Schaeffer's Technical Update

09/08/2006 12:00 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

From a technical standpoint, it’s hard to beat the thorough analysis from Bernie Schaeffer’s team. Here, Jocelynn Drake reviews the recent trading patterns of three investor favorites, offering keen insight into the near-term potential of their shares…


“Advanced Micro Devices (AMD NYSE) was upgraded to "outperform" by Thomas Weisel, then downgraded by Susquehana to "negative." The equity has been guided higher by its ten-day moving average since late July, but is facing overhead resistance from its declining ten-week trendline, which AMD has not closed a week above since early April. Furthermore, it will be interesting to see if the shares remain pegged close to the 25 strike, which is the site of heavy option open interest. In the September series, the strike is home to nearly 21,300 calls. On the put side, more than 16,500 contracts have accumulated at the September 25 strike, with another 10,400 contracts changing hands recently. The combination of heavy open interest at the 25 strike and intermediate-term resistance could result in a rejection of the shares.


“Negative comments from Citigroup have failed to quell the buying pressure that has lifted Alcoa (AA NYSE). Citigroup downgraded AA to "hold" from "buy," saying it believes demand for aluminum has peaked and commodity surpluses are likely to emerge in 2007-2008. Contrary to widespread media speculation, it believes AA is an unlikely acquisition target. Despite these comments, the shares have tacked on more than 0.6 percent recently, climbing above their ten-day and 20-day moving averages, which has acted as resistance since July. Sentiment is extremely bearish, with the stock's Schaeffer's put/call open interest ratio (SOIR) resting at an annual high of 0.89. This combination of pessimism and strength in the face of negative news has bullish implications from a contrarian perspective. However, the equity could face some options-related resistance at the 30 strike. The September 30 call is home to nearly 23,000 contracts while open interest at the October 30 call has swelled to 12,200. Furthermore, the October option has had another 17,000 contracts trade recently.


Walgreen’s (WAG NYSE) August same-store sales increased 10.6%, besting the consensus estimate for a gain of 9.2%. Total sales for the month rose 17.2% to $4.18 billion. The shares have edged a nickel higher recently, but are hitting staunch resistance at the 50 level. This region capped the equity's rally attempt on August 17 and seems determined to turn the security away again. However, the stock has support in the form of its ten-week moving average climbing into the area, which could help finally push it through this resistance level. WAG has not finished a week below this trendline since the beginning of June.”

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