Technical Takes on Two Techs

11/10/2006 12:00 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Schaeffer's Research performs some of the most comprehensive research and analysis on the Street today. And a nice complement to their research is their explanation of the thinking behind their recommendations, such as Jocelynn Drake's view of these two equities.

"Everyone seems to be closely watching the shares of Cisco Systems (CSCO NASDAQ GS). The networking giant is slated to step into the earnings confession this week.

Speculators have shown a definite preference for calls over puts. The November 25 call, which has open interest of 79,700 contracts, has had roughly 17,700 contracts cross the tape. Meanwhile, the November 25 put, which has open interest of 25,100 contracts, has had approximately 3,700 contracts change hands. On the November 25 call, volume has been steady throughout the day in small blocks. The largest block to cross the tape was 5,000 contracts at 9:48 a.m. Eastern time (11/7/06), which traded at an ask price of 0.75. Another block of 1,000 contracts traded at 9:51 a.m. and appears to be sold for 0.70 per contract. With traders flocking toward the security's calls ahead of tonight's report, I'd say

that expectations are definitely running high.

"Technically speaking, the shares of Cisco have been capped by the 25 level today. It seems as if no one is willing to push CSCO above this key strike until all its dirty laundry has been aired. Schaeffer team member Joe Hargett also pointed out to me today that a straddle on this stock could be interesting considering the shares are sitting right at 25. Both the November 25 call and put are trading for 0.80 each, bringing the cost of a straddle $1.60. To break even on the position, the shares of Cisco would need to move roughly 6.4% in one direction.

"Last night, RealNetworks (RNWK NASDAQ GS) reported earnings of $42.2 million or 24 cents per share. Sales rose 14 percent $93.7 million. The consensus estimate on the Street for RealNetworks stood at 22 cents per share on sales of $92.7 million. The shares gapped above former long-term resistance at the 11 level. Furthermore, the equity has rallied along the steadfast support of its 10-week and 20-week moving averages since August 2005. Heading into the report, investors were extremely pessimistic. The stock's SOIR rests at 1.13 in the 84th percentile. What's more, roughly 23.5% of the security's float is sold short, resulting in a short-interest ratio of 6.9 days to cover. Today's gap higher has likely forced many of these bears into covering their pessimistic positions, pushing the company's shares higher."

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