Today's column includes major accounting trouble for SunPower Corporation (SPWRA), an upgrade for Exxon Mobil Corporation (XOM), an end to the CEO search for Lazard Ltd. (LAZ), and a new joint venture for General Electric Company (GE). Each day, Options Edge focuses on the hot stocks in the news and gives you a unique insight into each stock's sentiment backdrop. Our time-tested contrarian approach centers on options, and gives you the trading tools to approach the day with a much-needed edge over the investing herd.
SunPower Corporation
SunPower Corporation (SPWRA: sentiment, chart, options) is attracting dubious attention this morning, after making an announcement late Monday that the firm's books are harboring accounting errors. The California-based company said that an investigation was triggered after an internal review of its manufacturing operations in the Philippines discovered unsubstantiated accounting entries.
So far, the SPWRA audit committee has unearthed $1 million of overstated expenses in the first-quarter costs of goods sold, along with $16 million of understated expenses in costs of goods sold across the second and third quarters. The company estimates that roughly $9 million of the accounting entries at issue should have been made in 2008, rather than 2009, raising the prospect that accounting results for the previous fiscal year may need to be restated.
SPWRA has been hit with two downgrades this morning, with Piper Jaffray dropping the stock from "overweight" to "neutral" and FBR Capital slashing its rating from "outperform" to "market perform." Shares of the alternative energy issue are off nearly 15% ahead of the open, placing them well below stubborn resistance at their 10-month moving average.
Meanwhile, the equity's call players will likely be frustrated by today's plunge. Front-month bulls were playing it safe by favoring the in-the-money 25 strike, which carries peak call open interest of 4,343 contracts. However, thanks to today's early losses, this call strike will be out of the money when the opening bell sounds.
Exxon Mobil Corporation
Exxon Mobil Corporation (XOM: sentiment, chart, options) scored an upgrade from Barclays this morning, with the firm boosting its opinion of the oil major from "equal weight" to "overweight." The brokerage house expects that XOM can manage organic growth of more than 3% in 2010, with an average annual growth rate of 2.6% through 2013. Barclays also hiked its price target on XOM from $90 to $92, implying expected upside of about 24% from Monday's close.
XOM is fractionally higher in pre-market trading, with the shares preparing to launch another challenge of resistance at the $75 level. This region has held the energy issue in check since mid-June.
As the equity stagnates beneath this technical barrier, option traders are beginning to display a growing bearish bias toward XOM. During the past 10 days, speculators on the International Securities Exchange (ISE) have bought to open 1.02 puts for every call on the stock. This ratio ranks higher than 60.5% of comparable readings taken during the previous year, suggesting that traders are picking up puts over calls at a slightly faster pace than usual.
Lazard Ltd.
Lazard Ltd. (LAZ: sentiment, chart, options) has named company veteran Kenneth Jacobs as its new CEO and chairman, following a unanimous vote by the board of directors. Jacobs, 51, has been with Lazard since 1988, becoming partner in 1991. He ascended to the role of deputy chairman in 2002. The new chief executive succeeds well-known Wall Street player Bruce Wasserstein, who passed away in October.
LAZ has surged roughly 7% ahead of the open, adding to its year-to-date advance of 33.3%. The equity is perched on support at its 10-week moving average, which could help LAZ take out troublesome resistance from the round-number $40 region.
However, the stock has quite a bit more climbing to do before it lives up to option traders' high hopes. Peak call open interest for November lies at the out-of-the-money 45 strike, with 1,021 contracts in residence.
General Electric Company
General Electric Company (GE: sentiment, chart, options) announced today that it has signed a memorandum of understanding with China's Shenhua Group Corp. to develop and promote clean coal technology. A joint venture between the two will "combine GE's expertise in gasification and cleaner power generation technologies with Shenhua's expertise in building and operating coal gasification and coal-fired power generation facilities," according to a company release.
GE has ticked a few pennies higher in electronic action, continuing its sluggish price trend -- the security is down 1.2% in 2009, lagging the broader Dow Jones Industrial Average (DJIA) by a notable margin. The shares are currently sandwiched between support at their 10-week moving average and resistance in the $16.50 neighborhood.
Speculative investors seem enthused about GE's prospects, judging by recent buy-to-open option volume. The equity's 10-day ISE call/put volume ratio stands at 2.84, with bullish bets nearly tripling their bearish counterparts during the past two weeks. This ratio ranks in the 98th annual percentile, just two percentage points from an annual optimistic peak.
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