The Bears May Provide Opportunities

10/27/2006 12:00 am EST

Focus:

Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Technical expert Jocelynn Drake always enlightens investors with her detailed musings on current happenings in the investment markets. Primed for quick moves in reaction to daily news, she directs subscribers to unique opportunities for profit.

"Amazon.com(AMZN NASDAQ) popped higher on positive earnings from fellow Internet company Netflix and in anticipation of the firm's coming earnings report. Analysts are forecasting a profit of $0.03 per share on sales of $2.25 billion. The equity is currently attempting to completely fill in the bearish gap created on July 26. The stock surged higher, but has since pulled back and is struggling to conquer resistance in the 33.50 region, an area of former support, and home to its 40-week moving average.

"AMZN has not finished a week above this trendline since late January. Sentiment continues to show signs of pessimism. In August and September, short interest swelled by 19% to 43.6 million shares, or 14% of float. With AMZN trading back around levels last seen in July, there's a good chance the bears are beginning to feel some pressure. Furthermore, a positive earnings report could send many of these pessimists running for the hills.

"Coach (COH NYSE) reported earnings of $125.6 million, or $0.34 per share, on sales of $553.9 million, helped by rapid growth in the U.S. high-end handbag market. Analysts had predicted a profit of $0.31 per share on sales of $542 million. The security gapped higher on the news, springing higher off support at its 20-day moving average and taking out former resistance in the 37 region. The rally has carried the shares to a new all-time high. Ahead of the earnings report, options players loaded up on the bearish bets, as the stock's Schaeffer's put/call open interest ratio increased to an annual high of 1.26. Open interest at the security's November 35 put jumped from 1,048 contracts to more than 4,200 contracts overnight, leaving the shares primed for a nice pop on the positive news.

"Texas Instruments' (TXN NYSE) third-quarter earnings were $702 million, or $0.46 per share, and sales rose 13% to $3.76 million, higher than the analysts' forecasts of $3.8 billion. The equity has pulled back on the negative news and is currently testing support at its 80-day and 80-week moving averages, which currently reside in the 31 region. Heading into the earnings report, options players were betting on a sharp drop in the shares, as open interest at the equity's November 30 put jumped by more than 27,400 contracts to total 46,215 contracts. These bearish bets could provide TXN with a layer of options-related support should it continue to pull back."

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