SOURCE: Schaeffer's Investment Research

June 23, 2005 17:03 ET

Schaeffer's Midday Options Update Features D.R. Horton, General Electric, Unocal, and Guidant

CINCINNATi, OH -- (MARKET WIRE) -- June 23, 2005 -- Today's Schaeffer's Midday Options Update features D.R. Horton (NYSE: DHI), General Electric (NYSE: GE), Unocal (NYSE: UCL), and Guidant (NYSE: GDT). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day.

The Midday Options Update is published every day at www.SchaeffersResearch.com -- the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU4M&PAGE=1.

Options Update: Taking a Tour of Guidant's Sentiment

The morning started off with news concerning initial jobless claims from the Labor Department. Data showed that unemployment benefits fell 20,000 to a seasonally adjusted 314,000 for the week ended June 18; economists had expected claims to stay flat at 330,000. This is the lowest amount of claims seen since April 16. Continuing jobless claims dropped 38,000 to 2.60 million and the four-week average fell 2,500 to 333,000.

The National Association of Realtors announced that existing home sales fell 0.7 percent in May to 7.13 million units on a seasonally adjusted basis. This drop was roughly in line with analysts' expectations for a drop to 7.14 million units. On a year-on-year basis, existing home sales were up 3.5 percent.

Federal Reserve Board Chairman, Alan Greenspan, and Treasury Secretary, John Snow, urged lawmakers not to pursue tariffs against China as punishment for maintaining an undervalued currency. Greenspan testified in front of the Senate Finance Committee that there is little evidence that a stronger Chinese yuan would boost U.S. manufacturing jobs or improve the U.S. trade balance.

Ch-ch-ch-changes

Standard & Poor's announced last night that homebuilding company, D.R. Horton (NYSE: DHI) will join the S&P 500 Index (SPX). DHI will take the place of VERITAS Software (VRTS), which has agreed to be purchased by Symantec (SYMC). The date for the change has yet to be announced. Macerich (MAC) will then take DHI's open spot in the S&P MidCap 400 index. DHI will be the fourth homebuilder on the SPX, reflecting the growth of homebuilding stocks in recent years.

It's Electric!

General Electric (NYSE: GE) announced today that it will reorganize its 11 business units into six divisions. GE stated that this will enhance financial transparency and yield somewhere between $200 million and $300 million in savings. The company also announced that it is on track to meet its full-year 2005 earnings outlook of $1.78 to $1.83 per share and its second-quarter forecast of 43 to 45 cents per share. GE reported that it sees continued double-digit growth in earnings into 2006 and beyond. The company's six new branches are as follows: GE Infrastructure; GE Industrial; GE Commercial Financial Services; NBC Universal, GE Healthcare; and GE Consumer Finance. Three of these businesses will get new leaders.

A Slippery Situation

China's largest offshore oil company, CNOOC (CEO), launched a formal bid late yesterday for Unocal (NYSE: UCL). CEO offered $18.5 billion for the oil and gas company, which had agreed to be purchased by U.S. oil behemoth, Chevron (CVX). CEO stated that it is willing to pay $67 per share for UCL. Taking Tuesday's closing price of $64.85 per share for UCL, this new offer bests CVX's agreement by roughly $1.5 billion. CEO Chairman and Chief Executive, Fu Chengyu, stated, "This friendly, all-cash proposal is a superior offer for Unocal shareholders." If this deal is approved by UCL shareholders, CEO would more than double its gas output and see an 80-percent boost to its proven oil reserves. UCL pledged to evaluate CEO's offer but had already recommended the CVX merger to its stockholders and "that recommendation remains in effect."

More Merck-y Waters Ahead

According to the Associated Press, Merck (MRK) considered reformulating its pain reliever, Vioxx, in 2000. This reformulation would have been made as an effort to reduce cardiovascular side effects. A study in March 2000 found that patients taking Vioxx were five times more likely to have heart attacks than individuals using naproxen (a generic pain reliever). At the time, MRK was diligent in stating that this was a result of naproxen's cardioprotective properties and not because of any problem with Vioxx. According to the report, Vioxx was toying with the idea of combining Vioxx with another agent in order to reduce the risk of heart attacks and strokes. This came to light when a document was mistakenly provided by MRK to plaintiff lawyers in an evidence-gathering process in one of the many Vioxx lawsuits around the country. The Associated Press reports that the communication between MRK researchers and the company's patent department includes an admission that the way Vioxx works to reduce pain may also increase cardiovascular problems. It also suggests that a patent be sought for a risk-lessening combination drug that mixes Vioxx with another agent to lessen the risk.

Most-Active Options Update

At 1:24 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,614.6) has gained 0.14 percent, matched by the S&P 500 Index (SPX - 1215.27). The Nasdaq Composite (COMP - 2,093.2) has gained 0.10 percent. At 1:24 p.m., 1,459,036 calls have traded hands compared to 1,133,237 puts, for a total put/call single-day volume ratio of 0.77 across all six options exchanges. The CBOE's put/call volume ratio stands at 0.87 today.

Guidant

Guidant (NYSE: GDT) has been no stranger to the news in the past, and the past three days have been no exception. Three days ago, GDT found itself on our Hot Stocks thanks to Friday's announcement that rare defects have occurred in a handful of its implanted electrical heart-defibrillator devices. GDT also stated that one of these rare defects may have contributed to a patient's death earlier this month. The U.S. Food and Drug Administration has decided to put a "recall" label on the devices, meaning that the company needs to notify doctors and patients of potential problems. This news prompted one brokerage to downgrade GDT, but isn't seen as derailing the acquisition by Johnson & Johnson.

The cardiac company's August 60 put (GDT TL) has seen a heavy amount of activity today. This served to push GDT's Schaeffer's put/call open interest ratio (SOIR) to 1.71, the highest reading taken over the past 52 weeks. This indicates that the speculative group's pessimism toward GDT has reached an extreme. Working in direct contrast to this sentiment is the nearly 35-percent decline in short interest, indicating an unwinding of pessimism from the bearish community.

Where GDT may see a sizeable push is from analyst rankings. According to Zacks, the firm receives one "strong buy," one "sell," and one "strong sell" out of 21 ratings. The 18 remaining analysts feel that GDT is worthy of a "hold" designation, allowing for a sizeable push to either side should this group have a change of heart.

Heading into this negative announcement, GDT was approaching its all-time high of 75.37. Unfortunately, this news has caused GDT to fall further below the resistance it is finding at its 10-week and 10-day moving averages. In fact, GDT has found its way below prior resistance at the 69 level, which it gapped above in December when JNJ announced it was going to acquire the company. Before we begin to sing the death march for GDT, look at the monthly chart below. Notice that while GDT has fallen below the support of its 10-month moving average, its 20-month moving average is lurking just below ready to lend some much-needed support. Since 2003, GDT's 20-month trendline has acted as support when needed. For those who are faint of heart, GDT may be a stock to stay away from. However, should GDT receive a shock in the form of positive news, watch for the company's march higher to continue.

Click on the following link to see a Monthly Chart for GDT with 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=13477.

The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU4M&PAGE=1.

About Schaeffer's Investment Research ( www.SchaeffersResearch.com )

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 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 stock 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: http://www.SchaeffersResearch.com/method.

The Above Is an Investment Opinion Being Issued by Schaeffer's Investment Research.

Contact Information

  • Contact:
    Jocelynn Drake
    Schaeffer's
    Phone: 513-589-3800
    Email: Email Contact