Citing increased plant downtime and pricing pressure on exports, Rock-Tenn Company (RKT - 68.44) this morning unveiled lower-than-projected second-quarter guidance. The Georgia-based company is looking for its adjusted per-share profit to range between 85 cents and 90 cents, falling well short of the consensus view for earnings of $1.12 per share.
RKT has taken a roughly 4% hit following this poor outlook, chipping away at its 9.7% year-long gain. At last look, the shares have dropped below the $70-$75 region, which has rejected all but one weekly close since February 2011. Resistance here looks to be firmly in place.
On the sentiment front, there appears to be an overwhelming preference for calls in the options pits. During the past 10 days, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 265.30 calls for every put. This ratio arrives in the 97th percentile of its annual range, signaling that speculators on these exchanges have seldom purchased calls over puts at a faster pace over the past year.
However, short sellers could be responsible for some of the call buying of late, picking up optimistic options to hedge their pessimistic positions. Short interest jumped 39% during the past month. The bearish bandwagon is far from crowded, though, as it would take just under three sessions to buy back all of these bearish bets, at RKT's average pace of trading.
Elsewhere on Wall Street, RKT could be prone to downgrades, should the shares continue to slide. All nine of the analysts following the packaging maker maintain "buy" or better ratings, according to Zacks
Should RKT prolong its journey beneath familiar resistance, a change of heart among upbeat brokerages, or a continuation of the recent short-selling trend, could create further obstacles for the stock. On the other hand, RKT is still trading above its 10-week and 20-week moving averages, which have provided support since late October. During the near term, this trendline duo could help contain any weakness in the shares.
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