," and one "sell" rating. While Wall Street clearly has a bullish bias, there is room for additional upgrades, especially after the shares soared past long-term resistance at the 22 level. Hi-Tech Pharmacal Inc. (HITK) One final consideration for a potential bullish play in the pharmaceutical sector is Hi-Tech Pharmacal Inc. (HITK). The company is another generic prescription drug specialist, producing off-brand versions of antibiotic Bactrim (made by Roche) and antihistamine Phenergan (Wyeth), as well as prescription skin creams, mouthwashes, and pediatric multivitamins, according to Hoover's. Hi-Tech also makes branded over-the-counter products, including a line of products for diabetes patients and the Zostrix line of pain and arthritis medications. From a technical perspective, HITK is the most impressive of today's drug stocks, rallying more than 255% since the start of 2009. Furthermore, the shares have bested the SPX by more than 80% on a relative-strength basis during the past 60 trading days. But, while HITK has been on fire for the better part of the past year, the shares have pulled back from their recent highs. The equity performed similarly in early August, with HITK's 10-week moving average finally halting the stock's backslide. The shares are currently attempting to hold support in the round-number 20 region, but a breach of this area could send HITK sliding sharply lower. With such strong price action, it should come as no surprise that call options are the investment vehicle of choice for speculative traders. For instance, HITK's SOIR sits at 0.55, as calls nearly double puts among near-term options. What's more, the equity's ISE/CBOE 10-day call/put volume ratio of 8.87 reveals that calls bought to open have outnumbered puts purchased by nearly nine to one during the prior two weeks. On the other hand, short interest accounts for more than 12% of the stock's total float, despite a 21% decline in shorted shares during the most recent reporting period. Finally, only one analyst currently follows HITK, doling out a "hold" rating. If HITK can garner more attention from the brokerage bunch, or if short sellers continue to buy back their losing positions, we could see HITK continue its breakneck rally.
SPECIAL OFFER
GARY SHILLING WAS RIGHT!The housing market crashed, banks went under and now the government is here to save the day. Think the problems have passed? Think again, before you invest. Click here for Gary Shilling's Bear Market Toolkit. |
Checking the Forecast for GT Solar
Posted: 9/25/2009 12:53:33 PM
BusinessWeek
"A Power Surge for GT Solar?"
Published: 9/22/2009 Brief Summary: This optimistic article notes that GT Solar (SOLR:  sentiment, chart, options) is thought to be undervalued by a few Wall Street experts. The shares have tumbled from their IPO price of $16.50 into the mid-single digits, and "at that price, some analysts say the stock is a giveaway." Despite its poor price action, say the stock's fans, SOLR continues to be the world's largest provider of silicon solar equipment, with an order backlog of $1 billion. Additionally, SOLR boasts a healthy balance sheet with zero debt. Thanks to its solid financial footing, as well as its advantageous fundamental position in the solar equipment industry, the company is expected to benefit as demand for solar products stages a recovery in 2010. Plus, says the author, it would appear that many of the headwinds facing the solar sector have already been priced into the stock, suggesting that further downside could be limited. Contrarian Takeaway: SOLR has garnered a respectable gain of nearly 97% in 2009 -- but the stock had plenty of room for improvement, considering it entered the New Year trading below $3 per share. In fact, the shares have retreated considerably from their May peak near $9, and they've since created a series of lower highs. In light of this uninspiring technical performance, it's no surprise that a whopping 36.6% of the equity's float has been sold short. Short interest on SOLR has risen consistently since May, and a continuation of this activity could keep the shares under pressure. On the other hand, this lofty accumulation of bearish bets leaves the stock well-positioned to benefit from a potential short-squeeze rally. However, as the article notes, the forecast for the solar sector remains cloudy until at least 2010, giving the shorts little reason to flee. During the short term, investors might be wise to give this stagnating stock a wide berth.
SPECIAL OFFER
| Highest Option Volume for the Week Ending Monday, September 28, 2009 | | Ticker Symbol | Call Volume | Put Volume | Total Volume* | Put/Call Ratio | | Spdrs(SPY) | 295,413 | 545,037 | 840,450 | 1.85 | | S&P 500 Index(SPX) | 159,839 | 329,997 | 489,836 | 2.06 | | Research In Motion Ltd(RIMM) | 280,360 | 173,191 | 453,551 | 0.62 | | Nasdaq 100 Index Trckng Stck(QQQQ) | 159,765 | 226,551 | 386,316 | 1.42 | | Citigroup Inc(C) | 247,247 | 125,040 | 372,287 | 0.51 | | Ishares Russell 2000 Index(IWM) | 75,468 | 197,860 | 273,328 | 2.62 | | Apple Inc(AAPL) | 94,502 | 71,999 | 166,501 | 0.76 | | General Electric Co(GE) | 69,497 | 87,642 | 157,139 | 1.26 | | Cit Group Inc(CIT) | 25,356 | 129,833 | 155,189 | 5.12 | | Bank of America Cp(BAC) | 90,787 | 63,501 | 154,288 | 0.70 |
Highest Option Volume Compare to Average Volume
for Week Ending Monday, September 28, 2009 | | Ticker Symbol | Call Volume | Put Volume | Total Volume* | 5-week Avg Volume | Volume Ratio | Put/Call Ratio | | Atlas Pipeline Partners (APL) | 2,029 | 6,881 | 8,910 | 2,622 | 0.29 | 3.39 | | Blue Coat Systems Inc (BCSI) | 10,622 | 9,913 | 20,535 | 6,123 | 1.07 | 0.93 | | Boston Properties Inc (BXP) | 18,430 | 1,639 | 20,069 | 5,703 | 11.24 | 0.09 | | Clorox Co (CLX) | 70,440 | 18,967 | 89,407 | 20,097 | 3.71 | 0.27 | | Quest Diagnostics Inc (DGX) | 15,943 | 5,330 | 21,273 | 6,078 | 2.99 | 0.33 | | Electronic Arts Inc (ERTS) | 193,347 | 73,058 | 266,405 | 78,166 | 2.65 | 0.38 | | ITT Corporation (ITT) | 5,814 | 11,029 | 16,843 | 4,017 | 0.53 | 1.90 | | Ishares DJ Transportation Avg (IYT) | 7,541 | 14,653 | 22,194 | 6,056 | 0.51 | 1.94 | | Tellabs Inc (TLAB) | 40,343 | 2,267 | 42,610 | 10,353 | 17.80 | 0.06 | | Wyndham Worldwide Corp (WYN) | 24,828 | 3,752 | 28,580 | 7,157 | 6.62 | 0.15 |
SPECIAL OFFER
Dissecting The Sectors | | Sector | Technology
Bullish | <>
Outlook: The technology sector has been hot in 2009, with the PowerShares QQQ Trust (QQQQ) gaining roughly 41% since the beginning of the year. Despite this outperformance, investors continue to overlook and to bet against the shares. Specifically, net shares in Fidelity Select tech funds are currently low compared to the past few years. This means that retail investors are not crowding the tech sector, and suggests that sideline money from this group could spur demand for tech stocks. Meanwhile, the QQQQ's 50-day buy-to-open put/call ratio continues to climb, and could be viewed bullishly, especially with many of the contributing puts being possible hedges against accumulated long positions. One risk to this rising ratio is that it is at its highest levels since November/December 2007, which was essentially the top of the QQQQ's bull market rally. Also in the options pits, call open interest above the trust is extremely thin, virtually eliminating potential overhead options-related resistance. Traders should continue to keep an eye on the 40 level, as it is home to a 50% retracement of the security's June 2008 high and its November low. Within the group, our favorites include Palm Inc. (PALM), Western Digital Corp. (WDC), Juniper Networks Inc. (JNPR), Atheros Communications Inc. (ATHR), and priceline.com Inc. (PCLN). Traders should avoid Research In Motion Limited (RIMM), especially following the company's lackluster earnings report last week. | | | Sector | Gold
Neutral | <>
Outlook: Gold prices took quite a hit last week, with the front-month contract dropping back below the $1,000-an-ounce mark. Even more disturbing is the fact that gold declined in the midst of a pullback in the U.S. dollar. As gold is typically utilized as an inflationary hedge, this technical weakness is quite bearish for the malleable metal. Technically speaking, gold has once again rallied into long-term resistance near the $1,000-an-ounce region. Gold has challenged this millennium mark five times since March 2008, and has been soundly rejected on each instance. Elsewhere, the SPDR Gold Trust (GLD), which tracks the performance of gold bullion, has been stymied by round-number resistance at the 100 level. The trust created a double top near the century level earlier this month, and it has since pulled back sharply. Meanwhile, gold's 14-day relative strength index (RSI) has turned lower from overbought levels seen before the precious metal broke above the $1,000-an-ounce region. What's more, short interest has spiked on GLD, a development that could be related to hedge funds buying gold futures. We saw a similar development in last 2008 and early 2009, which turned out to be bullish for GLD. | | Sector | Retail
Bullish | <>
Outlook: The retail sector has come on strong since the March bottom, with the S&P Retail SPDR (XRT) rallying more than 87% during this time frame. What's more, the exchange-traded fund (ETF) has extended its rally along key support at its rising 10-week and 20-week moving averages. However, pessimism is thick on the retail sector, as only 41% of the 960 analyst rankings on retail stocks are "buys," according to Zacks, leaving plenty of room for potential upgrades. That said, the XRT's 50-day buy-to-open put/call ratio has reached high levels, but has not given an indication of moving higher or turning lower. While we remain bullish toward the retail sector, a major decline in this ratio would change our position. Within the sector, we see bullish opportunities for Expedia Inc. (EXPE), Whole Foods Market Inc. (WFMI), Green Mountain Coffee Roasters Inc. (GMCR), Polo Ralph Lauren (RL), AutoNation Inc. (AN), Starbucks Corp. (SBUX), Chipotle Mexican Grill Inc. (CMG), and Aeropostale Inc. (ARO). | |
For information about advertising in Forbes/Schaeffer's Options Report, please call or e-mail lbentley@forbes.com or 212-367-3381. About Schaeffer's Investment Research
Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology. Have a question about any of the content in this enewsletter, submit your question or call Schaeffer's at 1-800-448-2080. |
Комментариев нет:
Отправить комментарий
Прокомментируйте сообщение