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Despite Friday's Positive Momentum, Tech Components Marvell Technology and Intel Corporation Continue to Struggle
8/23/2010 1:45:00 PM
By: Schaeffer's Investment Research
Despite last Friday's round of dismal economic data, tech stocks managed to come out ahead, led by a positive forecast from Marvell Technology Group Ltd. ( MRVL ). In fact, both MRVL and its sector peer Intel Corporation ( INTC ) saw a massive amount of call volume on Friday. However, this call volume was not necessarily bullish. Let's take a closer look at Friday's call volume, as well as each stock's technical and sentiment backdrops.
Marvell Technology Group Ltd. ( MRVL )
MRVL led the sector on Friday, after the company said that it projected earnings of 40 cents per share for its third quarter and announced a share repurchase program. MRVL took its turn in the earnings spotlight on Thursday, when the company reported a consensus-beating second-quarter profit of 40 cents per share. JPMorgan subsequently raised its price target on MRVL from $23 to $24, while BMO upped its price target on the tech company from $15 to $18.
All in all, the brokerage bunch is optimistic toward the semiconductor stock, with Zacks indicating that 22 out of 27 analysts call MRVL a "buy" or better -- 16 of which are "strong buys."
Option players also maintain an upbeat outlook on MRVL, as evidenced by the stock's 10-day International Securities Exchange (ISE) and Chicago Board Options Exchange ( CBOE ) call/put volume ratio of 3.94, revealing that calls bought to open have nearly quadrupled puts purchased during the past two weeks. This ratio ranks in the upper half of its annual range, revealing that traders on the ISE and CBOE have shown a greater appetite for bullish bets on MRVL than usual lately.
On Friday, 107,000 calls crossed the tape -- five times MRVL's expected single-session call volume of just 19,000 contracts. However, traders weren't necessarily initiating bullish bets.
The September 15 call was most popular on Friday, with over 25,000 contracts traded -- the majority of which changed hands at the bid price, revealing they were likely sold. Over the weekend, open interest fell by over 10,000 contracts, to 20,542. With MRVL jumping from below $15 to above $16 on Friday, these newly in-the-money contracts could have been liquidated long calls.
On the charts, MRVL's performance has been less than marvelous lately. The shares have shed over 22% in 2010, falling steadily since hitting an April peak above $22. Since then, MRVL has been guided lower by its 10-week and 20-week moving averages, which have stifled the stock's progress since April 30.
MRVL is now taking on its 10-week trendline, fueled by Friday's positive price action. Should MRVL tackle this intermediate-term moving average -- located just below the $16 level -- the stock faces an additional layer of resistance around $18, site of its 20-week trendline. With several technical hurdles ahead, it seems likely that MRVL will continue to remain in technical limbo, at least in the near term.
Intel Corporation ( INTC )
Meanwhile, INTC saw volume of 102,000 calls cross the tape on Friday -- double the tech stock's expected single-session call volume of around 51,000 contracts.
Traders looked ahead to the October series, with 11,389 contracts traded on the October 19 call -- 69% of which changed hands at the bid price, revealing they were likely sold. Over the weekend, open interest at this strike jumped by 7,279 contracts, confirming that new positions were added here.
One strike higher, over 9,000 contracts traded on the October 20 call. Most of these calls traded at the bid price, and open interest increased by 8,202 contracts over the weekend, indicating that these calls were also sold to open.
With INTC hovering around $18.74, it seems that option traders are expecting the stock to remain somewhat stagnant over the next few months. Technically speaking, the equity has been range-bound between the $19 and $22 levels for the past few months. Throughout this time, INTC has faced additional overhead resistance from its 10-week and 20-week moving averages, which have conspired to confine the shares since April.
However, in the past few weeks, INTC has been slipping steadily lower, breaking beneath the lower rail of its trading range. Going forward, the $19 level, which formerly served as support, could now act as resistance to the shares. In fact, with peak put open interest for the September series at the 19 strike, it seems that quite a few traders are counting on INTC to remain beneath this level in the near term.
Meanwhile, there is still plenty of room on INTC's bearish bandwagon. The stock's Schaeffer's put/call open interest ratio (SOIR) stands at 0.81, in the 56th annual percentile. In other words, short-term option traders are more bearish toward INTC than usual lately, but pessimism is nowhere near peak levels, and could continue to mount as the tech stock treks lower.
In other words, while the tech sector weathered last week's economic storm, going forward, the short-term outlook for sector favorites MRVL and INTC isn't exactly looking sunny.