Marvell Technology Group Ltd. (MRVL: sentiment, chart, options) offers digital and mixed-signal integrated circuits for data storage and broadband communications applications, according to Hoover's. Products include read channels (which convert analog data from a magnetic disk into digital data for computing), preamplifiers, and Ethernet switch controllers and transceivers. The fabless semiconductor company draws most of its sales from a few customers, including Western Digital, Toshiba, and Samsung Electronics.
The company is slated to slip into the earnings spotlight on Dec. 3, with analysts forecasting a profit of 27 cents per share. This estimate is up from the firm's year-ago profit of 23 cents per share. Historically, the company has put in a solid earnings performance, as MRVL has surpassed the consensus estimate in each of the past four quarters.
Heading into the earnings report, it initially appears that options players are optimistic toward the shares. The Schaeffer's put/call open interest ratio for MRVL stands at 0.53, as call open interest nearly doubles put open interest among options slated to expire in less than three months. What's more, this reading is lower than 72% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 28% of the time during the past 52 weeks.
However, put trading has been on the rise as traders grow more skeptical ahead of the event. The International Securities Exchange (ISE) has reported 1.3 puts purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 90.9% of all those taken during the past year, pointing to a growing skepticism.
What's more, the ISE/Chicago Board Options Exchange (CBOE) 10-day put/call volume ratio comes in at 1.05, which is higher than 91% of all those taken during the past 12 months.
At the same time, short sellers are adding to their bearish bets. During the past month, the number of MRVL shares sold short increased by more than 7% to 16.6 million. This accumulation accounts for more than 3% of the stock's float. This increase in short interest indicates that traders are preparing for a negative response to the company's earnings report.
Technically speaking, this growing skepticism comes as a surprise. The equity has skyrocketed more than 130% since the beginning of the year. The security rallied strongly from its November 2008 low of $4.48, and subsequently gained the support of its 10-week and 20-week moving averages. During this time frame, the equity has suffered only one weekly close below both of these trendlines. The stock is currently consolidating sideways under resistance in the 16-17 area, but could use its intermediate-term trendlines as a springboard to launch higher.
From a long-term perspective, the stock's strength has pulled its 10-month and 20-month moving averages into a bullish cross. This technical formation often signals long-term strength.
Overall, this combination of growing skepticism against the stock's strong technical backdrop and solid fundamental performance has bullish implications from a contrarian perspective. A strong earnings report from the company next week could result in a sharp rally for MRVL as traders jump on the equity's bandwagon.
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