SOURCE: Schaeffer's Investment Research

June 28, 2005 17:03 ET

Schaeffer's Midday Options Update Features Google, Advanced Micro Devices, Goldman Sachs, and Marvell Technology Group

CINCINNATI, OH -- (MARKET WIRE) -- June 28, 2005 -- Today's Schaeffer's Midday Options Update features Google (NASDAQ: GOOG), Advanced Micro Devices (NYSE: AMD), Goldman Sachs (NYSE: GS), and Marvell Technology Group (NASDAQ: MRVL). 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: A Marvell Stock

Crude futures on the New York Mercantile Exchange eased back this morning, slipping below $60 per barrel and boosting Street confidence enough to send the Dow Jones Industrial Average toward another triple digit day. Adding to the optimism, the Conference Board reported that its index of consumer confidence hit a three-year high in June. The figure came in at 105.8, from 103.1 in May. The median estimate in a Dow Jones Newswires survey was 105.0.

Less than two years after the August 14, 2003 mega-outage that left 50 million people without power and, according to CNN, cost New York City over half a billion dollars, the U.S. Senate has voted 85-12 in favor of an energy bill aimed at boosting use of renewable energy, preventing major power outages and blackouts, and encouraging companies to invest in environmentally friendly technologies. With such intense focus on energy stocks at present, this news makes renewable-energy stocks particularly interesting.

Google Goodies for Free

Yesterday afternoon, Google (NASDAQ: GOOG) surged through the $300 mark, turning anyone fortunate enough to own 3,334 of GOOG shares into a millionaire. In pre-market trading the stock went even higher, and it stood at 308.07 at last check. Also today, GOOG revealed its latest plans for Keyhole, the technology it acquired last year, dubbed as "The Ultimate Interface to the Planet." Keyhole provides compelling satellite images of Earth, and originally Keyhole users had to pay a fee, a concept that GOOG aficionados found very alien. But now the service is free, and a software download gives you access to hosts of goodies. You can tilt and rotate three-dimensional views of buildings in major U.S. cities, plus images of mountains, valleys, and canyons around the world. The service is integrated with Google Local search to find local information such as hotels, restaurants, schools, parks, and transportation.

AMD Throws its Chips on the Table

Advanced Micro Devices (NYSE: AMD) is suing Intel (INTC) over competitive practices that it feels are unfair, including improper subsidies designed to increase market share, and threats of retaliation against firms that use or sell AMD chips. The Wall Street Journal reported Tom Beerman, an INTC spokesman, saying: "We believe our sales practices are both fair and consistent with federal antitrust law." In a 48-page document, AMD lists examples of what it claims to be bribes, threats or intimidation by INTC involving 12 computer makers, nine distributors and 17 retailers, based primarily on discussions between AMD and chip users. Both AMD and INTC stocks are showing gains today.

Goldman Sacked

Goldman Sachs Group (NYSE: GS) is set to let go about 30 traders in its equity and convertible securities department. This is being seen on the Street as a sign that equity trading is a low-profit activity. Stock in GS is up 0.89 percent on the news.

Burger King Opens on Wall Street?

News came in today that Burger King might go public as early as next year, according to company executives. The number-two burger broker behind McDonald's (MCD) is currently owned by an investment group led by Texas Pacific, which bought Burger King in 2002. Stock in MCD was unworried, standing up 0.39 percent at last check..

Most-Active Options Update

At 1:46 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,377.3) has added 0.84 percent, and the S&P 500 Index (SPX - 1199.77) has gained 0.76. The Nasdaq Composite (COMP - 2,065.4) has climbed 0.99 percent. At 1:46 p.m., 1,500,318 calls have traded hands compared to 1,140,136 puts, for a total put/call single-day volume ratio of 0.75 across all six options exchanges. The CBOE's put/call volume ratio stands at 0.75 today.

Marvell Technology Group

Based in the Silicon Valley town of Sunnyvale, Marvell Technology Group (NASDAQ: MRVL) is another of those "fabless" chip designers we keep hearing about. Fabless chip shops design chips, but the fabrication is farmed out, leaving MRVL has no need for clean rooms, nor of the expensive and intricate machinery that goes into them. MRVL designs and sells "revolutionary devices that touch every point of the communications infrastructure," according to the firm's website.

Today saw enough put activity to push MRVL onto our most active options list. Two blocks of puts crossed the tape, with July 40 and August 40 strikes. The price was close to the ask in both cases, suggesting the trades were purchases.

The stock has shown some significant gains recently. The daily chart shows a degree of resistance from the 10-day and 20-day moving averages, but the weekly chart shows very consistent growth and strong support from the weekly moving averages. Which is more powerful: resistance from the daily trendlines or support from the weeklies? The answer depends on your timescale, but ultimately the weeklies ought to win more frequently than they lose. I see support at 38 on the daily chart. If that holds, it'll be a good sign.

Wall Street loves MRVL stock. From Zacks I see that 21 analysts rate the stock: six have it at "hold," while I see one "buy" and 12 "strong buy" ratings. There are just two "sells." The stock is doing well, I know, but this level of enthusiasm leaves room for downgrades galore if the stock ever stumbles.

Equities players have sold 9.6 million MRVL shares short, bringing the short interest down by 15.24 percent since May. The previous month saw a fall of 10.29 percent, so it is clear that optimism is growing. The short-interest ratio is less than three days to cover, which makes a short-covering rally unlikely.

What about the options pits? The Schaeffer's put/call open interest ratio (SOIR) for the stock is 0.72, indicating three calls for every four puts in the front three months of options. This is more positive than 87 percent of readings taken over the past year, another sign of great optimism. There is little front-month open interest, so options-related support or resistance are not factors at the moment.

Remember, as contrarians we look for one of the following situations:

* Fundamental and technical strength amid pessimistic sentiment. This is a signal that upside movement could be on the way if any significant good news comes along.

*Fundamental and technical weakness amid optimistic sentiment. This is a signal that downside movement could be on the way if any significant bad news comes along.

Neither of these situations currently applies to MRVL. The sentiment is optimistic and the stock is stellar. But take another look at that second bullet point. To support all those optimists, MRVL needs to produce marvels every quarter.

On our Schaeffer's Equity Scorecard the stock earns itself 4.0 out of 10.0, indicating, by a small margin, that the path of least resistance might be to the downside. That suggests to me that the optimism is a little too high right now. No matter what a firm does, it's disturbingly easy to disappoint investors if they have ultra-high expectations.

Click on the following link to see a Weekly Chart for MRVL with 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=13506.

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 at Schaeffer's
    Phone: 513-589-3800
    Email: Email Contact