Here at Schaeffer's, we couple our contrarian mindset with Expectational Analysis® -- a blend of technical, fundamental, and sentiment analysis -- to discover stocks with a composition that appears to be at odds with the market trend. For example, to find bearish opportunities, we search for instances of convergence between negative price action and a positive sentiment backdrop. Recently, Schaeffer's Senior Quantitative Analyst Rocky White conducted a study that uncovered stocks that fall to the bearish side of things. These equities are trading in negative territory for the year, but have been surrounded by optimism from many other angles: short sellers have become less and less interested, the options pits are loaded with calls, and analysts continue to maintain a bullish stance. Below are three of the more interesting set-ups for the nearly 50 stocks that matched these conditions.
So far this year, Caterpillar Inc. (CAT - 85.29) has pulled below breakeven by more than 5.6%, and has lost an even larger 12.6% during the past 52 weeks. Since tagging an all-time high of $116.95 back on Feb. 25, narrowly overcoming their May 2011 peak, the shares have suffered a more than 27% drop. On a relative-strength basis, the stock has lagged the broader S&P 500 Index (SPX) by 17.7% over the past 40 sessions. CAT is staring up at its 10-day and 20-day moving averages, which have acted as a technical ceiling since mid-April. The security is also in danger of notching its lowest weekly close since October 2011.
Despite this lackluster price action, 16 out of 19 analysts believe the blue chip component is worthy of a "buy" or better rating. To boot, the average 12-month price target sits at $129.79, which is a 52.2% premium to Tuesday's close of $87.05. This configuration leaves the possibility of future downgrades and/or price-target cuts.
On the options front, the 10-day call/put ratio for buy-to-open activity across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks at 1.3, signaling that calls outnumber puts among speculative players. This ratio is higher than it's been 71% of the time during the past year. Plus, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.96 indicates that calls narrowly outweigh puts among options slated to expire within three months. This ratio ranks in the 13th percentile of its annual range, suggesting that short-term options players have seldom been more call-heavy during the past year.
After climbing to a 2012 peak of $43.45 back on March 19, CIT Group Inc. (CIT - 33.74) burned off 22.7%, guided steadily lower by its 10-day and 20-day moving averages. This slide has pushed the stock to a year-to-date deficit of 3.6%, and a roughly 20.8% year-over-year loss. The shares are floundering below the $35-$36 region, which provided resistance throughout the latter half of 2011, and could do so again going forward.
Mid-Caps Nearing a Triple of March 2009 Lows
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