Texas Instruments (TXN)
The semiconductor sector has benefited greatly from the recent market leadership by technology stocks. Well-received earnings from networking leader Cisco Systems (CSCO) and business-as-usual comments from Intel's (INTC) chief financial officer have helped improve investor sentiment toward the group. The recent rebound in the technology sector underpins the recent gains in the Semiconductor HOLDRS Trust (SMH), with the exchange-traded fund (ETF) rallying more than 13% from its early August lows. As a result, the SMH currently rests above potential support at its 10-week moving average, and is consolidating its gains along support at the 30 level.
However, there are still technical hurdles that could scuttle the deal for the SMH. The trust is struggling with short-term resistance at the 31 level, while the equity's 20-month moving average has taken up residence in a region of former long-term support near 32. This overhead technical resistance, combined with the lagging performance of a few of the SMH's key holdings, could create trouble for the semiconductor sector going forward.
One of the biggest laggards in the semiconductor sector is Texas Instruments (TXN). The stock has failed to take full advantage of the recent rebound in technology stocks, and currently sits on a year-to-date loss of more than 23%, compared to the tech-laden Nasdaq Composite's (COMP) decline of roughly 7%. The shares are battling with resistance at their declining 10-week and 20-week moving averages, with the former rejecting the shares solidly during the past weeks. Additionally, TXN has plunged below the lower rail of a down-trending channel formed by a series of lower lows and lower highs. This downside breakout could be a sign of additional losses to come for the equity.
On the sentiment front, options players are attempting to call a bottom to TXN's decline. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.52 indicates that calls nearly double puts among options with less than 3 months until expiration. Furthermore, this ratio ranks below 85% of all those taken during the past year, indicating that traders have been more optimistic toward TXN only 15% of the time in the prior 52 weeks.
The majority of these bullishly oriented call options are situated at the out-of-the-money 27.50 and 30 strikes in the September and October series. For September, peak call open interest resides at the 27.50 strike, with nearly 26,000 contracts. Meanwhile, the October 30 call sports open interest of roughly 40,000 contracts. By comparison, peak put open interest for both months lies at the 22.50 strike, totaling roughly 18,000 contracts. This skew toward out-of-the-money call open interest means that investors may not be expecting TXN to fall much further, creating additional downside risk for the equity.
Meanwhile, Wall Street still has some lingering bullish analysts. According to Zacks.com , 9 of the 24 analysts following TXN rate the shares a "buy" or better. While this configuration is heavily weighted toward the bearish end of the spectrum, any downgrades from the remaining bulls could increase selling pressure on the security.
Option players should consider an in-the-money (27.50 strike) intermediate-term put option – the October put (premium is 11% of the stock price) or January 2009 put (premium is 14% of the stock price) - to take advantage of this opportunity that is attractive from our Expectational Analysis ® methodology perspective.
$29.86 (06/11/08)
