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AtomIf you're looking for volatility, the financial sector is the place to be. The group has been plagued with negative news recently, from Lehman Brothers (LEH) announcing that it would seek Chapter 11 bankruptcy protection, to American International Group (AIG) needing to be bailed out by the government. Meanwhile, Merrill Lynch (MER) will be acquired by Bank of America (BAC), while Washington Mutual (WM) and Morgan Stanley (MS) are still looking for possible bidders. Undoubtedly, consolidation has become the name of the game, as the financial sector works its way through the current credit crunch.
Added to the mix is the government, as it attempts to improve liquidity and save the remaining companies in the financial sector. On Friday, the Securities and Exchange Commission (SEC) announced a temporary ban on the short selling of roughly 800 financial names. Meanwhile, the Fed continues to pump funds into the market, with Treasury Secretary Henry Paulson encouraging Congress to act swiftly in passing a $700-billion bailout plan.
As a result, the financial sector has skyrocketed, with the Select Sector SPDR Financial Fund (XLF) up more than 23% at one point during the session on Friday. But for some stocks within the sector, Friday's rally doesn't mark the start of a new uptrend for them; they've actually displayed technical strength amid all the turmoil mentioned above.
One such stock that has been an impressive performer is Wells Fargo & Company (WFC). The equity last week broke through long-term resistance at the 38 level and tagged a fresh all-time high of $44.75. In fact, the security has been in an uptrend since hitting a near-term low in mid-July.
However, investors remain extremely skeptical of the shares. The Schaeffer's put/call open interest ratio, which compares put open interest against call open interest for options with less than 3 months until expiration, stands at 2.54. This reading indicates that there are about 2.5 puts for every call among near-term options. This ratio is also higher than 79% of all those taken during the past year, indicating a high level of skepticism.
What's more, there has been heavy put activity on the International Securities Exchange (ISE). During the past 10 days, there has been an average of roughly 3 puts bought to open for every call. This ratio of puts to calls is higher than roughly 82% of all those taken during the past year.
Wall Street is giving the security the cold shoulder at the moment, with Zacks reporting 4 "buy" ratings, 4 "holds," and a whopping 7 "sell" ratings. This configuration leaves ample room for potential upgrades that could boost the security.
To take advantage of the stock's uptrend, options players should consider an in-the-money (35 strike) intermediate-term call option – the November call (premium is 12% of the stock price) or January 2009 call (premium is 15% of the stock price) – to take advantage of this opportunity that is attractive from our Expectational Analysis® methodology perspective.
Option players seem well aware of the bullish prospects for U.S. Bancorp (USB). Thursday on the International Securities Exchange (ISE), traders bought to open 7,751 calls and 2,432 puts. USB's single-day call/put ratio on the ISE was 3.19, as bullish bets more than tripled their bearish counterparts.
Meanwhile, on the Chicago Board Options Exchange (CBOE), traders on Thursday bought to open 2,208 calls and 1,035 puts on USB. The equity's single-day call/put ratio on the CBOE was 2.13, revealing an optimistic bias similar to that seen on the ISE.
In fact, USB's option volume on the ISE has been bullishly skewed throughout the past couple of weeks. The security's 10-day call/put ratio is 1.46, which ranks higher than 66% of comparable readings taken during the past year.
As a result of Thursday's surge in call-buying, USB's Schaeffer's put/call open interest ratio (SOIR) dropped overnight from 0.86 to 0.82. The new SOIR ranks in the 42nd annual percentile, roughly in line with the slightly elevated bullish sentiment revealed by the ISE 10-day call/put ratio.
Despite the bank's presumably solid capital position and relatively robust balance sheet, the shares of USB haven't done a whole lot in the past couple of years. Since early 2007, the equity has been stifled by resistance in the 34-to-35 region. In fact, it took no less a catalyst than the government's newly announced bailout plan for banks to send the stock soaring through this staunch ceiling.
So, now that USB has topped this region of resistance, can the stock maintain a foothold above it? Well, last week's close atop this region could be a positive development, and indicates that this level might be gearing up to switch roles and act as support. In the meantime, an utter lack of short-selling activity should provide additional relief for the stock.
Friday morning, investors learned that USB was one of 799 financial-sector stocks on which short-selling activity is now banned. Since the stock has been a favorite target of the shorts this year, the emergency ruling by the Securities and Exchange Commission should result in a noticeable decrease in selling pressure on the shares.
In fact, short interest on U.S. Bancorp rose by 3.5% during the most recent reporting period, and now accounts for 4.6% of the stock's available float. At the equity's average daily volume, this translates to roughly a week's worth of potential sideline cash. If these bearish bettors decide to buy back their shorted shares, it could result in some healthy gains for USB.
And, as USB emerges as one of the better-capitalized banks out there, there's room for some potential analyst upgrades. Zacks reports just 3 "strong buy" ratings, compared to 8 "holds," 1 "sell," and 3 "strong sells." Any bullish notes from this skeptical group could draw new buying pressure to the stock -- particularly if it can establish a foothold atop former resistance.
Plus, the security looks overdue for some price-target increases. Thomson Financial reports that the average 12-month price target on USB is $28.82, a discount of nearly 24% to the stock's closing price Friday. This average goal seems even more modest when we consider that USB has found support in the 29-to-30 neighborhood since mid-2007. Any upward revisions to this consensus estimate could also be a boon for the bank.
Overall, U.S. Bancorp seems like a solid prospect in the financial sector. However, investors will want to keep an eye on the 34-to-35 region in the coming days and weeks. If the equity slips back below this region, it could indicate that its range-bound ways will continue during the near term.
Wilmington Trust Corporation (WL)
Wilmington Trust Corporation (WL) boasts an unusually high SOIR. More specifically, the stock's SOIR is currently docked at 2.91, indicating that puts nearly triple their call rivals among near-term options. Furthermore, this configuration ranks in the 91st annual percentile, meaning short-term options speculators have been more wary of the equity only 9% of the time during the past 52 weeks. However, it should be noted that options trading is rather minimal on WL, with fewer than 5,000 contracts in the front-3 month's series of options.
In the wake of the government's bailout plans for the financial sector, as well as the Securities and Exchange Commission's (SEC) new short-selling ban, the broad market – especially financials – skyrocketed on Friday. After further research, it seems that Wilmington Trust was no exception.
On Friday, the shares of WL closed at $35.75, a gain of about 20% from Thursday's close. However, earlier in the session, the stock powered more than 16 points higher to hit a new all-time high of $46.75. Last week's rally has also positioned the security for yet another milestone; the equity is now poised to close the month atop resistance from its 10-month moving average for only the second time since September 2006.
Meanwhile, in parity with the skepticism among options players is the sentiment on the Street. According to Zacks, all 7 of the ranking analysts rate WL a "hold" or worse. Furthermore, Thomson Financial reports that the average 12-month price target on the equity stands at $26.67 – about $3 below the stock's current trading range, and more than 20 points below the equity's impressive new high.
Should the shares manage to close the month atop long-term resistance, the bears in the brokerage bunch could be encouraged to change their tunes. In fact, just Friday RBC Capital boosted the stock to "sector perform" from "underperform." Any additional upgrades and/or price-target increases could further WL's recent trek into the black.
In conclusion, WL followers should keep an eye on the stock's 10-month trendline. As this moving average has capped the security's rally attempts for nearly 2 years, a monthly close atop it could inspire the skeptics to reevaluate their positions. An unraveling of pessimism – whether in the options realm or via upgrades and/or price-target boosts – could place additional buying pressure on the equity.
This article takes a look at trendy retailer Urban Outfitters (URBN: 
sentiment, chart, options) in the wake of a massive insider transaction. Richard Hayne, the chain's chairman and president, recently sold 1.4 million URBN shares for slightly less than $50 million -- an average price of $35.78 per share. Despite the retailer's solid year-to-date gain of 30%, the author posits that Hayne may be selling as a preemptive strike against a plunge in the stock.
Amy Noblin, an analyst with Pali Research, offers her take on the situation. "You never like to see insiders selling stock," the article quotes her as saying. "But I don't think it's reflective of this company's fundamentals." She then adds that URBN is worth $45 to $50 per share "in a good environment, but that's not the environment we're operating in." The analyst maintains a "neutral" rating on the shares.
Contrarian Takeaway:
It's hard not to be impressed by URBN's price action amid the recent market turmoil. Since hitting a near-term low of $19.20 in August 2007, the stock has gained more than 84%. Solid support for this uptrend has come from the equity's 10-week and 20-week moving averages. In fact, the shares have finished just 1 week south of this trendline duo since October 2007.
Meanwhile, heavy levels of pessimism continue to surround this outperforming issue. Short interest represents a whopping 30% of URBN's float, representing a massive amount of sideline cash to help the stock extend its rally. At the security's average daily volume, it would take more than 15 days for all these bearish bets to be repurchased. Likewise, 47% of analysts following the shares maintain a "hold" or worse rating, which leaves ample opportunity for upgrades as URBN continues to climb.
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| Highest Option Volume for the Week Ending Monday, September 22, 2008 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | Put/Call Ratio | ||
| Spdrs(SPY) | 567,405 | 762,265 | 1,329,670 | 1.34 | ||
| S&P 500 Index(SPX) | 504,295 | 662,828 | 1,167,123 | 1.31 | ||
| Sel Sec Spdrs Fd Financial(XLF) | 453,674 | 693,582 | 1,147,256 | 1.53 | ||
| Nasdaq 100 Index Trckng Stck(QQQQ) | 415,325 | 444,320 | 859,645 | 1.07 | ||
| Ishares Msci Emerging Markets(EEM) | 255,216 | 286,088 | 541,304 | 1.12 | ||
| Ishares Russell 2000 Index(IWM) | 105,484 | 372,576 | 478,060 | 3.53 | ||
| Citigroup Inc(C) | 127,676 | 100,737 | 228,413 | 0.79 | ||
| Bank of America Cp(BAC) | 117,586 | 82,973 | 200,559 | 0.71 | ||
| Russell 2000 Index(RUT) | 124,781 | 70,649 | 195,430 | 0.57 | ||
| American International Group(AIG) | 118,623 | 20,944 | 139,567 | 0.18 | ||
| Highest Option Volume Compare to Average Volume for Week Ending Monday, September 22, 2008 | ||||||
| Ticker Symbol | Call Volume | Put Volume | Total Volume* | 5-week Avg Volume | Volume Ratio | Put/Call Ratio |
| American Electric Power Co Inc (AEP) | 5,021 | 16,818 | 21,839 | 5,619 | 0.30 | 3.35 |
| Aon Cp (AOC) | 15,154 | 5,029 | 20,183 | 5,352 | 3.01 | 0.33 |
| Bce Inc (BCE) | 5,483 | 19,461 | 24,944 | 5,937 | 0.28 | 3.55 |
| Anheuser Busch Companies Inc (BUD) | 49,754 | 55,087 | 104,841 | 24,557 | 0.90 | 1.11 |
| Chubb Cp (CB) | 60,697 | 18,617 | 79,314 | 19,622 | 3.26 | 0.31 |
| General Growth Properties (GGP) | 17,709 | 29,921 | 47,630 | 12,837 | 0.59 | 1.69 |
| Hj Heinz Co (HNZ) | 66,107 | 4,807 | 70,914 | 16,212 | 13.75 | 0.07 |
| State Street Cp (STT) | 25,430 | 53,560 | 78,990 | 21,970 | 0.47 | 2.11 |
| Tempur-pedic International (TPX) | 995 | 27,203 | 28,198 | 7,612 | 0.04 | 27.34 |
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