On Hold, For Now
01/12/2007 12:00 am EST
Schaeffer technical expert Beth Gaston Moon reviews recent activity on the charts of two companies often on the favorite lists of investors. Here, she sees opposing forces restraining short-term appreciation for both companies' shares...
"Prominent British oil company BP PLC (BP NYSE) recently reported that it foresees flat production during the fourth quarter of 2006 compared with the third quarter. For the period, the company expects average production of 3.820 million barrels of oil per day, down from 4.022 million barrels in the same period the previous year. As such, the company's production target for 2006 is likely to be missed.
"This news has combined with a dramatic pullback in oil prices to send the stock to a new annual low. While recent moves have dropped the stock beneath chart support at the 64 level, it may find salvation at the hands of its 160-week moving average. This trendline is perched just above the 62 level and has not been violated on a weekly closing basis since December 2003.
"If the stock manages to hold at its 160-week, it won't have too far to rally before it encounters a bulwark of options-related resistance overhead. Lines of out-of-the-money calls begin at the 65 strike and continue to the 80 strike in the January series; among these four strikes, there are more than 30,000 open positions. This degree of optimism bodes poorly from our contrarian perspective.
"Williams-Sonoma (WSM NYSE) reported that holiday-season revenue rose 3.6% in the eight-week shopping period, matching analysts' estimates. Same-store sales rose 1.1% during the period. Citing efforts to revitalize its Pottery Barn brand, company officials said fiscal year earnings per share are expected to reach $1.70 to $1.87, below analysts' per-share expectations of $1.96.
"On the heels of this news, WSM shares have gained nearly 4%, suggesting a low-expectation environment ahead of the company's announcement. Sure enough, the stock boasts a hefty short-interest reading; after rising nearly 38% last month, the number of shorted shares accounts for almost 11% of WSM's float. Additionally, Schaeffer's put/call open interest ratio (SOIR) for WSM stands at 2.11, one percentage point away from a new annual high.
"Technically speaking, shares of the specialty retailer are wedged between their 10-month and 80-month moving averages. The latter trendline is rising to support the shares, while the 10-month is barreling down from above, providing notable resistance since last April. Additionally, the 10-month coincides with the 34 level, an area of recent congestion for the shares."