From the Technical Side

08/18/2006 12:00 am EST

Focus:

Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Options authority Bernie Schaeffer reviews the trading activity and pricing levels of three large companies, from a technical point of view. He finds two with potential upside, and one that is ready for a sale…

 

Chicago Mercantile Exchange (CME NYSE) has been an outstanding performer, easily outpacing the S&P 500 Index (SPX) monthly since January 2003. The stock is enjoying the support of its ten-month moving average, a trendline it has never closed beneath. Despite solid performance, the speculative options crowd remains bearish. CME’s Schaeffer’s put/call open interest ratio (SOIR) of 1.12 indicates that puts outnumber calls among the front three months of options, but it is also higher than 95% of the past year’s readings. According to Zacks, five of the nine analysts covering CME rate it a “hold”, leaving room for potential upgrades to lift the stock. Overall, CME’s Schaeffer’s Equity Scorecard of 7.0 (out of a possible 10) indicates that the shares could see additional upside as the bears leave the sidelines and jump on the equity. Buy the March 600 call (CNMCX).

 

General Motors (GM NYSE) has turned its performance around, gaining 69% and outpacing both the SPX and Toyota on a daily basis since April. The stock recently broke through resistance at the 30 level, and is moving higher with the help of its ten-day and 20-day trendlines. It’s poised to close its second consecutive month above both its ten-month and 20-month moving averages, a feat not accomplished since April 2004. Meanwhile, speculators remain skeptical. The stock’s SOIR rests at 1.93, as put open interest nearly doubles call open interest among near-term options. And according to Zacks, nine of the 12 analysts covering GM rate it a “hold” or worse. Should they have a change of heart and issue upgrades, it could enjoy further upside momentum. Buy the March 25 call (GMCE).

 

Google (GOOG NASDAQ) has recently been capped by resistance at its 20-week trendline. Also, it has breached the support of its ten-month moving average. While the stock has slumped of late, the Street remains bullish. Last month’s slight decrease in short interest leaves less than 3% of the equity’s float sold short. Moreover, it would take just one day to buy back these shorted shares at GOOG’s average daily trading volume, leaving little in the way of potential short-covering support to help buoy the stock. Zacks reports that GOOG earns 15 “strong buy” ratings, six “buys,” and one “hold.” Any downgrades could spell trouble. GOOG earns a 2.0 out of a possible 10 on our Schaeffer’s Equity Scorecard. This low rating indicates that the stock should find less resistance to a downside move. Buy the March 300 put.”

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