Shin Kong Wedbush – Three Top Stocks Abercrombie & Fitch, Human Genome Sciences, And Motorola
Abercrombie & Fitch (ANF)
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Abercrombie & Fitch Co. (ANF: sentiment, chart, options) announced before the open this morning that its fiscal fourth-quarter earnings fell 31%, as the teen clothing retailer’s sales and margins continued to fall, but at a slower rate. For the quarter, ANF posted a profit of $47.5 million, or 53 cents a share, down from $68.4 million, or 78 cents a share, a year earlier. Excluding losses from discontinued operations and write-downs, earnings fell to 91 cents per share. Analysts had predicted per-share earnings of 87 cents. The company said revenue decreased 4.6% to $936 million. Gross margin fell to 63.5%, from 64.6%, because of lower average unit prices, while inventories declined 17%.
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Heading into the earnings report, options players had their doubts about the trendy clothing retailer, as traders showed a preference for puts. The International Securities Exchange (ISE) reported 1.1 puts purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 54% of all those taken during the past year. Furthermore, the ISE/Chicago Board Options Exchange (CBOE) 10-day put/call volume ratio comes in at 1.83, which is higher than 74% of all those taken during the past year.
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What’s more, the Schaeffer’s put/call open interest ratio (SOIR) comes in at 2.45, as put open interest more than doubles call open interest among options slated to expire in less than three months. This ratio is also higher than 88% of all those taken during the past year, indicating that short-term options players have been more pessimistically aligned toward the shares only 12% of the time during the past 12 months.
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Short interest is also on the rise, as traders bet against a rally in the shares. During the past month, the number of ANF shares sold short increased by 4% to 10 million. This accumulation of bearish bets accounts for more than 11% of the company’s total float, indicating that there is ample sideline money available to push the security higher.
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Technically speaking, the security has dropped nearly 3% since the beginning of the year. However, it appears that the stock recently found round-number support at the 30 level, and has climbed back above support at its ascending 10-day moving average. The stock is now struggling with resistance at its 10-week trend line.
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Human Genome Sciences (HGSI)
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Options trading was brisk on Human Genome Sciences (HGSI: sentiment, chart, options) on Friday, as more than 45,000 contracts changed hands. This surge in volume was more than triple the equity’s average daily trading volume of 14,636 contracts, according to data from WhatsTrading.com. Furthermore, traders showed a slight bullish preference, as 56% of the volume crossed the tape on the call side.
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Friday’s bullish bias runs counter to the recent trend seen on the ISE. The ISE 10-day put/call volume ratio rests at 0.72, which is higher than 86% of all the readings taken during the past year. Furthermore, the ISE/CBOE 10-put/call volume ratio stands at 0.78, which is also higher than 84% of all those taken during the past 12 months. These ratios indicate that pessimism is on the rise toward the security.
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Short sellers also have their doubts about HGSI. While the number of shares sold short dropped by 10% during the past month, more than 15 million remain shorted. This buildup of bearish bets accounts for more than 11% of the company’s total float. An unwinding of these pessimistic positions could fuel a rally in the shares.Meanwhile, Wall Street is the only group with high hopes for the biotech firm. According to Zacks, the stock has earned 11 “buy” ratings and two “holds.”
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From a technical perspective, the stock was rejected by resistance at the 32 level, but has since found support at the 25 level as it has rebounded and rolled higher. The stock even closed back above support at its 10-week moving average last week, and could be preparing to resume its long-term uptrend.
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Motorola (MOT)
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Late last week, Motorola Inc. (MOT: sentiment, chart, options) announced plans to split into two separate publicly traded companies by the first quarter of next year. Motorola will now group together the mobile devices unit with the home division, which includes television set-top boxes, placing them under co-Chief Executive Sanjay Jha. Together, the divisions accounted for roughly half of the company’s $22 billion in sales last year. Fellow co-CEO Greg Brown will oversee the enterprise mobility and networks businesses.
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Technically speaking, the shares of MOT jumped more than 7.5% on Friday following the news. However, the equity is still facing staunch resistance at its declining 10-week moving average – a trendline that has capped the shares on a weekly basis since mid-December 2009.
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On the options front, traders flocked to MOT as more than 135,000 contracts changed hands. This surge in volume was more than four times the equity’s average daily trading volume of 33,459 contracts, according to data from WhatsTrading.com. In addition, 78% of the volume crossed on the call side.
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Overall, options players have high hopes for the telecommunications company. The ISE reports that nearly four calls have been purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 65% of all those taken during the past year.
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Furthermore, the ISE/CBOE 10-day call/put volume ratio comes in at a whopping 6.39, which is higher than 77% of all those taken during the past 12 months. These high percentile ranks point to a growing optimism.
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In addition, the SOIR rests at a annual low of 0.37. In other words, short-term options players have not been more optimistically aligned toward the shares at any other time during the past year. An unwinding of this optimism could create fresh selling pressure on the stock should it fail to overcome technical resistance.
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About the Author
David Brown is the Chief Investment Strategist and Director of Equities at Shin Kong Wedbush in Taipei. David is currently managing a top tier team of equities traders and analysts that are dedicated to managed high net worth and hedge fund accounts.
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To contact the financial analyst on this story: David Brown at Shin Kong Wedbush in Taiwan at : Shin Kong Wedbsuh
Which Cartoon Would You Pick For Teenagers?
We’re having a rally at our school based on cartoons. Which cartoon would you pick for a rally filled with teenagers? Do you have any other selections? Here are our choices:
Scooby Doo
Tom and Jerry
Popeye
Charlie Brown
Mickey Mouse Clubhouse
Rugrats
Thank you!
I would go with Rugrats — Even though it’s babies. They have a wonder to the world and a willingness to explore their world and it’s fun to watch their inaccuracies and wondering how they are going to make this unrealistic thing come true.
I would probably also choose Popeye. Why … he’s just a fun manly character trying to do the right thing but is not afraid to fight for what he feels is right.
He also encourages kids to eat their spinach. I remember when I was a kid. I use to play around that spinach gave me super powers. In fact, Spianch is a green leafy vegetable that has a lot of good stuff in it. Vitamin B-12 and Iron, I think.
I would go with those two.
