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Bulls Think Twice as Pan American Silver Tags a New Low

Prior to earnings, short interest plummeted on downtrending PAAS

by 5/15/2012 11:35:45 AM
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Pan American Silver Corporation (PAAS - 15.78) has been a notable underperformer on the charts lately. On a relative-strength basis, the stock has lagged the broader S&P 500 Index (SPX) by 32.4% over the past three months. From a longer-term perspective, PAAS has retreated 27% in 2012, and has suffered a 50.4% year-over-year drop. After tagging a new three-year low of $15.32 earlier today, the shares are down more than 1.2%.


Checking out the sentiment backdrop, the bullish brokerages could jump ship, should PAAS' poor price action persist. There are eight "buy" or better endorsements, two tepid "holds," and two "sell" suggestions. Plus, the consensus 12-month price target rests at $30.06, which represents a whopping 96% premium to today's multi-year low of $15.32.

Elsewhere on Wall Street, there doesn't appear to be much pessimism priced into the shares. Short interest declined 80.1% over the past two reporting periods. These shorted shares now account for 1.7% of the equity's float, which signifies a rather meager supply of sideline cash.

Even options players are exceedingly optimistic toward PAAS. Throughout 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 38.10 calls for every put. This ratio arrives in the 96th percentile of its annual range, signaling that speculators on these exchanges have rarely bought calls over puts at a faster pace during the past year.

On the fundamental front, Pan American Silver is preparing to unveil its first-quarter results after the close tonight. PAAS failed to meet analysts' profit expectations in two out of the last four earnings reports.

Considering PAAS' already grim technical performance, downgrades and/or price-target cuts, or a capitulation among options bulls, could drag the shares lower. This overall downtrend could worsen if a new batch of shorts place their bets against the ailing mining issue -- especially in the wake of another weak earnings showing this evening.


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