Tiffany & Co. (TIF: sentiment, chart, options) appeared on our radar this week after receiving more than its fair share of attention from put players. In fact, during the past 50 trading days, the upscale jeweler has racked up one of the most lopsided put/call volume ratios on the International Securities Exchange (ISE). With the high-end retailer scheduled to report its second-quarter earnings in a little over a week, we decided to take a closer look at the prospects for TIF.
Starting with the technicals...
At first glance, shares of the retailer are looking pretty solid. Year-to-date, TIF has outperformed the broader S&P 500 Index (SPX) by a healthy margin. The security is approaching a gain of 30% for 2009, while the SPX has muscled its way just about 10% higher. During the past 40-day period, TIF has bested the broad-market barometer by eight percentage points.
However, there are some concerns for TIF from a technical perspective. The stock's upward momentum was recently thwarted by resistance at its 80-week moving average. This particular trendline previously served as support, but it began to switch roles during the early months of 2008. Since last September, this long-term moving average has acted as an impenetrable technical roadblock.
Meanwhile, support from the security's 10-week and 20-week moving averages lies a couple of points below TIF's current price, leaving room for the shares to pull back even further before finding a floor. If this double-barreled support holds, it could provide a springboard for TIF to re-test resistance at its 80-week trendline.
With the stock resting at this critical juncture on the charts, the reaction to TIF's second-quarter earnings report should be interesting. The company is due to take the earnings spotlight before the market opens next Friday, Aug. 28. Analysts, on average, are expecting the retailer to report earnings of 33 cents per share, down sharply from 63 cents per share in the year-ago period. TIF has a solid history when it comes to quarterly reports, having exceeded Wall Street's consensus profit estimates in each of the previous four reporting periods.
Despite this solid fundamental track record, investors are pricing plenty of pessimism into the shares ahead of earnings.
Put volume spikes on the ISE
As we noted in the introduction, buy-to-open put volume has exploded lately on TIF. During the past 50 sessions, option players on the ISE have bought to open nearly 25,000 puts on the equity, compared to fewer than 7,000 calls that were purchased.
This pessimistic bias has only intensified of late, with TIF sporting a 10-day ISE put/call volume ratio of 23.83. In other words, nearly 24 times more bearish bets than bullish have been bought to open within the past two weeks. Plus, this ratio ranks in the 95th annual percentile, suggesting that speculators on the ISE have snapped up puts over calls at a faster pace just 5% of the time.
As a result, puts now outnumber calls by a margin of more than three-to-one among options set to expire within three months, as evidenced by TIF's Schaeffer's put/call open interest ratio (SOIR) of 3.41. Similar to the ISE 10-day put/call volume ratio, the SOIR is hovering just eight percentage points from its own annual pessimistic peak.
Elsewhere, short interest still accounts for a lofty 11.1% of the equity's available float, or approximately 6.2 times TIF's average daily trading volume. However, many of these bears have been forced out by the stock's positive price action, with the number of shares sold short down by about 10% during the past month. A continuation of this short-covering trend could contribute to additional gains for the security.
Overall, it's hard to be outright bullish on TIF as long as resistance looms from its 80-week moving average. However, the setup looks pretty favorable heading into next week's earnings report. With plenty of negative sentiment surrounding the shares, they could be propelled sharply higher if the second-quarter numbers come in better than expected. In fact, even if the earnings results fall short of forecasts, the high levels of pessimism on Wall Street could effectively limit the stock's downside as bears move in to take profits.
As always, please contact us with any questions, comments, or suggestions for future columns.
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