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3 Stocks to Watch: Caterpillar, Intel, and Microsoft

Brokerage firm predicts consolidation in chip sector

by 1/12/2010 10:10:27 AM
Stocks quoted in this article:

Caterpillar (CAT)

Caterpillar Inc. (CAT: View sentiment for CATsentiment, chart, options) was the center of some brisk options trading on Monday, as more than 119,300 contracts changed hands. This surge in volume was more than four times the equity's average daily trading volume of 28,850 contracts, according to data from WhatsTrading.com. In addition, roughly 60% of the volume changed hands on the call side.

Digging into the action in the front three months of options, we find that the January 65 call added 2,000 new positions, while the January 60 call shed 2,500 positions. In the February series, the 62.50 and 65 calls added approximately 3,000 contracts each.

Calls have grown in popularity on the International Securities Exchange (ISE) recently for CAT. During the past 10 trading sessions, 1.2 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 92% of all those taken during the past year.

However, sentiment is still far from an optimistic. The Schaeffer's put/call open interest ratio (SOIR) for CAT still rests at 2.06, as put open interest doubles call open interest among options slated to expire in less than three months. This ratio is also higher than 63% of all those taken during the past year. A continued unwinding of this skepticism could boost the shares.

Technically speaking, the stock has gained an impressive 12% since the start of the new year, and has surged through former resistance at the round-number 60 level. The equity is now trading at its highest level since early October 2008.



 DAILY CHART OF CAT SINCE MARCH 2009

Intel (INTC)

The semiconductor sector could see some action today after JPMorgan commented that the chip sector appears due for consolidation in 2010, and could see a "big strategic acquisition" as the market stabilizes. The brokerage thinks Intel Corp. (INTC: View sentiment for INTCsentiment, chart, options) could take aim at Xilinx (XLNX). Meanwhile, Analog Devices (ADI) may be looking to boost its power management business, with likely targets National Semiconductor (NSM), Intersil (ISIL), or Monolithic Power (MPWR), according to JPMorgan.

Options traders jumped on Intel on Monday, as more than 215,200 contracts changed hands. This surge in volume was more than three times the equity's average daily trading volume, according to data from WhatsTrading.com. In addition, approximately 62% of the volume changed hands on the call side.

Looking at the action in the front three months of options, we find that the January 20 call shed 9,000 positions, while the January 21 call added 15,000 new positions. Elsewhere, the February 23 call added 11,000 new positions and the February 21 call added 5,000 new positions.

In fact, the ISE has seen an increase in call trading. During the past 10 trading sessions, four calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 87% of all those taken during the past year, pointing to a growing optimism.

From a technical perspective, the equity has edged less than 3% higher since the start of 2010. During the past several months, the security has been grinding sideways along support at the 19 level while hitting resistance in the 21 region.



 DAILY CHART OF INTC SINCE MARCH 2009

Microsoft (MSFT)

The shares of software giant Microsoft Corp. (MSFT: View sentiment for MSFTsentiment, chart, options)

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