On the Radar: Cisco Systems, VistaPrint, and Fed President James Bullard

As we slog through the second half of today's dreary session, we've got a few major movers and shakers on the radar. While Cisco Systems (CSCO) and VistaPrint (VPRT) have turned in dramatic price action today, Fed President James Bullard is grabbing headlines with some new hawkish comments.

Kicking things off with Cisco Systems (CSCO) -- good news, everybody, those new equity-specific circuit breakers work. Trading was halted in CSCO for five minutes earlier after a few "potentially erroneous" trades crossed the tape on the NYSE Amex. After an investigation, the exchange determined that the trades should stand. CSCO has no comment on the matter; at last check, the Dow component was off about 1%.

As for VistaPrint (VPRT), the shares have plunged more than 36% today after the company predicted weaker-than-expected earnings and revenue for 2011. The stock tagged a new annual low of $31.65 earlier, gapping well below former support at its 20-month moving average. Not surprisingly, puts are a popular choice on VPRT today -- volume has ramped up to 74 times the norm, with 12,000 puts changing hands so far.

Finally, St. Louis Fed President James Bullard decided to kick the market while it was down by warning of potentially disastrous deflation. "With a little bit weaker numbers on the economy and inflation a little bit low, people are starting to talk about the possibility of a Japanese-style outcome for the U.S.," Bullard told reporters today. The Fed president says he's trying to spark debate about the effectiveness of the Federal Open Market Committee's notorious "extended period" language.

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The Market at Midday: DJIA Drops 97 Points on Light Volume

An intraday chart of the Dow Jones Industrial Average (DJIA) seems to reveal a sudden crisis of confidence by the bulls. After a modestly positive start to the session, the major market indexes -- including the S&P 500 Index (SPX) and Nasdaq Composite (COMP) -- staged a simultaneous swan dive right before 11:30 a.m. Traders are feeling disturbed by Exxon Mobil's (XOM) quarterly revenue miss, as well as a top-line disappointment from consumer goods titan Colgate Palmolive (CL). Here's how the stats are stacking up as we roll into the second half of the session:

• The DJIA is down roughly 97 points and testing support near 10,400, which is the site of its 200-day moving average. The blue-chip barometer has notched four straight daily closes above this key trendline. Meanwhile, the SPX has dipped below 1,100 at last check, retreating from a test of resistance at its own 200-day moving average. As for the COMP, the tech-rich index has dropped substantially below its 200-day trendline, suggesting its four-day winning streak above this level is about to end.
• On the New York Stock Exchange (NYSE), we've got 90 new annual highs and just 15 new annual lows. However, decliners are outnumbering advancing equities by more than two to one on the Big Board, as evidenced by the advance/decline ratio of 0.45.
• On the Nasdaq Stock Exchange, new annual highs and lows are neck and neck, with 24 of each so far. The Nasdaq's advance/decline ratio is slightly worse than the NYSE's, weighing in at about 0.41.
• Volume is pretty weak on both exchanges, but has ramped up steadily throughout the session -- so we could be somewhere around normal by the time the closing bell rings.
• On the options front, 3.02 million calls and 2.76 million puts have changed hands, resulting in a put/call volume ratio of 0.91. The International Securities Exchange (ISE) reports a symmetrical put/call volume ratio of 0.91, while the Chicago Board Options Exchange (CBOE) sports a slightly inflated put/call volume ratio of 0.98.

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August Seasonality Favors Bullish Investors

Tomorrow marks the last trading day of July, and the major market indexes are on pace to gain more than 7% for the month. As Andrea Kramer noted heading into July, the month has historically been very bullish for the S&P 500 Index (SPX), with the index averaging gains of 2.29% and 0.42% for the previous five-year and 10-year periods. While August doesn't quite live up to July's performance during the past five years, the month is far from being a laggard.

According to data from Schaeffer's Senior Quantitative Analyst Alan "Rocky" White, the SPX has turned in a positive performance in seven of the past eight Augusts. Furthermore, the index has logged gains of 1.37% and 0.90% during the month for the prior five-year and 10-year periods. In fact, August has a slightly better track record, from a longer-term perspective, than July. While it would be daring, at best, to expect August to top July's current gain of more than 7% on the SPX, bulls should take heart that Wall Street should continue higher for at least another month. Enjoy it while you can, because -- looking at the tables below -- September doesn't look so hot.

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Analyst Action: Symantec Corp., NVIDIA Corp., Advanced Micro Devices Inc.

Technology stocks are pacing overall gains on Wall Street this morning, but a few laggards are preventing the sector from leading the market higher. Among those, Symantec Corp. (SYMC), NVIDIA Corp. (NVDA), and Advanced Micro Devices Inc. (AMD) are among the worst offenders, with the trio attracting a slew of negative brokerage activity due to poor quarterly earnings performances.

Symantec Corp. (SYMC) gapped sharply lower this morning, and while the stock has rebounded from earlier lows, SYMC remains down more than 7%. The company reported that non-GAAP earnings were 35 cents per share in the most recent reporting period, falling in line with analyst expectations. However, several analysts took issue with the lackluster quarterly report. In fact, no less than seven separate brokerage firms either cut their price targets on the stock or downgraded SYMC outright:

• Morgan Keegan, FBR Capital Markets, and Raymond James all cut SYMC to "market perform" from "outperform"


• Bank of America-Merrill Lynch downgraded SYMC to "neutral" from "buy"


• Jefferies slashed its price target to $15 per share from $17 per share


• Citigroup cut its target to $15 per share from $18 per share


• Credit Suisse lowered its price target to $16.50 per share from $22 per share

Unfortunately for SYMC, there is plenty of room for more brokerage firms to follow suit. According to Zacks, 16 of the 28 analysts following the stock rate it a "buy" or better, with no "sell" ratings. Additionally, Thomson Reuters reports that the median 12-month price target for SYMC rests at $18 per share - a 32% premium to the stock's current perch near $13.60.

While NVIDIA Corp. (NVDA) didn't issue an earnings report, the company did lower its sales outlook for the current quarter. According to the graphics processor specialist, it now expects revenue of $800 million to $820 million, compared with prior guidance for a range of $950 million to $970 million. NVDA said "revenue shortfall occurred primarily in the consumer GPU [graphics chips] business, resulting from increased memory costs and economic weakness in Europe and China."

The stock has plunged more than 8% as a result, with eight analysts piling on the bearish sentiment, including price-target cuts from Susquehanna, Oppenheimer, Macquarie, BMO, Citigroup, Caris, and Wedbush Morgan. Only FBR Capital Markets downgraded its rating on the stock, cutting NVDA to "market perform" from "outperform." Currently, NVDA sports nine "buys," 16 "holds," and just two "sell" ratings. Meanwhile, Thomson Reuters states that NVDA's median 12-month price-target sits at $16.50 per share.

Finally, Advanced Micro Devices Inc. (AMD) attracted the ire of only one analyst following its second-quarter earnings report. For the quarter, AMD said it earned 11 cents per share on an adjusted basis, with revenue arriving at $1.65 billion. The consensus was expecting a profit of 6 cents per share on revenue of $1.55 billion.

Following the report, FBR Capital Markets downgraded the stock to "market perform" from "outperform." However, there is very little room left on the bearish bandwagon for AMD, as the stock already sports 19 "hold" or worse ratings. In fact, out of 27 ratings, the equity has only attracted eight "buys." Though, with the stock down more than 17% year-to-date, I would be surprised to see a wealth of bullish ratings out of the brokerage bunch on AMD.

-posted by Joseph Hargett (jhargett@sir-inc.com)
7/29/2010 10:21 AM

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Option Skews - Relatively Heavy Call Activity for Micron Technology Inc., The Mosaic Company, Chesapeake Energy Corp., and Cephalon Inc.

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Contrarians may want to focus on situations where there is call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign.

Companies included in today's scan results: Microsoft Corp (MSFT), Pfizer Inc (PFE), Nvidia Corp (NVDA), Range Resources Corp (RRC), Micron Tech Inc (MU), Citigroup Inc (C), Apple Inc (AAPL), Tyco Intl Ltd New (TYC), Mosaic Company (The) (MOS), Bank Of America Corp New (BAC), Barrick Gold Corp (ABX), Exxon Mobil Corp (XOM), Research In Motion Limited (RIMM), Consol Energy Inc (CNX), Coca Cola Entrps Inc (CCE), Chesapeake Energy Corp (CHK), Cephalon Inc (CEPH), Walgreen Co (WAG), Teva Pharm Inds (TEVA), Symantec Corp (SYMC), Las Vegas Sands Corp (LVS), Unitedhealth Group Inc (UNH), A123 Systems Inc (AONE), Foot Locker Inc (FL), Marvell Technology Grp Ltd (MRVL).

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Option Skews - Relatively Heavy Put Activity for Amylin Pharmaceuticals Inc., Nokia Corp., Consol Energy Inc., Express Scripts Inc.

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Contrarians may want to focus on situations where there is put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign.

Companies included in today's scan results: Radioshack Corp (RSH), Arcelormittal (MT), Intuit Inc (INTU), Amylin Pharma Inc (AMLN), Nvidia Corp (NVDA), Citigroup Inc (C), Nokia Corp (NOK), Citrix Systems Inc (CTXS), Intel Corp (INTC), Apple Inc (AAPL), Costco Wholesale Corp (COST), General Electric Co (GE), Morgan Stanley (MS), Teva Pharm Inds (TEVA), Consol Energy Inc (CNX), Aruba Networks, Inc. (ARUN), Broadcom Corporation (BRCM), Cemex S.A.B. De C.V. (CX), First Solar Inc (FSLR), Coca Cola Entrps Inc (CCE), United Parcel Svc Inc (UPS), Caterpillar Inc (CAT), Express Scripts Inc (ESRX), Qualcomm Inc (QCOM), Research In Motion Limited (RIMM).

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Stocks Advancing Amid Heavy Short Interest - Tierone Corporation, Atlas Pipeline Partners L.P., FuelCell Energy Inc., Plug Power Inc.

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Methodology - the query scans a database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. This can be used as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: Tierone Corporation (TONE), Atlas Pipeline Partners L.P. (APL), Silicon Image Inc (SIMG), Daystar Techn Inc (DSTI), Ehealth Inc (EHTH), Yrc Worldwide Inc (YRCW), Affymetrix Inc (AFFX), Kandi Technologies Corp (KNDI), Augusta Resource Corp (AZC), Basic Energy Services Inc. (BAS), L&L Energy Inc (LLEN), Fuelcell Energy Inc (Del ) (FCEL), California Pizza Kitchen Inc (CPKI), Evergreen Energy Inc (EEE), Marina Biotech Inc (MRNA), Jackson Hewitt Tax Svcs Inc (JTX), Sulphco Inc (SUF), Wyndham Worldwide Corp (WYN), Toreador Res Corp (TRGL), Stoneridge Inc (SRI), Cb Richard Ellis Group Inc (CBG), Imergent Inc (IIG), Exact Sciences Corporation (EXAS), Plug Power Inc (PLUG), Illumina Inc (ILMN).

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DJIA Bulls Fight to Maintain Control Following Weekly Jobless Claims

Good morning! The Dow Jones Industrial Average (DJIA) had a rough morning, with futures swinging wildly in a tight range as Wall Street reacted to the latest weekly U.S. jobless claims data. While the initial reaction send futures sharply lower, the DJIA has since recovered, and is headed toward an opening gain of about 50 points. As you can see from the chart below, 10,500 could be a significant hurdle for the DJIA in early trading. Turning toward the S&P 500 Index (SPX), the broad market index is up about 5.4 points heading into the open. As I noted in Opening View, look for support at 10,400 for the DJIA and at 1,090 for the SPX, while resistance should materialize near 10,600 and 1,115, respectively.

As for this morning's economic data, weekly initial jobless claims fell 11,000 to 457,000 in the latest week, according to the Labor Department. Economists were expecting initial claims to fall to 460,000. The four-week average, fell 4,500 to 452,500, while continuing claims rose 81,000 to 4.57 million.

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Call Buyers Flock to Qualcomm and E*Trade Financial Corporation

Sifting through the past couple of weeks' worth of buy-to-open option volume from the International Securities Exchange (ISE), heavy call activity on Qualcomm, Inc. (QCOM) and E*Trade Financial Corporation (ETFC) caught my eye. Both companies recently surpassed analysts' quarterly earnings expectations -- but is this heavily bullish option volume a sign of climactic optimism?

Starting with QCOM, traders on the ISE have bought to open 53,683 calls and 18,295 puts during the past two weeks, resulting in a 10-day ISE call/put volume ratio of 2.93. This ratio rests in the 83rd annual percentile, indicating that traders are snapping up calls over puts at a faster pace than usual.

However, bullish sentiment doesn't seem overdone yet. Short interest rose by 23.6% during the most recent reporting period, so it's entirely possible that some of those calls were purchased as hedges by the shorts. Likewise, QCOM's Schaeffer's put/call open interest ratio (SOIR) of 0.94 ranks in the 77th annual percentile, pointing to elevated skepticism among short-term speculators.

QCOM's well-received earnings propelled the stock above resistance from its 80-day moving average, but the stock is still staring up at potential pressure from its 200-day trendline. Plus, with 55,954 contracts located at the out-of-the-money August 40 call, options-related resistance is a very real threat during the short term.

As for ETFC, speculators on the ISE have bought to open 30,692 calls and just 52 puts during the past 10 days. The stock's 10-day ISE call/put volume ratio of 590.23 ranks in the 96th annual percentile, just four percentage points from a bullish peak.

Like QCOM, shares of the online broker staged a bullish post-earnings gap -- but unlike QCOM, ETFC's positive momentum was halted by its 80-day moving average, located just south of $15. In fact, ETFC has been virtually comatose since Friday's big initial bullish gap, with the stock ricocheting between $14.10 and $14.80 in the intervening sessions.

Obviously, ETFC is in dire need of another bullish catalyst. If skeptical analysts decide to move off the sidelines, a round of upgrades could draw more buyers to the table -- according to Zacks, 10 of the 14 brokerage firms following ETFC maintain a "hold" or worse rating.

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Skeptics Add New Bearish Bets on National Bank of Greece

National Bank of Greece (NBG) jumped onto Wall Street's radar following the results of last week's stress tests on euro zone banks. With merger-and-speculation rumors now swirling around the sector, NBG mustered enough buying pressure to challenge resistance from its 20-week moving average. However, the stock's attempt to tackle this trendline was soundly rejected, and options traders today are betting on longer-term losses for the Greek bank.

Specifically, put volume has accelerated to four times the norm on NBG, with more than 1,900 contracts crossing the tape. NBG's February 2 put is most active, as 1,500 contracts have changed hands. All of these puts have traded at the ask price, indicating they were purchased -- and with just 505 contracts in open interest, it's a safe guess that new bearish bets are being added today at this out-of-the-money strike.

Today's flurry of put volume continues a recent trend for NBG, which has garnered a 10-day International Securities Exchange (ISE) put/call volume ratio of 2.46. In other words, traders have purchased more than two puts for every call on the stock during the past couple of weeks.

However, this preference for puts could actually work to NBG's advantage during the short term. The stock's narrowly out of the money August 2.50 put is home to a noteworthy accumulation of 6,097 contracts, which could provide a measure of options-related support as expiration approaches.

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Options in Play: Netflix, Arch Coal, and Chesapeake Energy Corporation

Today's option trades of note include a cautiously optimistic credit spread on Netflix, Inc. (NFLX), bullish pre-earnings speculation on Arch Coal, Inc. (ACI), and a big volatility play on Chesapeake Energy Corporation (CHK). Read on for a quick-and-dirty review of the major trades on each stock.

• Put volume has ramped up to more than two times the norm on NFLX, with roughly 15,000 contracts crossing the tape by midday. However, it looks like this activity might actually be neutral-to-bullish in nature, with one speculator initiating a short put spread by selling August 95 puts and buying August 90 puts. At last check, NFLX is down about 3%, with the shares testing support at the century level.
• Traders seem to be adding new bullish bets on ACI today, with call volume surging to twice the stock's daily average. The October 22 call is most popular, as 2,902 contracts have traded on open interest of 731 contracts -- indicating new calls are being opened here today. Most of these contracts have changed hands at the ask price, pointing to bullish speculation ahead of ACI's Friday earnings report.
• Finally, one trader placed a major bet on volatility by buying to open about 5,000 January 2011 21-strike puts on CHK, and simultaneously purchasing a matching block of January 2011 21-strike calls. In this long straddle, the trader is looking for CHK to make a major move higher or lower prior to January expiration. However, CHK shares are defiantly flat at last check, with the shares lingering near the midpoint of their short-term trading range between the $20.50 and $22 levels.

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A Bearish Debit Spread on the iShares Russell 2000 Index Fund

The iShares Russell 2000 Index Fund (IWM) has attracted a wealth of put activity today, with volume at the September 62 strike swelling to more than 15,000 contracts. Taking a closer look at these trades reveals that most blocks have changed hands at the bid, suggesting that they were sold. Furthermore, since IWM is trading near $65.52, meaning that the September 62 puts are nowhere near being in the money, it is likely that we are looking at put selling at this strike.

A more interesting, and considerably more bearish, options trade took place at IWM's August 66 and 68 call strikes at about 9:45 a.m. on the American Stock Exchange (AMEX). Specifically, a block of 5,000 August 66 calls traded for the bid price of $2.00, while a block of 5,000 August 68 calls crossed at the ask price of $1.05. The result is a credit of $0.95, or $95 per contract, which the trader will keep as long as IWM holds below $66 per share through August expiration. This debit spread's return is limited to the initial credit received, while losses are capped at the difference between the 66 and 68 call strikes, minus the initial credit received, or $1.05 total.

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Hot Stocks: Atlas Pipeline Holdings, Atlas Pipeline Partners, Jones Lang Lasalle Inc., and Wyndham Worldwide Corp.

The Dow Jones Industrial Average (DJIA) is hovering just below breakeven heading into midday trading, with Wall Street bulls rather skittish ahead of the Fed's Beige Book after June's durable-goods orders unexpectedly plunged. In the meantime, trading activity on the New York Stock Exchange (NYSE) reveals that those bulls that are active have turned their attention toward Atlas Pipeline Holdings (AHD), Atlas Pipeline Partners (APL), Jones Lang Lasalle Inc. (JLL), and Wyndham Worldwide Corp. (WYN).

Atlas Pipeline Partners (APL) shares have spiked more than 30% higher today after the company announced that it is selling its Elk City System division for $682 million to Enbridge Energy Partners (EEP). What's more, shares of APL's parent company Atlas Pipeline Holdings (AHD) have also joined in the merriment, soaring some 25% at last check.

Sticking with APL, the stock has broken out above formerly staunch resistance in the $15 region. This area capped APL from February through May, and could now provide a floor for the shares in the event of a post-event pullback. Sentiment toward the shares is mixed, with very little in the way of short interest, and a moderately bullish open interest configuration in the options pits. However, there is room for potential upgrades from the brokerage bunch. According to Zacks, three of the four analysts following APL still rate the stock a "hold." Naturally, a shift toward "buy" ratings from this bunch of holdouts could provide additional buying pressure for APL shares.

After the close last night, Jones Lang LaSalle Inc. (JLL) reported that it had swung to a second-quarter profit due to double-digit revenue growth, higher margins, and fewer charges due to an improving leasing and capital markets business. The shares have responded today by soaring more than 6%, despite a lack of direction in the broader market. Technically, JLL has rebounded sharply from support at its 200-day moving average, but the shares are still staring up at round-number resistance in the $80 region, as well as their April high near $85.

There is potential for JLL shares to extend today's surge higher, especially if the stock can muscle past $80 per share. Specifically, nearly 4% of the stock's float is currently sold short, while JLL's Schaeffer's put/call open interest ratio (SOIR) of 0.97 ranks above 90% of all those taken during the past year. An unwinding of this pessimism in the wake of the company's stronger-than-expected quarterly report could provide additional lift for JLL shares.

Finally, Wyndham Worldwide Corp. (WYN) rounds out the top three outperforming stocks on the NYSE, with the shares rallying roughly 10%. WYN reported this morning that its second-quarter earnings rose 34% due to strong performance at its exchange and rentals business, a lower tax rate, and favorable currency translations. The figures topped analyst expectations, and led the company's board to authorize a $300 million increase in its share buyback program.

The news has helped propel WYN above former resistance at the 25 level - a region that capped the stock in late June. What's more, there could be additional upside as the bears rush for the exits. Specifically, WYN's SOIR of 2.21 arrives at an annual high, while nearly 6% of the stock's float is currently sold short. As these investors close out their bets to limit losses, WYN should benefit from the resulting tailwind of added buying pressure.

-posted by Joseph Hargett (jhargett@sir-inc.com)
7/28/2010 11:20 AM

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Option Skews - Relatively Heavy Call Activity for Alcoa Inc., Western Union Co., Goldman Sachs Group Inc., Corning Inc.

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Contrarians may want to focus on situations where there is call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign.

Companies included in today's scan results: Citigroup Inc (C), Bank Of America Corp New (BAC), Alcoa Inc (AA), Petrohawk Energy Corp (HK), Apple Inc (AAPL), Ambac Financial Group Inc (ABK), Western Union Co (The) (WU), Goldman Sachs Group Inc (GS), Marvell Technology Grp Ltd (MRVL), Corning Inc (GLW), First Solar Inc (FSLR), General Electric Co (GE), Morgan Stanley (MS), Mgm Resorts International (MGM), Bp Plc (BP), Anadarko Petroleum Corp (APC), Genzyme Corp (GENZ), Qualcomm Inc (QCOM), Alcon Inc (ACL), Ensco Plc (ESV), Ivanhoe Mines Limited (IVN), Microsoft Corp (MSFT), Annaly Capital Management (NLY), Google Inc (GOOG), Las Vegas Sands Corp (LVS).

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Option Skews - Relatively Heavy Put Activity on Juniper Networks Inc., Research In Motion Limited, Veeco Instruments Inc., AsiaInfo-Linkage Inc.

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Contrarians may want to focus on situations where there is put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign.

Companies included in today's scan results: Juniper Networks (JNPR), Citigroup Inc (C), Time Warner Cable Inc (New) (TWC), Bp Plc (BP), Sprint Nextel Corp (S), Jpmorgan Chase & Co (JPM), Nabors Industries Limited New (NBR), Research In Motion Limited (RIMM), Apple In (AAPL), Marvell Technology Grp Ltd (MRVL), Gilead Science Inc (GILD), Boeing Company (BA), Pitney Bowes Inc (PBI), General Electric Co (GE), Veeco Instruments Inc (VECO), Comcast Corp New (CMCSA), Silicon Laboratories Inc (SLAB), Microsoft Corp (MSFT), Great Atlantic & Pac Tea Inc (GAP), First Solar Inc (FSLR), Dow Chemical Co (DOW), Mgm Resorts International (MGM), Bank Of America Corp New (BAC), Asiainfo Linkage Inc (ASIA), Baker Hughes Inc (BHI).

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Stocks Advancing Amid Heavy Short Interest - Pacific Capital Bancorp, Evergreen Energy Inc., Ambac Financial Group Inc., OncoGenex Pharmaceuticals Inc.

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Methodology - the query scans a database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. This can be used as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: Pacific Capital Bancorp (PCBC), Evergreen Energy Inc (EEE), Ambac Financial Group Inc (ABK), Oncogenex Pharmaceuticals Inc (OGXI), Private Bancorp Inc (PVTB), Unisys Corp (UIS), Denison Mines Corp (DNN), Ferro Corp (FOE), Central Pacific Finl Corp (CPF), Integrated Device Tech Inc (IDTI), Pantry Inc (The) (PTRY), Energizer Hldgs Inc (ENR), Orbitz Worldwide, Inc. (OWW), Amedisys Inc (AMED), Presstek Inc (PRST), Medcath Corporation (MDTH), Us Concrete Inc (RMIX), Willbros Group Inc (Del) (WG), Ubs Ag New (UBS), Hologic Inc (HOLX), Lloyds Banking Group Plc (LYG), Lexmark Intl Inc (LXK), Savvis Inc (SVVS), Pure Bioscience (PURE), Nautilus Inc (NLS).

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DJIA's Win Streak Questionable After Plunge in Durable-Goods Orders

Good morning! The Dow Jones Industrial Average (DJIA) is heading for a 27-point drop on the open, as investors react to a drop in June durable-goods orders. The unexpected decline has further rattled investors, who were already on edge ahead of the Fed's Beige Book. Should Wall Street hold this course, the Dow could not only end its winning streak at four sessions, but the blue-chip barometer could be in danger of relinquishing support at the 10,500 level. Meanwhile, the S&P 500 Index (SPX) is in a similar boat, with futures on the broad market index below fair value by nearly 2 points heading into the open. The SPX is currently dealing with resistance in the 1,115 region (home to its 200-day moving average), while support lies well below the SPX near 1,100.

Taking a closer look at this morning's economic data, U.S. durable-goods orders fell 1% in June due to weaker demand for airplanes, electronics, and machinery, the Commerce Department reported. Economists missed the mark entirely, with the consensus looking for a rise of 1% during the month. Furthermore, June's drop is the largest decline in total orders since August 2009. Excluding transportation, orders fell 0.6%. Shipments fell 0.3% in June, while inventories rose 0.9% for the sixth straight monthly gain.

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July in Charts: Gold, Crude Oil, U.S. Dollar, and the S&P 500 Index

There was some interesting banter crossing the trading floor earlier today regarding the recent decline in gold, the U.S. dollar, and crude oil prices, and the potential impact on equities. The idea being discussed was where the money that was pulling out of commodities and currencies was going. Judging from the charts below, it would seem that equities are benefiting the most, though we can also see that crude prices have trended more sideways during the past couple of weeks, rather than head lower. The oddity, as least according to conventional wisdom, is the tandem decline in both the U.S. dollar and gold prices.

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Earnings on Deck: DryShips Inc., Visa Inc., and Boeing Co.

As earnings season heats up, traders will want to keep a close eye on stocks with the potential to make waves with their quarterly reports. Looking ahead to tomorrow's earnings calendar, DryShips Inc. (DRYS), Visa Inc. (V), and Boeing Co. (BA) stand out as potential opportunites.

Dow Jones Industrial Average (DJIA) component Boeing Co. (BA) will slip into the earning confessional ahead of the open tomorrow morning, with Wall Street looking for a profit of $1.01 per share. Unfortunately for BA, the figure is down sharply from the profit of $1.41 per share it posted in the same quarter last year. Historically, the company has been mediocre at best from a fundamental perspective, matching the consensus estimate in three of the past four reporting periods. BA also sports an average upside surprise of 13%.

Bullish sentiment is running high on the company heading into the event, with the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.00 arriving in the 28th percentile of its annual range. Furthermore, call buying is evident in data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), as calls purchased have nearly doubled puts bought to open during the prior two weeks. The resulting 10-day ISE/CBOE call/put volume ratio of 1.70 falls just 10 percentage points shy of an annual peak. This rising optimism ahead of BA's quarterly earnings report indicates that investors may have set the bar higher than Wall Street analysts.

After the close, DryShips Inc. (DRYS) will be expected to report a quarterly profit of 23 cents per share - two cents better than the same quarter last year. DRYS has also been a questionable performer from a fundamental perspective, beating Wall Street's estimate twice and missing the consensus estimate twice in the prior four reporting periods.

Checking in with investor sentiment, it seems that the bears are laying it on thick. DRYS' SOIR of 0.52 ranks in the 75th annual percentile, while 12.6% of the stock's float is currently sold short. Analysts are also betting against the equity, with Zacks reporting that six of the nine brokerage firms following DRYS rate the shares a "hold" or worse. If the company can post a solid quarterly performance after the close tomorrow, it could spark an unwinding of this penned-up negativity.

Finally, credit card specialist Visa Inc. (V) is seen logging a quarterly profit of 93 cents per share after the close of trading tomorrow. In the same period last year, the company reported earnings of only 67 cents per share. V has been steady in the earnings limelight, toppling the consensus estimate in each of the prior four reporting periods, with an average upside surprise of 5.8%.

Investors have mixed expectations ahead of V's quarterly report. For instance, the stock's SOIR of 0.79 ranks above 68% of those taken during the past year, while 29 of the 32 analysts following the shares rate them a "buy" or better. Furthermore, short sellers have abandoned ship, with the number of V shares sold short plummeting by 27% during the most recent reporting period. With V trading near the upper rail of its recent trading range, positive report could send the stock higher, but, with so many expecting a strong fundamental performance on Wall Street, will there be enough buying pressure to push the stock above resistance near $77-$78 per share?

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Stifel Upgrades Costco Wholesale to 'Buy,' Cuts Wal-Mart Stores Inc. to 'Hold'

Analysts at Stifel Nicolaus weighed in on retailing giants Costco Wholesale Corp. (COST) and Wal-Mart Stores Inc. (WMT) earlier today, with the world's largest retailer getting the short end of the stick. In fact, Stifel issues a rollback on its rating for the retailing behemoth, downgrading WMT to "hold" from "buy." According to the brokerage firm, changes in the company's top management to deal with sluggish sales is what prompted the downgrade.

"We simply expect WMT will be 'turning the battleship' for some time due to recent managerial changes and some attitudinal changes that may be driving them," analyst David Schick said in a note to clients.

Costco, however, was upgraded to "buy" from "hold" at the brokerage firm. Stifel cited the retailer's efforts to ramp up "footage growth" and the belief that the company is better equipped to deal with rising health care costs.

Both stocks have a wealth of "buy" designations from the brokerage bunch. WMT currently sports 21 "buy" or better ratings, five "holds, and no "sells," while COST has attracted just 13 "buys," versus 12 "holds" and no "sells." While both backdrops are bullishly skewed, COST stands a better chance of being upgraded should the stock continue to outperform.

At last check, COST was up roughly 2.3%, while WMT was flat.

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Hot Stocks: Lexmark International Inc, Ferro Crop. Unisys Corp.

The Dow Jones Industrial Average (DJIA) is bouncing around breakeven heading into the noon hour, as traders strive to reconcile stronger home prices with falling consumer confidence. In the meantime, trading activity on the New York Stock Exchange (NYSE) reveals that bullish investors are zeroing in on Lexmark International Inc. (LXK), Ferro Corp. (FOE), and Unisys Corp. (UIS).

Lexmark International Inc. (LXK) shares have soared more than 10% so far today, despite adverse market conditions. Investors in the printer specialist are reacting to the company's better-than-expected second-quarter earnings report. Lexmark reported a profit of $1.23 per share, excluding items, compared to expectations for earnings of 93 cents per share. The company also guided above the consensus estimate for the third-quarter.

Today's strong price action has LXK shares rebounding off their 200-day moving average, though round-number resistance lingers overhead in the $40 region. However, there is ample sideline money that could be brought to bear on the stock. For instance, short interest spiked by 14% during the most recent reporting period, resulting in some 15.3% of LXK's float sold short. Should the equity break out above the $04 level, these bears could be forced into buying back their losing positions.

Shares of Ferro Corp. (FOE) have vaulted more than 10% higher today, after the company hiked its 2010 sales outlook. The stock is now trading above potential support in the $10 region, though there is still the potential for resistance near $12 per share - home to the stock's late April peak.

Despite FOE's strong price action, short sellers continue to bet against the equity. Specifically, more than 5.5% of the stock's float is currently sold short. These bears are apparently worried about a continued rally from the shares, as the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) report that 15 calls were bought to open for every one put purchased during the prior two weeks. Short sellers often buy calls as a hedge against their short stock positions.

Finally, Unisys Corp. (UIS) rounds out the top three outperforming stocks on the NYSE, with the shares rallying roughly 9.4%. UIS reported this morning that its second-quarter earnings were $2.77 per share, or $1.37 per share on a continuing operations basis. Analysts were looking for earnings of 53 cents per share. The stock's rally has been limited by its declining 20-week moving average, which, combined with a complacent sentiment backdrop, could spell trouble for the share. Specifically, UIS' SOIR of 0.57 ranks near the midpoint of its annual range, while both analysts covering the stock rate it a "hold."

-posted by Joseph Hargett (jhargett@sir-inc.com)
7/27/2010 12:08 PM

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Is Mean Reversion in the DJIA's Future?

The Dow Jones Industrial Average (DJIA) logged its third consecutive 100-point daily rally on Monday, bringing the blue-chip barometer's three- day tally to a gain of roughly 4%. You wouldn't think that consecutive 100-point rallies were all that rare, but according to data from Senior Quantitative Analyst Alan "Rocky" White, there have only been seven such occurrences since 1997. In fact, according to Rocky, yesterday marked "the first time we've seen three straight positive 100 point Dow days since the first day of 2009." He added, "These occurrences have been rarer than I imagined."

Before we break out the champagne and celebrate the Dow's victory, we should take a closer look at the rest of the data from Rocky's study. As you can see from the tables below, these signals are pretty bearish for the Dow, with negative average and median returns for all of the time frames tested. For instance, the most recent signal in January 2009 preceded a 27% decline in the DJIA during the next 42 days. The study even led Todd Salamone, Schaeffer's Senior Vice President of Research, to quip that "The prior performance seems to reflect mean reversion."

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Option Skews - Relatively Heavy Put Activity on Sprint Nextel Corp., Textron Inc., Broadcom Corporation, JPMorgan & Chase Co.

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Contrarians may want to focus on situations where there is put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign.

Companies included in today's scan results: Sprint Nextel Corp (S), Citigroup Inc (C), Bank Of America Corp New (BAC), Ford Motor Company (F), Textron Inc (TXT), Broadcom Corporation (BRCM), Jpmorgan Chase & Co (JPM), Oracle Corporation (ORCL), Apple Inc (AAPL), Veeco Instruments Inc (VECO), Sap Ag (SAP), Nvidia Corp (NVDA), Massey Energy Co (MEE), Baidu Inc (BIDU), Microsoft Corp (MSFT), Mgm Resorts International (MGM), Raytheon Company New (RTN), General Electric Co (GE), Amazon.Com Inc (AMZN), Transocean Ltd New (RIG), Bunge Ltd (BG), C.H. Robinson Wrldwde Inc (CHRW), Suntrust Banks Inc (STI), Bp Plc (BP), Google Inc (GOOG).

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Option Skews - Relatively Heavy Call Activity - MGM Resorts International, Oracle Corporation, MBIA Incorporated, and Chesapeake Energy Corp.

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Contrarians may want to focus on situations where there is call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign.

Companies included in today's scan results: Bank Of America Corp New (BAC), Sprint Nextel Corp (S), Citigroup Inc (C), Genzyme Corp (GENZ), Microsoft Corp (MSFT), Ford Motor Company (F), Apple Inc (AAPL), Baidu Inc (BIDU), General Electric Co (GE), Mgm Resorts International (MGM), Intel Corp (INTC), Office Depot Inc (ODP), Bp Plc (BP), Wal Mart Stores Inc (WMT), Oracle Corporation (ORCL), Kellogg Co (K), Applied Materials Inc (AMAT), Synaptics Inc (SYNA), Hewlett Packard Co (HPQ), Delta Air Lines Inc. (New) (DAL), Wells Fargo & Co New (WFC), Nvidia Corp (NVDA), Mbia Incorporated (MBI), Chesapeake Energy Corp (CHK), Micron Tech Inc (MU).

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Stocks Advancing Amid Heavy Short Interest - Onyx Pharmaceuticals Inc., OceanFreight Inc., Ambac Financial Group Inc., Blockbuster Inc., Cal Maine Foods Inc.

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Methodology - the query scans a database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. This can be used as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: Trico Marine Svcs Inc (TRMA), Pacific Capital Bancorp (PCBC), Onyx Pharmaceuticals Inc (ONXX), Momenta Pharmaceuticals Inc (MNTA), China Sec & Surv Tech Inc (De) (CSR), Oceanfreight Inc New (OCNF), Ambac Financial Group Inc (ABK), Star Scientific Inc (CIGX), Blockbuster Inc (BBI), Georgia Gulf Corp (GGC), Parkervision Inc (PRKR), A123 Systems Inc (AONE), Orexigen Therapeutics (OREX), First Bancorp Hldg Co P R (FBP), Denison Mines Corp (DNN), Cal Maine Foods Inc (CALM), Bon Ton Stores Inc (BONT), Sterling Financial Corp (STSA), Istar Financial Inc (SFI), Healthways Inc (HWAY), Dragonwave Inc (DRWI), Delcath Systems Inc (DCTH), Yrc Worldwide Inc (YRCW), Pure Bioscience (PURE), Stereotaxis Inc (STXS).

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DJIA Extends Pre-Market Gains After Home-Price Data

Good morning! The Dow Jones Industrial Average (DJIA) is headed toward a 39-point gain on the open this morning, as a slew of corporate earnings reports are receiving a warm welcome on Wall Street. The Dow is on course for its fourth consecutive win today, though it could also be the blue-chip barometer's fourth 100-point gain in a row, if the bulls have their way. Elsewhere, the S&P 500 Index (SPX) closed above its 200-day moving average yesterday, and is on pace to place a bit of a cushion between it and this long-term trendline today, with futures pointing toward an opening gain of nearly 6 points.

In economic news, the Case-Shiller home price index rose a seasonally unadjusted 1.3% in May. Prices rose in 19 of the 20 metropolitan areas tracked by Case-Shiller in May compared with April. Furthermore, prices have risen 4.6% in the past year. David Blitzer, chairman of the index committee at Standard & Poor's, said the report is a bit misleading. "A broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery," Blitzer said.

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Stocks at New Highs: Salesforce.com, VMware, and NetApp Inc.

With the major market indexes sitting on modest gains as we roll toward the closing bell, new highs are easily outpacing new lows on both the New York Stock Exchange (NYSE) and the Nasdaq Stock Exchange. The Big Board is reporting 206 new annual highs and just 13 new lows, while the Nasdaq reports 101 highs versus 22 lows. However, not everyone is buying the bullish case for these outperforming equities. Here's a quick look at three of today's winners -- Salesforce.com, Inc. (CRM), VMware, Inc. (VMW), and NetApp Inc. (NTAP) -- all of which could stand to benefit from an unwinding of negative sentiment.

• CRM topped out earlier at $101.49, marking its best price on record. The stock attempted to close last week above the century level but was stopped short, settling for a weekly finish at $99.77. A short-covering rally could help CRM cement its status as a triple-digit stock; currently, more than 8% of the equity's float has been sold short.
• VMW has backpedaled fractionally lower after tagging the latest in a string of new 52-week highs. The tech stock peaked at $79 earlier, marking its best price since January 2008. Traders seem unsure that VMW can extend its year-to-date rally of 85.3% -- during the past 10 days, options players on the International Securities Exchange (ISE) have bought to open 1.57 puts for every call on the equity. This ratio ranks in the 77th annual percentile, confirming that bearish bets have been more popular than usual lately.
• NTAP kicked off the day by climbing to a fresh annual high of $44.18. The shares are now trading at their highest level since February 2001, outpacing short-term support from their 10-day, 20-day, and 50-day moving averages. Like CRM and VMW, NTAP is the subject of much skepticism on Wall Street. For example, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.85 rests in the 92nd annual percentile, just eight percentage points from an annual bearish peak.

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Bears Unimpressed as Great Atlantic & Pacific Tea Attempts to Bounce Back

The Great Atlantic & Pacific Tea Company (GAP) took a post-earnings beating on Friday, and traders reacted by loading up on bearish bets. One speculator opted to build a synthetic short stock position on the struggling grocer, utilizing a pair of long-term options to construct the skeptical spread.

Specifically, the speculator bought to open several large blocks of January 2011 2.50-strike puts, and simultaneously sold to open an equivalent number of January 2011 2.50-strike calls. This spread effectively mimics the risk/reward setup of a traditional short sale. If GAP declines below $2.50, the trader can reap a profit -- but if the stock should rally beyond $2.50, losses can add up fast.

Traders are continuing to bet bearishly on GAP today, even though the shares are up about 3% this afternoon. The stock's critics are buying new puts at the out-of-the-money January 2011 1 strike, pointing to expectations for continued losses during the intermediate term.

This pessimistic skew is nothing new for GAP, which has racked up a 10-day International Securities Exchange (ISE) put/call volume ratio of 5.06. This ratio ranks higher than 82% of other such readings taken during the past year, indicating that traders have purchased puts over calls at a faster pace than usual in recent weeks.

Following Friday's earnings disappointment, GAP gapped below support at the $3.50 level, which could now switch roles to act as resistance. However, the shares have already found a floor at $2.50. These two price points could outline a short-term trading range for the security.

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