Communication has been revolutionized by the latest generation of cell phones and other mobile gadgets, including Apple's iPhone and the Blackberry from Research In Motion Limited, but the telecommunications sector has largely failed to capitalize on mankind's addiction to the cell phone. The Telecommunications HOLDRS Trust (TTH) has suffered a rough year, as the exchange-traded fund (ETF) has dropped more than 8.5% since the start of 2009, easily underperforming the broad market. In fact, TTH has been locked in a sharp decline since October 2007, falling under resistance at its 200-day moving average.
From a sentiment perspective, options players have high hopes for a rebound in the trust. The Schaeffer's put/call open interest ratio (SOIR) for TTH stands at an annual low of 1.35, indicating that short-term options speculators have not been more bullishly aligned toward the ETF at any other time during the past year. A shift in sentiment toward the bearish end of the spectrum could create a fresh wave of selling pressure for the group.
Digging into the telecom sector, we find that Verizon Communications Inc. (VZ) has dropped more than 13% since the beginning of 2009, but this is just part of a long-term downtrend that started when the shares peaked in October 2007 at $46.06. Since that high, VZ has shed more than 35%. More recently, the shares have retreated under resistance at their declining 10-day and 20-day moving averages - trendlines VZ has not closed above since mid-April. Furthermore, these short-term moving averages could pressure the hot stocks lower to another test of support at the 26 level.
Despite the stock's steady underperformance of the market, we continue to see signs of optimism from investors. This bullish sentiment on a technically hot stocks 2010 has bearish implications from a contrarian perspective, as optimism can unwind in the form of increased selling pressure.
Digging into the stock's sentiment backdrop, we find that options players have favored calls on VZ. The International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have reported more than two calls purchased for every one put purchased during the past 50 trading sessions. This 50-day call/put volume ratio is higher than all other readings taken during the past year, pointing to extreme optimism among investors.
Meanwhile, Wall Street has yet to completely abandon the shares, as only one of the 17 analysts following VZ rates it a "sell," while seven award it a "buy" rating. This configuration leaves ample room for potential downgrades.
To take advantage of a continued decline in the shares, investors should consider a 30-strike put option - the July put (premium is 6% of the stock price of 2010) or October put (premium is 10% of the stock price of 2010).
The shares of Vodafone Group (VOD) have also failed to shake off the doldrums in the telecommunications sector. The hot stocks for 2010 have drifted roughly 8% lower since the start of 2009. In fact, the security was recently capped by resistance at its 10-month moving average - a trendline the hot stocks of 2010 have not finished a session above since February 2008. What's more, the equity is facing double-barreled resistance at the 20 level and its declining 200-day moving average. This trendline could pressure the hot stocks 2010 back down for another test of support in the 15-16 region.
Much like VZ, VOD has seen an uptick in call trading recently. The ISE and CBOE report that 5.72 calls have been purchased to open for every one put purchased to open during the past 50 trading sessions. This 50-day call/put volume ratio is higher than 94% of all those taken during the past year, indicating a growing optimism among options players.
Wall Street also favors the hot stocks for 2010, as the security has earned six "buy" ratings and one "hold," according to Zacks. Any downgrades from this bullish bunch could spell trouble.
Furthermore, short sellers have started to jump on the stock's bearish bandwagon. During the past month, the number of VOD shares sold short increased by more than 50% to 2.7 million. A continued increase in short selling could pressure the security lower.
However, despite all the weakness within the sector, there has been one shining star in the group. QUALCOMM, Inc. (QCOM) has staged a solid rally from its November low of $28.16, gaining more than 50%. The hot stock is currently consolidating under resistance in the 44-45 region. The equity is also contending with resistance at a 50% retracement level in the 42.52 region. Yet, the hot stock is resting on support at its ascending 10-week moving average, which has helped to carry the shares higher since mid-March and should help push QCOM through short-term resistance.
The security's wellspring of technical strength has been met with growing pessimism among options players. The ISE reports that 1.08 puts have been purchased to open for every one call purchased to open during the past 10 trading sessions. This 10-day put/call volume ratio is higher than 75% of all others taken during the past 12 months, pointing to extreme pessimism.
What's more, the SOIR for QCOM stands at 1.00, as put open interest equals call open interest among options slated to expire in less than three months. This reading is at an annual peak, indicating that short-term speculators have not been more pessimistically aligned toward the shares at any other time during the past 12 months.
This abundance of pessimism in the face of the stock's impressive short-term uptrend indicates that there is ample sideline money available that could pressure the shares still higher.
Was Boston Scientific (BSX) Born to Run?
This column takes a cue from Bruce "The Boss" Springsteen, recognizing the glory days of pharmaceutical firm Boston Scientific (BSX: 
sentiment, chart, options). The drug maker "used to be the big man on campus," capturing more than half of Johnson & Johnson's (JNJ) market share in the stent industry. But, thanks to new products from rivals Medtronic (MDT) and Abbott Labs (ABT), Boston Scientific's market share declined to 45% in the third quarter of 2008.
However, says the Fool, the medical device maker is "getting back in the game" with the launch of a new weapon: the Taxus Liberte Atom, which received approval from the Food and Drug Administration (FDA) on Wednesday. According to the article, the stent is smaller than the standard Liberte, and "could help the company regain a few more percentage points of the market."
Contrarian Takeaway:
Regardless of Boston Scientific's promising fundamental developments, one lingering question remains: is there enough sideline cash to fuel the hot stock for 2010 higher, or have most Street-dwellers already boarded the bullish bandwagon?
Market share or no market share, since grazing the $45 level in mid-2004, BSX has embarked on a quest for new lows. The equity has marched steadily lower during the past few years, surrendering roughly 80% beneath unrelenting resistance at its 10-month and 20-month moving averages. The hot stock of 2010 is currently flirting with the $9.20 level, with both of these trendlines lingering just overhead.
However, despite BSX's challenges on the charts, the Street's hopes remain high for the security. According to Zacks, half of the 16 ranking analysts deem the 2010 hot stock worthy of a "strong buy" rating. Plus, Thomson Reuters pegs the average 12-month price target at $11 - a level BSX hasn't toppled on a monthly closing basis since September 2008. In addition, near-term traders are optimistic, with the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.65 only seven percentage points shy of an annual bullish peak.
From a contrarian standpoint, the combination of technical troubles and lofty expectations could be a bitter cocktail for the shares of BSX. Should the 2010 hot stock continue its long-term journey into the red, the bulls could abandon ship. An unwinding of optimism in the options pits, or a fresh wave of downgrades and/or price-target cuts, could place additional selling pressure on the security.
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| Highest Option Volume for the Week Ending Monday, June 01, 2009 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | Put/Call Ratio | ||
| Spdrs(SPY) | 376,566 | 465,984 | 842,550 | 1.24 | ||
| Citigroup Inc(C) | 335,426 | 212,320 | 547,746 | 0.63 | ||
| General Motors Cp(GM) | 232,034 | 221,482 | 453,516 | 0.95 | ||
| Bank of America Cp(BAC) | 256,916 | 168,931 | 425,847 | 0.66 | ||
| Nasdaq 100 Index Trckng Stck(QQQQ) | 160,660 | 210,393 | 371,053 | 1.31 | ||
| S&P 500 Index(SPX) | 109,302 | 180,003 | 289,305 | 1.65 | ||
| Streettracks Gold Trust(GLD) | 133,704 | 43,056 | 176,760 | 0.32 | ||
| Ishares Russell 2000 Index(IWM) | 53,223 | 118,979 | 172,202 | 2.24 | ||
| Ishares Msci Emerging Markets(EEM) | 82,430 | 53,497 | 135,927 | 0.65 | ||
| Apple Inc(AAPL) | 71,856 | 49,558 | 121,414 | 0.69 | ||
| Highest Option Volume Compare to Average Volume for Week Ending Monday, June 01, 2009 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | 5-week Avg Volume | Volume Ratio | Put/Call Ratio |
| Aes Cp (AES) | 42,423 | 8,614 | 51,037 | 15,537 | 4.92 | 0.20 |
| The Blackstone Group (BX) | 459,956 | 4,157 | 464,113 | 114,837 | 110.65 | 0.01 |
| Cabot Cp (CBT) | 16,005 | 2,279 | 18,284 | 5,192 | 7.02 | 0.14 |
| Chimera Investment Corp (CIM) | 17,945 | 5,300 | 23,245 | 4,985 | 3.39 | 0.30 |
| Exelixis Inc (EXEL) | 9,153 | 5,872 | 15,025 | 4,093 | 1.56 | 0.64 |
| J Crew Group (JCG) | 29,381 | 23,660 | 53,041 | 15,475 | 1.24 | 0.81 |
| Kellogg Co (K) | 22,883 | 401 | 23,284 | 6,697 | 57.06 | 0.02 |
| Lockheed Martin Cp (LMT) | 69,310 | 4,753 | 74,063 | 21,892 | 14.58 | 0.07 |
| Lorillard Inc (LO) | 170,399 | 4,680 | 175,079 | 52,488 | 36.41 | 0.03 |
| Waste Management Inc (WMI) | 48,567 | 3,480 | 52,047 | 15,263 | 13.96 | 0.07 |
Currently, many retail hot stocks appear to be overbought, which is something to consider if you are overweight this sector. Along these lines, the S&P Retail SPDR Fund's (XRT) put/call ratio is at relatively high levels and trending higher, indicating that the trade could be getting a little crowded. However, as long as the XRT put/call ratio continues to trend higher, we'd expect pullbacks in these names to be buying opportunities. Technically speaking, Netflix (NFLX) and Amazon.com (AMZN) have rallied 29% and 50%, respectively, so far in 2009, while Buffalo Wild Wings (BWLD) and J. Crew Group (JCG) have soared more than 36% and 67%, respectively. By comparison, the SPX is sitting at a loss of roughly 1% for the year. Despite this strong technical backdrop, there is a wealth of pessimism levied against these hot stocks for 2010. Specifically, NFLX sports a short-to-float ratio of 32%, while 11 of the 14 analysts following the shares rate them a "hold" or worse. Elsewhere, nearly 30% of BWLD's float is sold short, while six of the 11 brokerage firms covering the stock rate it a "hold" or worse. Finally, JCG has attracted 12 "hold" or worse ratings, versus just two "buys," while sporting a short-to-float ratio of 26.5%. Should this wealth of negativity start to unwind, we could see additional gains from these select names within the retail sector.
The energy sector has come on strong recently, with the Select Sector SPDR Energy Fund (XLE) soaring more than 31% since setting a near-term low in mid-March. Growing confidence that the global economy is contracting at a slower pace has also helped push crude oil prices steadily higher, with the July futures contract roaring back above the round-number 60 level -- a region that crude has not seen since November 2008. As far as the XLE is concerned, the stock's 50-day buy-to-open call/put volume ratio on the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE) has halted in its advance, a potential sign that hedged players are no longer accumulating. We'll continue to monitor this ratio, but the fact that it is not in a steep downtrend is a positive. Traders should still avoid big-cap energy stocks for 2010, such as Exxon Mobil (XOM) and Chevron (CVX), and focus instead on companies similar to Fuel Systems Solutions (FSYS). The shares are up more than 113% since setting a low of $9.83 on March 17. There should be more fuel in the tank for FSYS, as nearly 30% of the stock's float is sold short, while the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.90 ranks above 72% of all those taken in the past year.
Treasurys are getting quite the bad rap lately. There has been talk in the financial media of a bursting bubble, a sentiment that was recently highlighted by a bearish Barron's cover story. Furthermore, a recent survey of investment managers indicated that optimism in regard to government debt is at its lowest level in quite some time. However, the iShares Barclays 20+ Year Treasury Bond Fund (TLT), which seeks results that correspond to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Barclays Capital 20+ Year U.S. Treasury index, is currently in the process of rebounding from support near its 80-month moving average and the round-number 90 level. A continued rebound from this support could spur an unwinding of negativity toward bonds, thus sending the group higher. Making the TLT even more attractive is the fact that the trust's 14-week RSI of 38.09 is one of the lowest such readings taken in the past seven years, pointing toward oversold conditions for the trust. Furthermore, readings below 40 appear to be solid longer-term entry points.
About Schaeffer's Investment Research
Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on 2010 hot stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for 2010 hot stocks and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology.
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