Stocks Advancing Amid Heavy Short Interest - Netlist Inc, YRC Worldwide Inc, Clearwire Corp, Alkermes Inc

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Last week we saw that Netlist, Inc. (NASDAQ: NLST) had broken the pattern of lower highs. The recent price action has been generally positive and a short-term uptrend is in place off the early-February bottom.

As noted last month, YRC Worldwide Inc. (NASDAQ: YRCW) is one of the heavily-shorted equities that has yet to recover. The stock still appears to be rebounding from the low and oversold condition hit in mid-February but I wouldn't call this an uptrending situation.

Clearwire Corporation (NASDAQ: CLWR) is in an intermediate-term trading range but the shares are trying to overtake short-term resistance from their January highs.

Alkermes, Inc. (NASDAQ: ALKS) appeared on the list of stocks seeing unusual option volume yesterday afternoon with a bias toward calls. The equity has been moving steadily higher since November and hit a new annual high yesterday. The positive price action could spur covering and call buys for hedging short positions.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: American International Group Inc (AIG), Netlist, Inc. (NLST), Brunswick (BC), AirTran Holdings Inc (AAI), Zale Corp. (ZLC), Freddie Mac (FRE), Aruba Networks, Inc. (ARUN), CompuCredit (CCRT), Ambac Financial Group (ABK), XenoPort, Inc. (XNPT), YRC Worldwide Inc (YRCW), Fannie Mae (FNM), Astec Industries (ASTE), Rosetta Stone Inc (RST), Incyte Corp. (INCY), Pacific Capital Bancorp (PCBC), Texas Industries (TXI), Continental Airlines (CAL), Ascent Solar Technologies Inc (ASTI), MBIA Inc (MBI), Clearwire Corporation (CLWR), Buckle (BKE), Sangamo Biosciences Inc (SGMO), C&D Technologies (CHP), Alkermes (ALKS).

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If so, you can get it delivered to your inbox every day. To try it, simply click here and sign in with your Schaeffer's username and password. If you don't have a free membership, you can create one in just seconds. Once on the alerts page, select "phrase" from the first drop down box, select "intraday", and enter "Stocks Advancing Amid Heavy Short Interest" into the third box. You can repeat that process for other regular posts or change the setting to "author" and enter "Nick Perry" to get all the posts. Just remember, I make multiple posts a day so you will get numerous emails if you select intraday...

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Stocks Showing Unusually Heavy Volume - Fannie Mae, Freddie Mac, Citigroup Inc, American International Group Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: Comerica Incorporated (CMA), Netlist, Inc. (NLST), Travelzoo Inc (TZOO), Fannie Mae (FNM), Cost Plus (CPWM), First Marblehead (FMD), C&D Technologies (CHP), Freddie Mac (FRE), Denbury Resources (Holding) (DNR), Mediacom Communications (MCCC), Thor Industries (THO), Clearwire Corporation (CLWR), Alkermes (ALKS), Susquehanna Bancshares (SUSQ), Maguire Properties Inc (MPG), Achillion Pharmaceuticals, Inc. (ACHN), Hoku Scientific, Inc. (HOKU), Citigroup Inc (C), Skechers USA Inc (SKX), American International Group Inc (AIG), Cisco Systems Inc (CSCO), Chesapeake Energy Corp (CHK), EPIX Pharmaceuticals (EPIX), Sohu.com (SOHU), CIENA Corp. (CIEN).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a Flat Open

Good morning everyone - welcome to the middle of the trading week. We start the day with stock futures more or less flat. The S&Ps are within a point of fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening gain of 10 points.

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Daily Wrap-up - A 12-Point Gain for the Dow Jones Industrial Average

The day ends with some afternoon weakness dragging the indexes off their midday highs. The Dow Jones Industrial Average (DJIA) was up as much as 60 points but closed with a gain of just 12 points. The S&P 500 (SPX) was also close to flat. The Nasdaq Composite (COMP) and Russell 2000 (RUT) held minor gains.

Chart Courtesy of Thomson Reuters

The sector action ended mixed. The Dow Jones Transport Index (.TRAN), CBOE Internet Index (INX), and Amex Networking Index (NWX) led while the Amex Gold Bugs Index (HUI), US Oil Fund (USO), and S&P Retail Index (RLX) lagged.

Click here for symbol descriptions

My midday post noted that the Nasdaq Composite was pushing above former resistance. That COMP managed to hold the breakout into the close.

Charts Courtesy of Thomson Reuters

The COMP and RUT are each above their January highs while the DJIA and SPX are still below. All of the charts show overbought readings. Heading into tomorrow I will be watching whether the Nasdaq Composite holds its breakout and whether the S&P 500 can push through resistance. And that is where I will pick up in the morning. Have a nice evening.

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Rally Sparks Call Buying on Ambac Financial Group, Inc.

Call players have set their sights on Ambac Financial Group, Inc. (ABK) today, with more than 2,000 of these optimistically oriented contracts changing hands so far. By contrast, ABK was expected to see just about 350 calls cross the tape today -- approximately one-sixth of its actual call volume.

The center of attention today is ABK's April 1 call, where 1,246 contracts have traded at last check. About 92% of these calls have changed hands at the ask price, indicating a bias toward buying activity. With just 439 contracts currently in residence at the April 1 strike, it's safe to say that most of today's call volume will translate to new open interest tomorrow.

With ABK trading near 75 cents per share at last check, these calls are out of the money. However, today's call speculators aren't necessarily betting on a short-term bounce from ABK -- the stock is up roughly 3% this afternoon, and a hefty 19% of ABK's float has been sold short. In other words, there's no shortage of bears who might be looking to hedge their bets against a continued rally.

However, it's probably too soon for pessimistic players to abandon hope entirely. ABK's gains today have been capped by its 20-week moving average, which hasn't been toppled on a weekly closing basis since October 2009.

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Midday Market Check - The Dow Jones Industrial Average Gain 55 Points

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) up 55 points and sitting near its highs. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) are also showing moderate gains. After very mild weakness at the open, buyers have been steadily stepping in and lifting the market. The COMP and RUT are both trading at new annual highs.

Chart Courtesy of Thomson Reuters

The sector action shows widespread, but mostly mild, buying. Today's strongest groups are the Dow Jones Transport Index (.TRAN) and Amex Networking Index (NWX). The iShares Treasury Bond (TLT) is the weakest area but the loss is small.

Click here for symbol descriptions

QLogic Corporation (NASDAQ: QLGC) and Commercial Metals Company (NYSE: CMC) are among the stocks seeing unusual option volume so far today.

Click image to see live data from
WhatsTrading.com in our Options Center

QLogic and Commercial Metals are both seeing heavy call action. Shares of QLGC are up 2% while shares of CMC are up 7%. There seems to be M&A rumors floating on both companies.

We ended the action yesterday with the Russell 2000 trading above former resistance and the Nasdaq Composite flirting with a breakout. As noted above, the COMP has now joined the RUT.

Charts Courtesy of Thomson Reuters

Barring an afternoon reversal, the SPX is the next to test its January highs...

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Traders Add New Front-Month Puts on Huntington Bancshares Incorporated

Put volume has skyrocketed today on Huntington Bancshares Incorporated (HBAN), with more than 4,200 of these bearishly oriented options crossing the tape. This represents roughly 28 times the stock's expected daily put volume of about 150 contracts.

Most of this activity is centered around HBAN's March 6 put, where 4,000 contracts have changed hands so far. Nearly 90% of these contracts have traded at the ask price, suggesting a bias toward buying activity. With open interest at this strike currently totaling just 40 contracts, it's a safe bet that nearly all of today's volume consists of newly opened March 6 puts.

HBAN is no stranger to skeptically skewed speculation, though. The stock's 10-day International Securities Exchange (ISE) put/call volume ratio of 0.32 ranks in the 68th annual percentile, suggesting that traders have purchased puts over calls at a faster pace than usual in recent weeks.

And, in the same bearish vein, short interest accounts for more than 7% of the stock's available float. This supply of shorted shares surged by 37% during the most recent reporting period.

On the charts, HBAN is currently trading just shy of $5 -- placing those popular March 6 puts in the money by a slim margin. The stock is resting comfortably above support from both its 10-day and 10-week moving averages, but the $5 level is proving to be a tough technical hurdle. This region has kept a tight lid on HBAN's progress since May 2009.

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The Sentiment Behind Skechers USA, Inc

Skechers USA, Inc. (NYSE: SKX) is an interesting situation. We are only an hour or so into the regular session but the stock's volume is already on par with total volume from yesterday. Furthermore, the daily chart below shows buyers have been steadily chasing the equity.

Chart Courtesy of Thomson Reuters

This short-term view shows the pattern of higher lows in place since last summer. The stock peaked in January and has been consolidating the gains since then. With today's jump of 5%, shares of Skechers are in a position to breakout. Curiously though, the sentiment profile doesn't really show much in the way of optimism.

(Click image to see live data)

To be fair, this profile isn't skewed toward pessimism and there are some hints of optimism. For example, the Schaeffer's Put/Call Open Interest Ratio (SOIR) has been trending steadily lower. However, the open interest configuration chart shows near-term open interest is light. Furthermore, if you click on the open interest configuration links for March and April, you will see the biggest build up of calls is at the 30 strike, which is slightly in the money. In other words, there doesn't seem to be much speculation with the out-of-the-money calls.

The majority of analysts do rate Skechers with a buy rating, but only 5 analysts cover the stock. Fellow footwear firm Deckers Outdoor Corporation (NASDAQ: DECK) is followed by 13 analysts so there might be room for coverage to grow.

All in all, the optimism shown seems tame when you consider this is a stock that rallied more than 470% over that last 52 weeks.

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Option Skews - Relatively Heavy Call Activity on Citigroup Inc, Cisco Systems Inc, Visa Inc

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective.

As mentioned below, put activity was lighter than normal but the call activity seems routine. Citigroup Inc. (NYSE: C) tops today lists, which is a fairly regular occurrence. However, what stands out is that the equity is testing the upper boundary of the recent trading range. Last week I touched on the recent shift in trend as the downtrend was broken. A push above resistance near 3.70 would break congestion and mark a further evolution.

The constructive price action from Cisco Systems, Inc. (NASDAQ: CSCO) has morphed into outright strength. The equity gained over 3% yesterday as it broke out to a new annual high.

Visa Inc. (NYSE: V) also pushed to a new high yesterday. This breaks the short-term term consolidation and continues the intermediate-term uptrend.

Companies included in today's scan results: Citigroup Inc (C), Cisco Systems Inc (CSCO), DryShips Inc. (DRYS), Research in Motion Limited (RIMM), McDonald's (MCD), EMC Corp. (EMC), Bank of America Corp (BAC), Palm Inc (PALM), Visa Inc. (V), Microsoft Corp (MSFT), Morgan Stanley (MS), Wells Fargo & Co (WFC), Intel Corp. (INTC), Biogen Idec Inc (BIIB), AES Corp. (AES), MetLife (MET), Texas Instruments Incorporated (TXN), EXCO Resources, Inc. (XCO), Airgas (ARG), Alkermes (ALKS), Annaly Mortgage Management (NLY), Kroger (KR), Halliburton (HAL), Pfizer (PFE), Energy Conversion Devices, Inc (ENER).

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Option Skews - Relatively Heavy Put Activity on Sprint Nextel Corp, XenoPort Inc, Best Buy Co Inc, Akamai Technologies Inc

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Regular readers will quickly notice that the table below is shorter than normal. The call skews scan, which will be published shortly, shows relatively normal activity so it would seem that puts just weren't as in demand as usual. Given yesterday's moderately subdued market action I wouldn't read too much into this single occurrence but it is worth noting should we see it continue.

Sprint Nextel Corporation (NYSE: S) was one of the exceptions to the "light" put activity. However, the stock has been drifting aimlessly so I would want to see signs of a uptrend before getting interested. XenoPort, Inc. (NASDAQ: XNPT) is another situation where the put activity doesn't seem significant from a contrarian perspective. The equity plunged lower last month and is showing a year-to-date loss of more than 50%.

Best Buy Co., Inc. (NYSE: BBY) is a bit more interesting. The shares are rebounding from a short-term pullback that followed an intermediate-term uptrend.

Akamai Technologies, Inc. (NASDAQ: AKAM) is a case of outright strength. The stock hit another new high yesterday, which continues the intermediate-term uptrend in place since November 2008.

Companies included in today's scan results: PowerShares QQQ Trust (QQQQ), SPDR Trust Series I (SPY), Sprint Nextel (S), Best Buy Co. (BBY), XenoPort, Inc. (XNPT), Cemex SAB de CV (CX), Akamai Technologies (AKAM), Altera Corp. (ALTR), Developers Diversified Realty (DDR), Select Comfort (SCSS), SunTrust Banks (STI), Abercrombie & Fitch (ANF), Terra Industries (TRA), Citrix Systems (CTXS), Target Corp. (TGT), Transocean (RIG), FedEx Corp. (FDX).

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Stocks Advancing Amid Heavy Short Interest - American International Group Inc, Travelzoo Inc, Energy Conversion Devices Inc, Cell Therapeutics Inc

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Cell Therapeutics, Inc. (NASDAQ: CTIC) appeared on yesterday's short interest scan and I noted the pre-market strength. The stock tops today's list as shares of CTIC closed with a gain of 28%. If you hover over the symbol above, you will see the stock has now recouped the early-February selloff.

Online travel concern Travelzoo Inc. (NASDAQ: TZOO) was also very strong Monday. The 21% surge leaves the equity testing the resistance near 15 that marked the November peak. A push above 15.38 would put Travelzoo at a new annual high.

American International Group, Inc. (NYSE: AIG) continues its push higher. Last week I noted the resistance near 28 and the shares managed to close above that level yesterday. If the stock can hold these gains, it would break the near-term downtrend that has been in place since September.

I have often mentioned that I watch these daily scan for themes. Yesterday's scan noted the repeated appearance of names from biotech group and I still watching that. With Energy Conversion Devices, Inc. (NASDAQ: ENER) and Fuel Systems Solutions, Inc. (NASDAQ: FSYS) making today's list, I am also keeping an eye on the alternative energy group. The unusual stock volume scan showed some fuel cell names as well as Energy Conversion Devices.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: Cell Therapeutics (CTIC), Travelzoo Inc (TZOO), Conn's (CONN), BankAtlantic Bancorp (BBX), Clearwire Corporation (CLWR), Energy Conversion Devices, Inc (ENER), Fuel Systems Solutions Inc (FSYS), Ruth's Chris Steak House, Inc. (RUTH), TBS International Limited (TBSI), Bronco Drilling Company, Inc. (BRNC), Cascade Bancorp (CACB), XenoPort, Inc. (XNPT), Overstock.com (OSTK), EnerNOC, Inc. (ENOC), Winnebago Industries (WGO), DealerTrack Holdings, Inc. (TRAK), Boyd Gaming Corp (BYD), Office Depot (ODP), J. Crew Group, Inc. (JCG), Pacific Capital Bancorp (PCBC), C&D Technologies (CHP), SL Green Realty (SLG), Hanmi Financial (HAFC), American International Group Inc (AIG), United States Steel Corp (X).

Like this post?

If so, you can get it delivered to your inbox every day. To try it, simply click here and sign in with your Schaeffer's username and password. If you don't have a free membership, you can create one in just seconds. Once on the alerts page, select "phrase" from the first drop down box, select "intraday", and enter "Stocks Advancing Amid Heavy Short Interest" into the third box. You can repeat that process for other regular posts or change the setting to "author" and enter "Nick Perry" to get all the posts. Just remember, I make multiple posts a day so you will get numerous emails if you select intraday...

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Stocks Showing Unusually Heavy Volume - Xyratex Ltd, China GrenTech Corporation Ltd, DryShips Inc, Nu Skin Enterprises Inc, Plug Power Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: CRM Holdings, Ltd. (CRMH), Rosetta Genomics Ltd. (ROSG), Xyratex Ltd (XRTX), infoUSA (IUSA), Travelzoo Inc (TZOO), Ballard Power Systems (BLDP), China GrenTech Corporation Limited (GRRF), NCI Building Systems (NCS), Bronco Drilling Company, Inc. (BRNC), Maguire Properties Inc (MPG), Cost Plus (CPWM), Clearwire Corporation (CLWR), DryShips Inc. (DRYS), Nu Skin Enterprises Inc (NUS), Cell Therapeutics (CTIC), Plug Power Inc (PLUG), J. Crew Group, Inc. (JCG), CDC Corp. (CHINA), Winnebago Industries (WGO), Cepheid (CPHD), InterMune (ITMN), Energy Conversion Devices, Inc (ENER), CIENA Corp. (CIEN), Cisco Systems Inc (CSCO), Yingli Green Energy Hold Co Ltd (YGE).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a 30-Point Loss

Good morning everyone - welcome to Tuesday. We start the day with stock futures showing a minor downside bias. The S&Ps are 5 point below fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening drop of 30 points.

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Daily Wrap-up - A 14-Point Loss for the Dow Jones Industrial Average

The day ends with the Dow Jones Industrial Average (DJIA) showing a minor loss of 14 points. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) were essentially flat as well. The day started with a very small rally but that quickly evolved into a mild loss and then the action just flat lined. The Dow traded in a low-to-high range of only 45 points.

Chart Courtesy of Thomson Reuters

The midday sector action was very quiet but we see a little net movement at the close. The SPDR Homebuilders (XHB), Broker/Dealer Index (XBD), and CBOE Internet Index (INX) led while the Amex Gold Bugs Index (HUI) and streetTRACKS Gold (GLD) lagged.

Click here for symbol descriptions

My midday post noted that the RUT had broken above its former highs near 650 and that the COMP was flirting with a breakout of its own. A lack of significant action this afternoon left that picture unchanged.

Charts Courtesy of Thomson Reuters

As we head deeper into the week, I will be watching for the Nasdaq Composite to confirm the RUT's breakout. The large cap indexes seem to be lagging but I am not sure whether that is really a concern. I will also be keeping in mind the points Bernie raised in the two posts below -

• Bernie Schaeffer - Defining a Bull Market
• Bernie Schaeffer - Long-Term Indicators on the S&P 500

The talk of the March 2009 bottom spurred me to check the archives from one year ago. In retrospect, I seems sorely lacking that I was only looking for a bear-market snapback rally. And that is where I will pick up in the morning. Have a nice evening.

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Bernie Schaeffer - Long-Term Indicators on the S&P 500

As noted below, there were some interesting thoughts about the market routed over the weekend. Pasted below is an email that Bernie Schaeffer sent to his trading team.

"The 160-month moving average held at the 2002 and 2003 bottoms, and after it held in September 2008 the break in October 2008 was devastating."

"The SPX died about 7 points shy of the 160-month in the January 2010 rally and is currently less than 25 points shy."

"Also note the 14-month historical volatility (HV) in the second pane. It peaked in 2009 at 29%, just shy of the post-1987 crash peak at 30%. It's currently at 18.74%, but is still about double its levels from a few years ago."

Chart Courtesy of Thomson Reuters

"The 14-month Relative Strength Index (RSI) is shown in the second pane below. On this basis, the market reached its most oversold level in modern history in March 2009 at 18. At its current level of 53, it is well shy of the 80 level it has hit during past overbought extremes, or the 70 level that has often signaled danger."

"These longer-term indicators were all discussed in the feature article ("Are We There Yet?") in our first issue of SENTIMENT just about a year ago."

Chart Courtesy of Thomson Reuters

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DryShips Inc. Draws Mixed Call Speculation Amid Steep Rally

Call volume is heavy today on DryShips Inc. (DRYS), with activity swelling to 11 times the usual level. So far, a whopping 116,000 calls have changed hands, compared to the equity's expected call volume of just 10,000 contracts.

The day's most active strike is DRYS' March 6 call, which is right at the money at last check. This strike has seen 40,129 contracts trade on open interest of 49,376 contracts. Buyers appear to be driving the bulk of the activity at this strike, with the majority of these March 6 calls crossing the tape at the ask price.

However, not all of today's call volume is bullish in nature. Shortly after 1 p.m., three sizable blocks totaling 4,356 contracts changed hands on DRYS' March 7 call, suggesting these out-of-the-money options were most likely sold. By writing calls at this overhead strike, traders are wagering that DRYS will remain pinned below $7 through March expiration.

As a further caveat to today's spike in call volume, DRYS is heavily targeted by short sellers. Short interest on the stock swelled by nearly 41% during the past month, and these bearish bets now account for a noteworthy 11% of the equity's float. With DRYS up about 6% this afternoon amid rampant buyout rumors, short sellers might be feeling pressured to hedge their pessimistic stock positions with long calls.

From a technical perspective, today's rally has DRYS challenging resistance from its 20-week moving average. This intermediate-term trendline hasn't been surmounted on a weekly closing basis since early January.

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Bernie Schaeffer - Defining a Bull Market

From my perch here at Schaeffer's Investment Research, I have access to some very interesting tools and data. I am also privy to some of the exchanges between Bernie Schaeffer and our trading department where thoughts about the market are debated and developed. There were a couple of interesting discussions over the weekend that I want to pass along.

One exchange began after Ryan Detrick noted some data from Bespoke Investment Group about the length of bull markets. Bespoke looked at the behavior of the last 13 bull markets that persisted for at least one year. Of those, the average length was more than four years and the average gain exceeded 150%. Ryan's comment was this -

"We are exactly one year into the bull market and about nine months into the economic recovery."

Bernie Schaeffer then offered the following points to ponder...

"One potential flaw in the historical bull market argument is whether we can truly define the rally since March 2009 as a 'bull market.'"

"Looking at the S&P 500 (SPX) chart below from this weekend's Monday Morning Outlook, note the 160-month and 80-month moving averages just overhead. "

"The 80-month held as support for more than 20 years until it was taken out in 2002, after which the 160-month contained the 2002-2003 lows. The 160-month ultimately broke in October 2009 and this was followed by major and rapid downside."

"So if you consider these long-term moving averages to be good bull/bear market demarcation lines, we're still not back in bull territory. This may seem a strange conclusion after a 60% rally in 12 months, but if in fact we fail to take out these levels and the downtrend resumes it will look pretty smart in retrospect to have shorted what could then be referred to as a counter-trend rally in a bear market."

"Two encouraging factors come to mind that argue for these levels being taken out - the 80 and 160-month lines have not yet rolled over to the downside and the sentiment backdrop is highly skeptical and thus indicative of sideline buying power."

"Also, I would say the 160-month is far more significant than the 80-month, given the number of times the latter has been penetrated this decade. So I'd suggest that once the 160-month is taken out, the next major level will be 1332 – double the March 2009 intraday low. I also find it interesting that the high for the counter-trend bounce that ended in Aug 2008 was 1313. So perhaps 1300-1350 would be the resistance area."

As I said above, this was only part of the weekend discussions. Look for more to come...

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Midday Market Check - The Dow Jones Industrial Average Drops 17 Points

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) near its lows of the day. However, that only leaves the blue chip average at a tame loss of 17 points. The S&P 500 (SPX) and Russell 2000 (RUT) are flat while the Nasdaq Composite (COMP) shows a small gain. As the chart below shows, the day started with a meager rally and the market has been slowly sliding since then.

Chart Courtesy of Thomson Reuters

The sector action is mixed but quiet. Today's strongest groups are the Broker/Dealer Index (XBD) and SPDR Homebuilders (XHB) but gains are still relatively mild. The Amex Gold Bugs Index (HUI), streetTRACKS Gold (GLD), and US Oil Fund (USO) are the weakest areas, but also with muted moves. None of the sectors on my list are moving more than 1%.

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Poniard Pharmaceuticals, Inc. (NASDAQ: PARD), Biogen Idec Inc. (NASDAQ: BIIB) and DryShips Inc. (NASDAQ: DRYS) are among the stocks seeing unusual option volume so far today.

Click image to see live data from
WhatsTrading.com in our Options Center

Poniard Pharmaceuticals tops the list with total option volume that is running 20 times the average. The bulk of the action (98%) is on the put side as the stock drops 9%. Biogen Idec ticked to a new annual high this morning. Options are 7 times as active with call volume dominating. Shares of DryShips are also seeing call volume. The stock showed some early strength but that appeared to be waning until the surge of buying that just pushed the shares to a 5% gain. This looks to be an interesting situation.

When I left the action on Thursday, the market was showing some momentum but the monthly employment report was looming. A quick glance at our daily Market Recap column shows the report did little to dissuade the bulls. Here are the updated daily charts.

Charts Courtesy of Thomson Reuters

The Dow, which had been the laggard in terms of overtaking near-term congestion, has finally joined the other indexes. Furthermore, the RUT has now decisively broken above its former highs near 650 and the COMP is flirting with a breakout of its own. The indexes are now pushing into overbought territory but we seem to have some leadership from small caps and an overall willingness to buy into strength.

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Put Players Place Pre-Earnings Bets on J. Crew Group, Inc.

Option volume has surged way beyond the normal levels today on J. Crew Group, Inc. (JCG), with traders paying particular attention to puts on the apparel issue. So far, 4,511 of these bearishly oriented options have changed hands, compared to JCG's expected daily put volume of just 166 contracts.

The most active strike is JCG's March 45 put, where more than 3,000 contracts have crossed the tape. With just 1,099 contracts in residence at this out-of-the-money strike, we can safely assume that most of today's volume consists of newly opened positions. The majority of these calls have traded at the ask price, suggesting a bias toward buying activity, and implied volatility on this option is up 6.2% at last check.

However, some of the volume at this strike is linked to a directionally neutral strangle strategy. Shortly after the open, a trader initiated a long strangle by purchasing 100 March 45 puts and 100 March 50 calls. For this spread to become profitable, the shares of JCG need to stage a significant rally beyond the purchased call strike, or endure a sharp plunge below the purchased put strike.

Today's uptick in option volume is most likely related to JCG's upcoming fourth-quarter earnings report, which is due to hit the Street after the market closes on Tuesday, March 9. Analysts surveyed by Thomson Reuters are expecting a per-share profit of 46 cents, significantly better than the company's year-ago loss of 22 cents per share. The First Lady's favorite retailer has a solid history in the earnings confessional, having exceeded consensus expectations in each of the previous four reporting periods.

From a technical perspective, JCG gapped above short-term resistance at the $46 level earlier today, and tapped a fresh 52-week peak of $47.18. The equity is now hovering well above support at its 10-day and 20-day moving averages.

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Option Skews - Relatively Heavy Call Activity on Apple Inc and Google Inc

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective.

I have been watching Google Inc. (NASDAQ: GOOG) as a barometer of buying. This is one of the premier bellwether stocks so I am keeping an eye on it to gauge whether buyers still have an appetite for stocks. Another equity that fits this leadership role is Apple Inc. (NASDAQ: AAPL). Both companies appear on the table below amid a bias toward calls.

As noted in the intro paragraph above, my primary concern would be when we see call buying amid a downtrend. In other words, the strongest contrarian signals come when the sentiment runs counter to the price action.

Shares of GOOG hit a new annual high back in January and they are holding a gain of more than 80% over the last 52 weeks. Shares of APPL have rallied more than 150% over the last year and they jumped to an annual high on Friday. I wouldn't consider either stock to be in an intermediate-term downtrend so the contrarian implications of call activity would be diminished.

For those interested, more on this concept can be found in Elizabeth Harrow's article on Expectational Analysis in the most recent issue of SENTIMENT magazine.

Companies included in today's scan results: Citigroup Inc (C), Apple Inc (AAPL), Google Inc (GOOG), UnitedHealth Group Inc (UNH), Intel Corp. (INTC), Wells Fargo & Co (WFC), eBay Inc (EBAY), CF Industries Holdings (CF), Cisco Systems Inc (CSCO), Bank of America Corp (BAC), Halliburton (HAL), AK Steel Holding Corp (AKS), WellPoint Health Networks (WLP), Amylin Pharmaceuticals (AMLN), AT&T Corp. (T), General Electric (GE), EMC Corp. (EMC), Boston Scientific (BSX), Visa Inc. (V), McMoRan Exploration (MMR), Exxon Mobil (XOM), Boeing (BA), Annaly Mortgage Management (NLY), Las Vegas Sands Corp (LVS), Massey Energy (MEE).

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Option Skews - Relatively Heavy Put Activity on Qualcomm Inc, GameStop Corp, Advanced Micro Devices Inc, Whole Foods Market Inc

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Qualcomm, Inc. (NASDAQ: QCOM) and GameStop Corp. (NYSE: GME) were both discussed last week. Qualcomm appeared on Tuesday's call skews scan while GameStop showed up on Thursday's call skews scan. The commonality here is that both had seen a call bias amid general price weakness. Given the lackluster action and recently call activity, I would not view an uptick in skepticism as being a significant contrarian sign.

Advanced Micro Devices, Inc. (NYSE: AMD) continues to rebound after pulling back to support. The shares are near a short-term overbought condition but the overall behavior looks constructive.

Whole Foods Market, Inc. (NASDAQ: WFMI) recently gapped higher and then pushed through resistance near 34. The equity is overextended but that former resistance should now be viewed as support.

Companies included in today's scan results: PowerShares QQQ Trust (QQQQ), CIENA Corp. (CIEN), Sprint Nextel (S), Valero Energy (VLO), Best Buy Co. (BBY), Qualcomm Inc (QCOM), Weatherford International (WFT), Transatlantic (TRH), Terra Industries (TRA), Frontline. (FRO), Walgreen (WAG), Peabody Energy (BTU), Coca-Cola Enterprises (CCE), Textron (TXT), Louisiana-Pacific (LPX), Lockheed Martin (LMT), Kraft Foods (KFT), State Street (STT), Advanced Micro Devices Inc (AMD), Western Digital (WDC), Abercrombie & Fitch (ANF), Caterpillar (CAT), Gamestop Corp (GME), Reynolds American (RAI), Whole Foods Market (WFMI).

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Stocks Advancing Amid Heavy Short Interest - InterMune Inc, Molecular Insight Pharmaceuticals Inc, Cell Therapeutics Inc, Ciena Corp

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

InterMune, Inc. (NASDAQ: ITMN) appeared on both last Wednesday's unusual stock volume scan and the scan today. The company also was mentioned in a short interest scan last week and tops the table below. In other words, the stock has been seeing some interest and this culminated in Friday's 59% surge. According to data collected by our Quantified Analysis department, 14% of the stock's float is sold short. Friday's rally allowed the stock to break the trading range in place since late 2007. Molecular Insight Pharmaceuticals, Inc. (NASDAQ: MIPI) was mentioned the same short interest scan last week that talked about generalized buying in the biotech group.

Cell Therapeutics, Inc. (NASDAQ: CTIC), another name from the biotech sector, is trying to recoup an early-February selloff. The shares posted a 13% gain Friday and are currently bid up 16% in pre-market activity.

I noted a pullback in Ciena Corporation (NASDAQ: CIEN) last Thursday and said the dip would only retrace a portion of the recent rally. Bulls came out in force the next day and allowed the equity to recoup that drop and then some.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: InterMune (ITMN), Molecular Insight Pharmaceuticals, Inc. (MIPI), CIENA Corp. (CIEN), Zale Corp. (ZLC), Cell Therapeutics (CTIC), Conn's (CONN), James River Coal Co (JRCC), Banner Corp. (BANR), Coldwater Creek (CWTR), PMI Group (PMI), Diamond Foods, Inc. (DMND), Hanmi Financial (HAFC), Boston Private Financial (BPFH), Sonic Solutions (SNIC), CompuCredit (CCRT), Zumiez Inc. (ZUMZ), Brunswick (BC), Mobile Mini (MINI), Winnebago Industries (WGO), TiVo Inc (TIVO), JAKKS Pacific (JAKK), Amylin Pharmaceuticals (AMLN), United Bankshares (UBSI), Build-A-Bear Workshop, Inc. (BBW), CBL & Associates Properties (CBL).

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Stocks Showing Unusually Heavy Volume - Neurocrine Biosciences Inc, Dynamic Materials Corp, Emergent BioSolutions Inc, Wabash National Corp, optionsXpress Holdings Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: Neurocrine Biosciences Inc (NBIX), InterMune Inc (ITMN), Dynamic Materials Corp (BOOM), Diamond Foods, Inc. (DMND), Conexant Systems (CNXT), Fuji Photo Film Co. (FUJIY), Kingsway Financial Services (KFS), Mine Safety Appliances (MSA), Standard Motor Products (SMP), TiVo Inc (TIVO), Entravision Communications (EVC), Overseas Shipholding Group (OSG), Coldwater Creek (CWTR), Transatlantic (TRH), FelCor Lodging Trust Incorporated (FCH), Molecular Insight Pharmaceuticals, Inc. (MIPI), Emergent BioSolutions Inc. (EBS), Progress Software (PRGS), CIENA Corp. (CIEN), Polypore International, Inc. (PPO), Wabash National Corp (WNC), optionsXpress Holdings Inc (OXPS), Jazz Pharmaceuticals, Inc. (JAZZ), Solarfun Power Holdings Co Ltd (SOLF), Marvell Technology Group (MRVL).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a Flat Open

Good morning everyone - welcome to the beginning of a new trading week. We start the day with stock futures pointing to a flat open. The S&Ps are within 30 cents of fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening gain of 5 points.

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