Schaeffer's Daily Market Blog

Watch out, Apple (AAPL: sentiment, chart, options); your Apple TV could be just a few corporate deals away from being obsolete. You may have heard of Netflix's (NFLX: sentiment, chart, options) entry into the set-top player market by allowing the Roku Digital Video Player access to its online rental service. For the record, Roku is a California-based company that produces a $99 set-top box designed to stream video content from the web. Upping the ante for Apple, Roku just signed a deal with Amazon.com (AMZN: sentiment, chart, options) to stream content from its video-on-demand service, which includes a slew of TV shows and movies.

For their part, AMZN and NFLX look extremely attractive from a contrarian perspective at the moment. NFLX has rallied sharply from its November lows along the support of its 10-day and 20-day moving averages, while short interest accounts for more than 34% of its float and 7 of the 10 analysts following the shares rate them a "hold" or worse. Meanwhile, 11% of AMZN's float is sold short and 14 of the 17 brokerage firms covering the stock rate it a "hold" or worse, despite the stock's strong rebound from its November lows.

That said, AMZN investors will want to keep a close eye on resistance at the stock's 20-week moving average, while NFLX is once again challenging former resistance in the 32 region. Should either of these technical hurdles fall, we could see AMZN and NFLX extend their recent rallies.

In the meantime, Apple investors will want to keep a very close eye on privately held Roku. The company's Roku Digital Video Player already rivals Apple TV with its on-demand selection from Netflix and Amazon.com. All the company needs now is access to Internet sites like YouTube, Hulu.com, and the network sites (ABC, CBS, NBC, Fox), and Apple's pet project could be headed for the dust bin. Without a backend store like iTunes to worry about, Roku has considerably more freedom to move in this direction.

Shares of leading electronics retailer Best Buy (BBY: sentiment, chart, options) have surged more than 4% so far today, following positive analyst comments from Goldman Sachs. The brokerage firm lifted its rating on the shares to "buy" from "neutral," and boosted its price target to $34 per share from $31 per share. In a note to clients, Goldman Sachs stated that it sees potential for expansion for Best Buy, as the company will benefit from the closure of many competing Circuit City stores.

This argument has been made before, but investors appear to finally be listening. The stock has surged more than 84% higher since hitting a multi-year low in late November 2008. On today's news, BBY has even bested former round-number resistance at the 30 level and topped its declining 20-week moving average. The shares have not closed a week above 30 level since early October 2008, and have not finished a week above their 20-week trendline since mid-September 2008.

From a sentiment perspective, BBY could have plenty of fuel left in the tank. Only 7 of the 16 analysts following the shares rate them a "buy" or better, according to Zacks, while Thomson Financial reports that the average 12-month price target for the stock rests at $30.50 per share.

Should analysts join Goldman Sachs in upgrading the stock and/or lifting their price targets, we could see additional buying pressure manifest on BBY. As my colleague Jocelynn Drake put it in a recent Best Buy commentary, "Overall, traders should keep a close watch on the 30 level. Should the stock succeed in breaching resistance in this region, it could spur the bears into jumping on the equity's bandwagon, creating a fresh wave of buying pressure."

Bank of America Corporation (BAC: sentiment, chart, options) has plunged 64% during the past 52 weeks. Despite its lackluster performance, the stock was awarded an upgrade today. Fox-Pitt lifted the shares from "in line" to "outperform," but slashed its price target from $29 to $23. Also, Deutsche Bank cut the equity's price target from $26 to $17 and said that it expects a 2009 loss of $1.00 per share.

BAC has bounced between negative and positive territory for most of the day. It has found support in the 12-14 area recently. This region has contained the equity since the end of November. Trouble could be due for the stock, as its descending 10-week moving average is looming overhead. This trendline could pressure the shares lower in the near term.

In contrast to the security's technical performance, short-term option players are optimistically aligned. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.64 indicates that calls outnumber puts among options slated to expire within 3 months. Furthermore, this ratio ranks lower than 95% of all similar readings taken during the past year, meaning that near-term option players have been more bullishly aligned just 5% of the time.

Additionally, while brokerage firms are slightly bearish, there is still plenty of room for more downgrades. According to Zacks, 7 analysts rate the shares "buy" or better, while 7 recommend "hold" and only 3 suggest "strong sell." If the stock is unable to make progress on the charts, it may come under additional fire from the bullish brokerage firms or the 7 which currently rate the shares "hold," thereby pressuring BAC lower.

The shares of Cincinnati-based Fifth Third Bancorp (FITB: sentiment, chart, options) have ticked lower in afternoon trading, sinking into the red on the heels of a price-target cut. More specifically, Fox-Pitt slashed its price target on the banking behemoth to $9 from $10, and also reduced its estimates on fellow financial concerns JPMorgan Chase & Co. (JPM) and Keycorp (KEY).

The recent wave of skepticism is nothing new for FITB, however. The security currently harbors 9 "hold" or worse ratings, Zacks reports, compared to only 5 "buy" or better ratings. Furthermore, the stock's SOIR currently rests at 2.05, as puts more than double calls among near-term options. This configuration ranks in the 78th annual percentile, suggesting that short-term options speculators have been more skeptical of FITB only 22% of the time during the past year.

Technically speaking, despite the shares outperforming the S&P 500 Index (SPX) by more than 2% during the past 20 trading sessions, the stock remains pressured beneath resistance at its 10-week moving average. At last check, the shares of FITB were flirting with the 8.40 level, a loss of roughly 18 cents from Friday's close.

Despite plunging nearly 53% during the past year, Barnes & Noble, Inc. (BKS: sentiment, chart, options) is up more than 10% today, after Goldman Sachs analyst Matthew J. Fassler said in a note to investors that "ongoing challenges" at Borders Group, Inc. (BGP: sentiment, chart, options), BKS's main rival, could benefit Barnes & Noble. (BGP said today that sales during the 9-week holiday period fell nearly 12%.) Additionally, the analyst upgraded the shares of BKS from "sell" to "neutral."

BKS has trailed the S&P 500 Index (SPX) by nearly 44% during the past 60 trading days, yet short-term option players are optimistic. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.75 indicates that calls outnumber puts among near-term options. Furthermore, this ratio ranks lower than 69% of all similar readings in the past 52 weeks, which means that short-term option players have been more bullishly aligned less than one-third of the time during the past year.

On the other side, short sellers have clearly jumped on this downward slip. These bears have sold short more than 8.56 million shares, accounting for an impressive 23.25% of the company's float.

Furthermore, most of the brokerage firms are sitting in the bears' camp. According to Zacks, 1 brokerage firm recommends "strong buy," while the other 5 suggest "hold" or worse.

JPMorgan Chase & Co. (JPM: sentiment, chart, options) is weighing heavy on the Dow Jones Industrial Average today, with the bank down 4% following a bearish note from Deutsche Bank. The brokerage firm slashed its price target on JPM from $37 to $34, and lowered its fiscal-year earnings per share estimates for 2009 and 2010. Deutsche Bank now expects the Dow component to earn $2.05 rather than $2.70 per share in 2009, and 2010 earnings are now projected at $2.20 per share, down from $2.55.

The adjusted estimates were part of a broader pessimistic note on the U.S. banking sector. Deutsche Bank expects loan losses for the group to rise by 3% by the end of 2010, and warned that such losses may even surpass the 3.4% levels seen during the Great Depression in 1934.

"Moreover, additional securities losses or tougher requirements from regulators and ratings agencies may constrain existing capital, potentially forcing a bank to limit balance sheet growth and/or pay dividends," noted Deutsche Bank.

Today's drop has JPM trading narrowly above round-number support at the 30 strike. Despite unprecedented fundamental and technical headwinds, the equity has closed just 2 weeks below this region since 2003.

Before I spent my days analyzing the stock market, I spent the better part of a year serving up steaks and ribs at a Cincinnati-area Texas Roadhouse, Inc. (TXRH: sentiment, chart, options). I like to think that whenever the stock has some bearish brokerage note, it has something to do with my lack of presence at the restaurant, but it more than likely has nothing to do with me.

Credit Suisse downgraded the shares of the steakhouse from "outperform" to "neutral" this morning. On the news, the stock has slipped 1.25%. Since hitting its peak of $19.13 in August 2005, the equity has plunged 58%.

While the security found a lift recently, adding 95% since its low of $4.09 at the end of November, it is struggling near the 8 level. This area has stifled the shares since mid-December, and is also home to the equity's descending 10-month moving average.

Despite today's bearish brokerage note, most analysts are bullishly aligned. Zacks reports 7 brokerage firms have given the shares a "buy" or better rating, while 5 are recommending "hold" and not a single firm suggests "sell." If the stock is unable to overcome technical obstacles, the stock could face additional downgrades.

However, it seems that short-term option players are already united in the pessimistic camp. The stock's Schaeffer's put/call open interest ratio (SOIR) is docked at 1.39, indicating that puts outnumber calls among options slated to expire within 3 months. This ratio ranks higher than 97% of all similar readings taken during the past year, meaning that short-term option players have been more bearishly aligned just 3% of the time during the past 12 months.

Followers of Texas Roadhouse should keep an eye on the stock's progress at the 8 level. Another rejection at this region could prompt brokerage firms to downgrade the shares further, pushing the shares lower.

A report Sunday in The Wall Street Journal states that General Growth Properties, Inc. (GGP: sentiment, chart, options), the beleaguered mall operator, has ditched its bankruptcy counsel. Rather than Sidley Austin LLP, the real estate concern is now working with Weil, Gotshal & Manges. The Journal's source requested not to be identified, and another (or potentially the same) source informed Reuters that GGP may also hire Kirkland & Ellis to serve as bankruptcy counsel for some of its subsidiaries.

GGP has yet to actually file bankruptcy, but this last-ditch option remains a possibility as the firm attempts to juggle about $22 billion in debt. Unless the mall operator can divest some of its assets, or arrange deadline extensions with debtors, Chapter 11 could be imminent. Six malls are already up for sale in Las Vegas, New York, Boston, and Baltimore.

Weil, Gotshal & Manges has previously advised on the bankruptcies of Lehman Brothers and Marvel Entertainment (MVL), and was recently hired to provide counsel for cash-strapped automaker General Motors (GM).

Investors are reacting enthusiastically today, with GGP up nearly 5% at $1.50 this afternoon.

Yamana Gold Inc. (AUY: sentiment, chart, options) is down more than 3% this afternoon after a modestly skeptical note from analysts at TD. The brokerage firm cut AUY from "action buy" to "buy." Although the new rating is technically still a bullish recommendation, investors are reacting with dismay.

Today's sharp drop could be the result of Wall Street's overwhelmingly optimistic stance on AUY. The stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.23, with calls more than quadrupling puts among options set to expire within 3 months. Plus, the International Securities Exchange (ISE) reports that traders purchased nearly 6 times more calls than puts during the last 2 weeks of 2008. With optimism running so high, it doesn't take much of a downside catalyst for a sell-off to ensue.

In fact, the shares are facing more challenges than simply a reversal of optimism. AUY recently tested the 8-8.50 region, which previously served as support in 2006 and 2007. This region could now switch roles to act as resistance. The equity's failure to overcome this technical obstacle could potentially spark a further unwinding of bullish bets among option players, thereby exacerbating AUY's slide.

Citigroup hit the shares of Southern Copper (PCU: sentiment, chart, options) with a downgrade this morning, moving the security from "buy" to "hold." The mining company isn't a particular favorite on Wall Street, as the stock has earned 2 "strong buy" ratings, 2 "sells," and 4 "strong sells," according to Zacks. This configuration leaves little room for additional downgrades to plague the security.

Furthermore, the average 12-month price target for PCU stands at $15.53, according to Thomson Financial. This estimate implies that analysts are expecting the shares to decline more than 15% during the next 12 months.

However, the stock is off to a strong start in 2009. The equity has gained more than 13% since the start of 2008 and has broken through short-term resistance at the 17 level. This region had capped the shares since Oct. 2. What's more, last week marked the stock's first weekly close above both its 10-week and 20-week moving averages since mid-May. If the stock can maintain is current upward momentum, it could win over some of the bears, creating fresh buying pressure for the shares.

The shares of AT&T (T: sentiment, chart, options) could be hit with some selling this morning after Bernstein Research reported that it expects slower wireless growth and a "relatively worse" wireline telecom performance in 2009, while cutting its ratings on telecommunication giants T and Verizon Communications Inc (VZ). The brokerage cut Verizon to "underperform" from "market perform" and AT&T to "market perform" from "outperform."

"We believe the TelCo stocks have come too far, too fast. With strong Q4 outperformance, the sector has traded as a strong defensive/staple. But the sector is more appropriately viewed as a late-stage cyclical, in our view," analyst Craig Moffett wrote in a note to clients.

"AT&T and Verizon may indeed be somewhat more recession-resistant than most business. But we believe they are nevertheless much more cyclically exposed than consensus estimates (and valuations) would suggest," said Moffett, who cut his price target on AT&T to $27 from $35 and on Verizon to $27 from $32.

The shares of T have been grinding higher from their near-term low of $20.90 set in mid-October. The stock has created a series of higher lows, gaining more than 40% along the way. However, the security is facing staunch resistance at the 30 level. This round-number level has capped the shares since the start of October.

Traders are already skeptical of the shares of T. The Schaeffer's put/call open interest ratio for T stands at 0.96, which is higher than 86% of all those taken during the past year. This indicates that short-term options speculators have been more bearishly aligned toward the stock just 14% of the time during the past year.

However, there is still ample room for downgrades. T has earned 12 "buy" ratings and 6 "holds," according to Zacks. Any additional downgrades could spell trouble for the shares.

Before the open this morning, Walgreens (WAG: sentiment, chart, options) announced that its December same-store sales increased 4.9%. Comparable-store front-end sales increased 0.4%, while comparable pharmacy sales rose 8.5% in the month. Total sales jumped 10.8% to $6.11 billion.

Technically speaking, the shares of WAG have skipped sharply higher during the past few sessions, gaining more than 8.9% as they rally from their near-term low of $23.43 on Dec. 29. The stock has overcome resistance at both its 10-day and 20-day moving averages, but is facing staunch resistance at the 27 level. The security has not finished a session above this level since Oct. 6. In addition, the stock's 20-week moving average is declining into the region and could act as a second layer of resistance for the shares.

Meanwhile, options players are extremely optimistic when it comes to the retailer. The Schaeffer's put/call open interest ratio for WAG stands at 0.47, as call open interest more than doubles put open interest among near-term options. This reading is lower than 96% of all those taken during the past 52 weeks. In other words, options players have been more optimistically aligned toward the shares just 4% of the time during the past year.