Buying a Bottom or Selling a Lower Low on H.J. Heinz Co.?

02/20/2009 10:40 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Despite commodity costs and slower growth, H.J. Heinz Co. (HNZ) affirmed its 2009 earnings outlook recently. The diversified foods company estimates 2009 earnings of $2.87 to $2.91 per share on organic sales growth of 6%. Analysts are currently forecasting a profit of $2.89 per share.

From a sentiment perspective, optimism is on the rise toward the security. The Schaeffer's put/call open interest ratio for HNZ sits at 0.80, which is lower than 97% of all those taken during the past 52 weeks. In other words, short-term options speculators have been more optimistically aligned toward the stock just 3% of the time during the past year.

What's more, short sellers have shed their bearish bets toward the stock. The number of HNZ shares sold short dropped by 23% during the past month to 4.35 million. This accumulation of bearish bets accounts for only 1.4% of the company's total float, offering little sideline money for the stock to push it higher.

Technically speaking, the shares have dropped more than 1% Wednesday afternoon, and tagged a fresh annual low of $32.23. In fact, the stock is now trading at its lowest level since August 2003. HNZ has been in a steep downtrend under its ten- and 20-week moving averages since reaching a peak in September 2008. HNZ could still suffer additional downside pressure as traders unload their long positions in the face of the stock's continued underperformance.

By Nick Perry of Schaeffer’s Trading Floor Blog

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