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A daily feature available on SchaeffersResearch.com is "Street Chatter." Every day, we'll focus on three newsworthy stocks that are generating a lot of attention on Internet message boards. By digging into the stock's option activity and trading performance, we hope to shed some light on the securities. The focus of today's feature is Harris & Harris, Pfizer, and ON Semiconductor.



Harris & Harris

Two blocks away from Central Park in the City of New York, Harris & Harris (TINY: sentiment, chart, options) focuses on companies with big ideas about small things. According to TINY's website: "Since August of 2001, Harris & Harris Group has made all of its initial investments in tiny technology. Tiny technology includes nanotechnology, microsystems and microelectromechanical systems (MEMS)."




The monthly chart shows that the stock has enjoyed many adventures, but the trend since early 2003 has been to the upside, albeit via a rocky path. I notice the volume has ramped up in recent months, and the 20-month moving average, which offered considerable support until February of this year, has now turned resistive. The daily chart shows the stock adding almost 24 percent since an April 18 low at 10.01, a healthy gain and a signal of round-number support at the 10 level, which is reassuring. There's a bearish cross of the moving averages, which sours things a little, but upward momentum looks encouraging.




What about the sentiment? What are the brokers, the equities players, and the options players doing with TINY? The brokers, just a few miles downtown, appear not to have spotted TINY yet. Just two of them rate it, at a "buy" and a rare "strong buy." While this optimism leaves plenty of room for downgrades, there is also plenty of room for extra coverage so, from our contrarian perspective, I don't see broker sentiment as a major factor just now. Remember, as contrarians we look for one of the following situations:

  • Fundamental and technical strength amid pessimistic sentiment. This is a signal that upside movement could be on the way if any significant good news comes along.
  • Fundamental and technical weakness amid optimistic sentiment. This is a signal that downside movement could be on the way if any significant bad news comes along.

Moving on to the equities players, short interest on TINY is huge. The short-interest ratio is 11.33 days to cover, meaning that it would take more than two weeks at current average trading volumes for short sellers to cover their positions. Take another look at that first bullet point, and you'll see where this story might be heading. I see that short interest increased a little last month, and now 11.36 percent of the float is sold short.




Finally, the options players are clustered toward the pessimistic end of the spectrum. The Schaeffer's put/call open interest ratio (SOIR) stands at 0.43. This sounds like an optimistic level, telling us that calls outnumber puts in the front three months of options by more than two-to-one. This is misleading, and the annual SOIR chart for TINY shows us why. Apart from a brief spike higher during parts of March and April, the stock's SOIR has never really been this pessimistic.

Remember, the analyst ratings are not negative, so sentiment for this stock is mixed, but that short interest is at a high level makes TINY very interesting. It earns TINY a Schaeffer's Equity Scorecard rating of 6.5 out of 10.0 indicating that the path of least resistance is to the upside. TINY operates in a very uncertain field, one which brings breakthroughs at unpredictable moments. Watch for further increases in that short-interest ratio and watch for news that might trigger a short-covering rally. Press releases are available on TINY's website, so it'll only cost you a mouse click.






Pfizer

A short cab ride from TINY's office lies Pfizer's (PFE: sentiment, chart, options) 42nd Street midtown headquarters. The maker of Viagra, Celebrex, Zoloft, Benadryl, and Sudafed was mentioned in this column just a few days ago thanks to PFE's partnership with Eyetech Pharmaceuticals (EYET: sentiment, chart, options) to develop a drug called Macugen, a treatment for age-related macular degeneration, which found enough favor with the Food and Drug Administration to win itself fast-track status.

The daily chart of PFE's performance is appealing. It shows a good run since February, with the stock tacking on something like 18 percent, based on the price at last check today. There's a bearish cross of the 10-day and 20-day moving averages, but that's probably far enough in the past now for its effects to have washed away. The stock closed firmly above both of these trendlines yesterday, but it struggled this morning, so there's a chance that support is weak. Keep an eye on that; a close below about 28.23 would be cause for concern.




But if PFE's bean counters turn their gaze from the daily picture to the weekly one, they might be thankful for Zoloft. It shows PFE's fall from grace, and makes me wonder about the future.


Yet Street sentiment is so firmly behind PFE, the ratings firms are almost waving pom-poms. According to Zacks, of 26 analysts who express a preference, two would tell you to "sell," nine say "hold," one says "buy," and 14 have PFE at that supposedly rare "strong buy" rating. Fourteen!

Equities buyers are clearly not short on PFE. Just 0.42 percent of the float is sold short and that figure has been falling. And options enthusiasts have the SOIR at 0.67, an optimistic reading. And just today, Moody's Investors Service confirmed the Aaa long-term debt ratings for PFE.

Overall, the sentiment is strongly optimistic, and so it's important right now that the stock doesn't disappoint. With a whole barful of brokers rating the stock a "strong buy," PFE cannot reasonably expect to have much money waiting on the sidelines, and the company will need to do well to satisfy all these high expectations. If it does badly instead, there's ample scope for short selling, put buying, and analyst downgrades.



ON Semiconductor

ON Semiconductor (ONNN: sentiment, chart, options) is my final pick. Based in Phoenix, Arizona, the firm makes analog semiconductors. Before the digital revolution, all electronics were analog electronics, using valves, and then transistors, and then analog silicon chips. Perhaps that's why ONNN's daily chart resembles a trace on an oscilloscope screen.




From a technical perspective, the stock is in a channel, the upper limit of which is at the five level. Due to a coincidental double whammy, this might be hard to break through. First, five is a round-number level, and second, it happens to be a Fibonacci retracement level too, something that traders will not overlook. Do you remember hearing about the Fibonacci series in school? It starts 1, 1, 2, 3, 5, 8, 13,. . . If you extend the series out a long way, and then divide the last two numbers, you arrive at 0.618 or so, or 61.8 percent. (Admittedly, eight divided by 13 isn't exactly 0.618, but that's because we're using a greatly truncated version of the series.) This figure, 61.8 percent, is the upper Fibonacci level that traders use. The lower one is 1 0.618 which equals 0.382 or 38.2 percent. It just so happens that the 38.2-percent retracement for ONN lies at five. If you would like to read more in Fibonacci levels, check out this brief description in our Questions & Answers Forum.




Sentiment for ONNN is complacent to optimistic. Just 1.81 percent of the float is sold short, and the short-interest ratio is 2.68 days to cover. The SOIR is an optimistic 0.19, indicating more than five calls to every put in the front three months of options. Believe it or not, the options crowd usually shows even more optimism than this, since this reading lies in the 81st percentile. And brokers award ONNN five "strong buys," one "buy," and eight "holds."

On the whole, I see too much optimism here. Unless the stock starts to move significantly upward, downgrades and short selling could drive ONNN down.

Stop Press: I just calculated the 50-percent retracement between the stock's April 2003 low at 0.95 and its March 2004 high at 9.05. It comes out at exactly 5.00, turning that double whammy into a triple whammy.

For details on how you can put sentiment studies to work for you, please visit Schaeffer's StreeTools Quotes & Tools Section.

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