Schaeffer's Trading Floor Blog

Weekly Contrarian: Hewlett-Packard Bulls Offered Little Hope

Optimists cling to hope, despite HPQ's troubles on and off the charts

by 11/23/2012 10:04 AM
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Citing Hewlett-Packard Company's (NYSE:HPQ ) dismal fourth-quarter earnings report, including the $8.8-billion Autonomy charge, the author of "Hewlett-Packard: It Only Gets Worse" argues that "things are only getting worse for the once venerable tech giant." Plus, the lack of positive leadership in the company opens the door for additional turmoil. The Bloomberg Businessweek author specifically calls into question CEO Meg Whitman's inability to take responsibility for the latest failure, as well as her unwillingness to innovate. He concludes that these fundamental flaws will be "a boat anchor that will surely help sink the company."


HPQ's technical troubles have been a hot topic of discussion around the Street for some time now. It's not surprising either, considering the shares have surrendered more than 53% of their value in 2012. Additionally, the stock has lagged the broader S&P 500 Index (SPX) by nearly 30 percentage points during the past 60 trading sessions. Last Monday's nearly 12% earnings-induced sell-off only exacerbated the stock's ongoing struggles on and off the charts.

Option players have been denying these technical truths, though, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, over the course of the last 20 sessions, traders have bought to open 171 calls for every 100 puts.

Echoing this trend is HPQ's Schaeffer's put/call open interest ratio (SOIR) of 0.78. Not only does this show that call open interest outweighs put open interest among options expiring in three months' time or less, but it ranks in the 27th percentile of its annual range. In other words, short-term speculators are more call-heavy than usual toward HPQ.

Outside of the options arena, some members of the brokerage bunch still believe HPQ is due for a bounce. For starters, no fewer than three covering analysts maintain a "buy" or "strong buy" recommendation toward the stock. Plus, the consensus 12-month price target of $14.08 represents an 18% premium to the equity's closing price of $11.94 on Wednesday, Nov. 21.

With HPQ receiving a barrage of bearish brokerage notes on the heels of its most recent earnings report, a capitulation from any of these remaining optimists could further pressure the stock in the near term.

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