Shop Around the Clock

12/29/2006 12:00 am EST

Focus:

Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

If you haven't tired of shopping yet, tech expert Jocelynn Drake gives you two opportunities: Spending your money in those after-Christmas sales or investing it in two stalwart retailers whose shares may just be ripe for the pickin'...

"MarketWatch reported that the shopping season has been considered lackluster by economists, with many retailers offering deep discounts and special hours to revitalize lagging sales.

"The S&P Retail Index (RLX) has recently pulled back and is clinging to support at the 495 level, which provided both support and resistance during the past few months. While the index has breached support at its 50-day moving average, it has potential support in the form of its ascending 80-day trendline (at 490) climbing into the region, which could help to buoy it.

"The Retail HOLDRS Trust (RTH AMEX) is in the process of bouncing off support at its 80-day moving average. This short-term trendline halted pullbacks in the exchange-traded fund (ETF) in late November/early December.

"Investors may want to keep their eye on Dillard's (DDS NYSE). The security is currently consolidating into support at its 10-week and 20-week moving averages. Since November 2005, it has suffered only a handful of weekly closes below both trendlines.

"Despite its long-term uptrend, we continue to see signs of pessimism in the stock's sentiment backdrop. The Schaeffer's put/call open interest ratio for DDS sits at 6.01, as put open interest is more than six times the stock's call open interest among near-term options. This reading is also higher than all but 4% of those taken during the past 52 weeks.

"Short interest increased by 13% in December to 8.4 million shares, 13.7% of the security's total float. Should the stock successfully bounce off support at its 10-week and 20-week moving averages, it could send many bears scrambling for the exits, creating a fresh wave of buying power.

"J.C. Penney (JCP NYSE) has entered a similar consolidating phase and is currently perched on support at its 10-week moving average. The equity has been guided higher by its 10-week and 20-week moving averages since October 2005.

"Options players are also skeptical. The stock's Schaeffer's put/call open interest ratio sits at 1.57 in the 92nd percentile. The equity's out-of-the-money January 2007 75 put carries an implied volatility reading of 28% compared to its out-of-the-money January 2007 85 call and its implied volatility reading of 23%. This negative skew indicates that there has been higher demand for puts than calls for JCP.

"JCP is slated to release its December sales results on January 4. A better-than-expected report could result in a sharp rally for the shares as the bears jump on the stock's bandwagon."

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