Bulls Set Their Sights on Discover Financial Services

Discover Financial Services (DFS) has experienced an unusual surge in call volume today, with activity jumping to roughly seven times the usual level. So far, approximately 3,800 calls have changed hands, compared to the stock's expected call volume of just 550 contracts.

The day's most popular strike is the March 15 call, where 2,590 contracts have traded at last check. Nearly three-quarters of these contracts have crossed the tape at the ask price, suggesting that buyers are responsible for the bulk of this volume. Implied volatility on the March 15 call is up 2.8% this afternoon, confirming that demand is on the rise for this option.

In fact, bullish sentiment appears to be approaching peak levels among option traders. DFS has racked up a 10-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE) call/put volume ratio of 45.30, which ranks higher than 96% of other such readings taken during the previous year. This elevated rank reveals that traders have rarely purchased calls over puts at a faster pace.

In the same vein, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.35 is resting just one percentage point from an annual optimistic climax. In the front-month series, peak call open interest of 4,349 contracts lies at the aforementioned March 15 call, which is out of the money by less than a point.

Elsewhere, very few stock traders are betting on the stock to plunge -- short interest represents a nearly negligible 0.6% of the equity's float.

The sudden interest in bullish bets on DFS coincides with a period of robust price action for the stock. Since Feb. 16, the shares have climbed consistently higher along the support of their 10-day and 20-day moving averages.

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Midday Market Check - The Dow Jones Industrial Average Drops 10 Points

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) down 10 points. An early round of selling pressure knocked the blue chips to a morning loss of 60 points but downdraft ended there and average rebounded to flat. The action since then has been an aimless drift. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) are each showing small losses as well.

Chart Courtesy of Thomson Reuters

Today's strongest groups are the PowerShares Clean Energy ETF (PBW), Amex Networking Index (NWX), Amex Gold Bugs Index (HUI), and Regional Bank HOLDRS (RKH), but the gains are limited. The Semiconductor HOLDRS (SMH) and Amex Biotech Index (BTK) are the weakest areas.

Click here for symbol descriptions

Hologic, Inc. (NASDAQ: HOLX) and The Cheesecake Factory Incorporated (NASDAQ: CAKE) are among the stocks seeing unusual option volume so far today.

Click image to see live data from
WhatsTrading.com in our Options Center

Shares of Hologic Inc are up 6% to a new annual high amid buyout chatter. Total option volume is running 11 times the average with 88% of the activity on the call side. The Cheesecake Factory is also hitting a new high today but here we see puts showing the most activity. Total option volume is over 10 times the norm.

Yesterday ended with the S&P 500 challenging resistance. That effort is seeing a minor setback here but, overall, nothing has really changed from a technical perspective.

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The Sentiment Behind Fuqi International Inc

Fuqi International, Inc. (NASDAQ: FUQI) appeared on this morning's short interest scan after the equity gained 6% Wednesday. Here is a look at the sentiment backdrop.

As noted this morning, 40% of the stock's float is sold short. That skepticism is countered with some optimism from the Street as 7 of 8 analysts rank Fuqi International with a buy rating. The Schaeffer's Put/Call Open Interest Ratio (SOIR) shows a general downtrend, which could hint at optimism. However, call buying could also be used for hedging short positions so this could be exerting a downward force on the ratio. As a whole, I would call this a mixed profile. Any short positions noted hedge could represent potential buying demand but downgrades are a possible concern.

The weekly chart below is an updated version to the one discussed last month.

Chart Courtesy of Thomson Reuters

Here we see that shares of Fuqi International have managed to break the former pattern of descending highs and lows. The equity is now in what is sometimes referred to as a basing period. This is the phase where the main selling pressure has run its course but buying is still tentative. In general, I view this sort of transition as being constructive. A push above the January highs near 22 would signal that buyers are starting to return in force.

This is a stock that has demonstrated tremendous degree of volatility so keep that in mind.

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Straddle Player Bets on a Big Move from PrivateBancorp, Inc.

PrivateBancorp, Inc. (PVTB) has bounced higher this week, with the shares up roughly 11.5% from last Friday's close. Judging by a directionally neutral volatility play that crossed the tape earlier this morning, at least one speculator is expecting the equity's technical breakout to continue during the near term.

Shortly after the open, a block of 90 contracts traded on PVTB's April 15 put near the ask price, indicating they were purchased. Simultaneously, a block of 90 contracts changed hands on the stock's April 15 call, with this transaction also occurring near the ask price. In other words, this appears to be a long straddle on the banking issue.

By purchasing an equal number of near-the-money April 15 calls and puts, this trader hopes to capitalize on a dramatic price swing in the underlying stock. The goal is for PVTB to make a major move higher or lower -- the direction doesn't matter, only the magnitude of the price change.

In order to turn a profit, the stock must move beyond one of two breakeven levels: the strike price plus the net debit on an upside move, or the strike price minus the net debit on a downside move.

On the charts, PVTB is approaching a critical juncture. The stock is gearing up to challenge the $15 level, which marked the site of its bearish gap in late October. As a result, this region could act as a speed bump for the shares during the short term.

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Option Skews - Relatively Heavy Call Activity on RadioShack Corp, Ford Motor Company, Huntington Bancshares Inc

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective.

RadioShack Corporation (NYSE: RSH) has followed through with the breakout that was discussed last week. The sentiment profile (link available in the graph seen by holding your mouse over the ticker symbol) shows analysts are still on the sidelines.

Ford Motor Company (NYSE: F) recently emerged from a price compression and continued to gain ground. This is another situation where analysts have yet to really embrace the stock.

Huntington Bancshares Incorporated (NASDAQ: HBAN) pushed through resistance near 5 yesterday. This area marked the January peak and the equity hesitated there on Tuesday. The shares had trouble holding their highs yesterday but are back up again today.

Companies included in today's scan results: Citigroup Inc (C), Bank of America Corp (BAC), Microsoft Corp (MSFT), Google Inc (GOOG), Radioshack (RSH), Yum! Brands (YUM), Occidental Petroleum (OXY), Petroleo Brasileiro SA (PBR), Regions Financial Corp (RF), General Electric (GE), Wells Fargo & Co (WFC), AMR Corp. (AMR), Cisco Systems Inc (CSCO), Ford Motor Co (F), Wal-Mart Stores Inc (WMT), Terra Industries (TRA), Huntington Bancshares Incorporated (HBAN), MEMC Electronic Materials Inc (WFR), Las Vegas Sands Corp (LVS), Qualcomm Inc (QCOM), Exxon Mobil (XOM), Newell Rubbermaid (NWL), Intel Corp. (INTC), Pfizer (PFE), Bristol-Myers Squibb (BMY).

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Option Skews - Relatively Heavy Put Activity on Oracle Corp, PNC Financial Services, Atheros Communications Inc, Amgen Inc

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Oracle Corporation (NASDAQ: ORCL), PNC Financial Services (NYSE: PNC), and U.S. Bancorp (NYSE: USB) are each creeping up on annual highs that were hit in January. Meanwhile, Atheros Communications, Inc. (NASDAQ: ATHR) hit a new high last week and has been consolidating the gains.

From a longer-term basis, I am keeping an eye on Amgen, Inc. (NASDAQ: AMGN). The weekly chart shows a price compression. Over the last year there have been a series of higher lows and lower highs. The equity is still near the mid-point of this range though so it doesn't look like a breakout is necessarily imminent.

Companies included in today's scan results: PowerShares QQQ Trust (QQQQ), KB HOME (KBH), Sprint Nextel (S), Oracle Corp. (ORCL), Capital One Financial (COF), PNC Financial Services Group (PNC), Royal Caribbean Cruises. (RCL), U.S. Bancorp (USB), United States Steel Corp (X), Best Buy Co. (BBY), Clearwire Corporation (CLWR), SunTrust Banks (STI), Quest Diagnostics Incorporated (DGX), Coca-Cola Enterprises (CCE), Frontline. (FRO), Atheros Communications (ATHR), Transocean (RIG), Annaly Mortgage Management (NLY), Equitable Resources (EQT), Western Digital (WDC), ATP Oil & Gas Corp (ATPG), Synaptics Incorporated (SYNA), Genzyme General (GENZ), Amgen Inc (AMGN), UnitedHealth Group Inc (UNH).

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Stocks Advancing Amid Heavy Short Interest - Psychiatric Solutions Inc, Amylin Pharmaceuticals Inc, Cardionet Inc, Jazz Pharmaceuticals Inc

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

The jump in shares of Psychiatric Solutions, Inc. (NASDAQ: PSYS) recoups the plunge that began last September. However, the rally is on acquisition chatter. These situations can be volatile, and tricky, so keep that in mind.

Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN), Jazz Pharmaceuticals, Inc. (NASDAQ: JAZZ), and Cardionet Inc (NASDAQ: BEAT) are all from the healthcare area and all have been discussed in previous short interest posts recently. Amylin is now breakout out of congestion. Jazz Pharmaceuticals continues to show steady buying. Cardionet has now cleared resistance near 6.70.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: InterMune (ITMN), Psychiatric Solutions (PSYS), Kinetic Concepts (KCI), Zale Corp. (ZLC), American International Group Inc (AIG), LDK Solar Co Ltd (LDK), Amcore Financial (AMFI), Brunswick (BC), Ethan Allen Interiors (ETH), Vail Resorts (MTN), Eagle Bulk Shipping Inc. (EGLE), MBIA Inc (MBI), Williams-Sonoma (WSM), Amylin Pharmaceuticals (AMLN), Zions Bancorporation (ZION), Fuqi International Inc (FUQI), Holly Corp. (HOC), Synovus Financial (SNV), PrivateBancorp (PVTB), Georgia Gulf (GGC), iStar Financial (SFI), CardioNet, Inc. (BEAT), Continental Airlines (CAL), Children's Place Retail Stores (PLCE), Jazz Pharmaceuticals, Inc. (JAZZ).

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If so, you can get it delivered to your inbox every day. To try it, simply click here and sign in with your Schaeffer's username and password. If you don't have a free membership, you can create one in just seconds. Once on the alerts page, select "phrase" from the first drop down box, select "intraday", and enter "Stocks Advancing Amid Heavy Short Interest" into the third box. You can repeat that process for other regular posts or change the setting to "author" and enter "Nick Perry" to get all the posts. Just remember, I make multiple posts a day so you will get numerous emails if you select intraday...

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Stocks Showing Unusually Heavy Volume - Oculus Innovative Sciences Inc, Vicor Corp, InterMune Inc, Cytokinetics Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: Oculus Innovative Sciences, Inc. (OCLS), Susquehanna Bancshares (SUSQ), GT Solar International Inc (SOLR), Psychiatric Solutions (PSYS), Kinetic Concepts (KCI), ExlService Holdings, Inc. (EXLS), Analogic (ALOG), Sonic (SONC), The Boston Beer Co Inc (SAM), Vicor Corp. (VICR), J. Crew Group, Inc. (JCG), Wabash National (WNC), C&D Technologies (CHP), InterMune Inc (ITMN), CDC Corp. (CHINA), American Eagle Outfitters (AEO), Acorn International, Inc. (ATV), Cepheid (CPHD), Freddie Mac (FRE), Cytokinetics Inc (CYTK), Fannie Mae (FNM), Citigroup Inc (C), American International Group Inc (AIG), Ambac Financial Group (ABK), Zions Bancorporation (ZION).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a Flat Open

Good morning everyone - welcome to Thursday. We start the day with stock futures showing a very slight downside bias. The S&Ps are 2 points below fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening drop of 10 points. All in all, I would call that a flat open.

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Daily Wrap-up - A Flat Close for the Dow Jones Industrial Average

The day ends with the Dow Jones Industrial Average (DJIA) sitting within 3 points of Tuesday's close. Meanwhile, the S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) posted moderate gains. As shown below, the Dow suffered a minor midday setback but the selling ran its course quickly. The market spent the rest of the session drifting sideways.

Chart Courtesy of Thomson Reuters

The Amex Biotech Index (BTK) and Semiconductor HOLDRS (SMH) led while the Amex Gold Bugs Index (HUI) and streetTRACKS Gold (GLD) lagged.

Click here for symbol descriptions

My midday post noted that the S&P 500 was challenging resistance. That battle was put on hold until tomorrow so that is where I will pick up in the morning. Have a nice evening.

Charts Courtesy of Thomson Reuters

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Spread Player Eyes Round-Number Resistance for Psychiatric Solutions, Inc.

Call volume has ballooned to 38 times the usual level today on Psychiatric Solutions, Inc. (PSYS), after The Wall Street Journal reported that Bain Capital is in talks to acquire the company. But, judging by a spread strategy that crossed the tape earlier today, at least one trader is expecting the shares to remain pinned at or below $30 during the near term.

Specifically, a long call spread was initiated earlier today at PSYS' April 25 and April 30 strikes. The speculator bought to open a block of 191 April 25 calls, while simultaneously selling to open a block of 191 April 30 calls.

In this strategy, the speculator attains the maximum potential profit if PSYS settles exactly at $30 upon April expiration. This will net the biggest possible gain on the April 25 call, while the April 30 call can be allowed to expire worthless.

If PSYS should rise above 30 prior to expiration, the trader can still pocket the difference between the two strikes, minus the initial net debit -- however, he'll likely incur additional brokerage costs in the process of closing out the short call. Of course, there's also the opportunity cost to consider, since the option player has effectively prevented himself from taking part in any additional upside beyond $30 per share.

After rocketing to a gain of nearly 19%, trading in PSYS was halted this afternoon. The shares tapped an intraday peak of $29.99 before the halt, stopping just short of the round-number $30 region. This level has capped PSYS' rally attempts since December 2008, which could explain why today's spread speculator decided to write a call at this strike.

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Out-of-the-Money Puts Are Popular on Lennar Corporation

Put volume has accelerated to more than three times the norm today on Lennar Corporation (LEN), with 9,767 of these bearishly oriented options changing hands so far. By contrast, LEN was expected to see put volume of just about 3,200 contracts today.

The day's most active strike is LEN's April 16 put, where 8,659 contracts have crossed the tape. About 87% of these out-of-the-money puts have traded at the ask price, indicating they were most likely purchased, and implied volatility on this option is up 2% at last check. With just 1,445 contracts currently in residence at the April 16 put, it seems safe to assume that speculators are adding new bearish bets here today.

This pessimistically slanted speculation is just more of the same for LEN. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open 1.51 puts for every call on the home builder. This ratio ranks higher than 79% of comparable readings taken during the previous year, confirming that option players have been purchasing puts over calls at a faster pace than usual in recent weeks.

In the same skeptical vein, LEN's Schaeffer's put/call open interest ratio (SOIR) stands at 1.30, with puts comfortably outnumbering calls among options set to expire within three months. This SOIR arrives in the 86th annual percentile, as short-term speculators have been more bearishly aligned only 14% of the time.

Outside the options arena, short sellers are also betting on a plunge, with a noteworthy12.9% of LEN's float dedicated to short interest.

With LEN up 35.4% in 2010, this bearish sentiment seems rather heavy-handed. The stock hasn't finished a single week below its 10-week and 20-week moving averages since early January, suggesting its year-to-date uptrend is still firmly intact. However, pessimistic players could be eyeing resistance from the $17.50 level, which previously rejected the stock back in September 2009.

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Midday Market Check - The Dow Jones Industrial Average Dips Into Negative Territory

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) slipping below the breakeven line. The loss is still minor at just 15 points, and the low-to-high range remains subdued at 55 points, but the action is still evolving. As they stand now, the S&P 500 (SPX) is holding a minor gain while the Nasdaq Composite (COMP) and Russell 2000 (RUT) are slightly stronger.

Chart Courtesy of Thomson Reuters

Today's strongest groups are the Amex Biotech Index (BTK), Semiconductor HOLDRS (SMH), and Regional Bank HOLDRS (RKH). The Amex Gold Bugs Index (HUI), streetTRACKS Gold (GLD), and iShares Treasury Bond (TLT) are the weakest areas.

Click here for symbol descriptions

Citigroup Inc. (NYSE: C) and Advanced Micro Devices, Inc. (NYSE: AMD) are among the stocks seeing unusual option volume so far today.

Click image to see live data from
WhatsTrading.com in our Options Center

Yesterday morning I noted that Citigroup was testing the upper boundary of the recent trading range. The company then appeared on this morning's unusual stock volume scan with a gain of 7%, which broke the range. We see some follow-through buying today as shares of C add another 4%. Total option volume is 4 times the average with 77% of the activity on the call side. Advanced Micro Devices is continuing its constructive behavior with a rally of 3%. Options are 4 times as active with 74% of the volume on the put side.

Yesterday ended with the Nasdaq Composite joining the Russell 2000 in pushing through its January highs. The COMP is showing a moderate gain here which is helping to secure the breakout. Meanwhile, the S&P 500 is challenging resistance.

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Ratio Put Spread Player Singles Out SunTrust Banks, Inc.

SunTrust Banks, Inc. (STI) was singled out for a ratio put spread in today's trading, with one speculator placing a very confident bet on the stock's near-term trajectory.

Shortly after the open, a block of 15,000 puts traded on STI's April 22 strike for the bid price of $0.18, indicating they were most likely sold. Simultaneously, a block of 7,500 April 24 puts changed hands at the ask price of $0.42, suggesting they were probably purchased. In other words, the trader sold two puts for every one purchased put. With STI trading near $27 today, both of these put strikes are out of the money by a notable margin.

In opening this spread, the trader is betting that STI will fall below the $24 level prior to April expiration. However, this speculator isn't anticipating an out-and-out plunge, as evidenced by the sale of the April 22 puts. In fact, if STI falls below $22 prior to April expiration, the trader could potentially swallow some steep losses, since only half of his short puts are hedged by long puts. In other words, it's safe to say this option player is very confident in his outlook for STI.

The best-case scenario would be for STI to settle squarely at $22 upon April expiration, which would return the maximum potential profit on the purchased puts, while allowing the sold puts to expire worthless.

On the charts, STI tagged a new 52-week peak of $27.25 earlier today. The shares are up roughly 4% as we head toward midday, outpacing solid support from their 10-week and 20-week moving averages. The regional banking issue is catching a lift from buyout speculation, with a few news outlets citing STI as a potential takeover target for Barclays (BCS).

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The Sentiment Behind Zions Bancorporation

Zions Bancorporation (NASDAQ: ZION) seems to be the classic case of a stock surrounded by pessimism. The Schaeffer's Put/Call Open Interest Ratio (SOIR) has been rising, most analysts are on the sidelines, and short sellers have piled in. The graph below tells the story.

(Click image to see live data)

According to data collected by our Quantified Analysis department, 28% of the stock's float is sold short. Furthermore, only 7 of 26 analysts (27%) rank the stock with a buy rating and the SOIR sits nearly a yearly high.

Now, anyone who has seen Bernie Schaeffer talk about his contrarian methodology knows that the implications of sentiment are the most powerful when they run counter to the price action. In other words, a contrarian would be the most interested in skepticism when it comes amid rising prices. In that context, Zions Bancorporation is starting to get interesting. Check out the weekly chart.

Chart Courtesy of Thomson Reuters

Heading into today, shares of Zions were showing a year-to-date gain of 50% and they had risen more than 150% over the last 52 weeks. The chart above shows they are now threatening to push out of congestion that has been in place since early 2009. I find this particularly interesting as few seem to be betting on a Zions Bancorporation breakout.

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Option Skews - Relatively Heavy Call Activity on Las Vegas Sands Corp, AirTran Holdings Inc, Savient Pharmaceuticals Inc

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective.

American International Group, which made today's unusual stock volume scan and was discussed in yesterday's short interest scan, joins Las Vegas Sands Corp. (NYSE: LVS), AirTran Holdings, Inc. (NYSE: AAI), First Solar, Inc. (NASDAQ: FSLR), and Savient Pharmaceuticals, Inc. (NASDAQ: SVNT) on the list below. I have singled out these names because they all share a commonality - heavy levels of short interested. As noted many times here, heavy levels of short interest may spur call buying for hedging purposes so you want to keep that possibility in mind when looking at the data.

Las Vegas Sands also stands out as the stock is creeping back toward the upper end of the recent range. The equity is currently testing its best levels from January. A push through that area leaves the September highs as remaining high water mark.

Companies included in today's scan results: Citigroup Inc (C), Cisco Systems Inc (CSCO), American International Group Inc (AIG), Apple Inc (AAPL), Microsoft Corp (MSFT), Bank of America Corp (BAC), Intel Corp. (INTC), Commercial Metals (CMC), Sprint Nextel (S), United Parcel Service (UPS), Verizon Communications (VZ), Las Vegas Sands Corp (LVS), Cemex SAB de CV (CX), Goldman Sachs Group (GS), General Electric (GE), OmniVision Technologies (OVTI), Southwestern Energy (SWN), Barrick Gold (ABX), DryShips Inc. (DRYS), Morgan Stanley (MS), AirTran Holdings Inc (AAI), First Solar, Inc. (FSLR), EMC Corp. (EMC), Savient Pharmaceuticals, Inc (SVNT), Terra Industries (TRA).

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Option Skews - Relatively Heavy Put Activity on Netflix Inc, State Street Corp, Nokia Corp

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Netflix, Inc. (NASDAQ: NFLX) ticked to another new high yesterday. As noted last week, there seems to be widespread skepticism on the stock, which is an encouraging sign to contrarians.

State Street Corporation (NYSE: STT) has been in a sideways consolidation since the end of December. A breakout attempt at the end of last month quickly reversed but the shares have held near the upper end of the range. Watch for a potential push through 47.

Nokia Corporation (ADR) (NYSE: NOK) has also been range bound, but for a longer time. The equity has been bouncing between 16.50 and 12 for the last year. In a situation like this, I would wait for a breakout to confirm that buying demand is really coming back in.

Companies included in today's scan results: PowerShares QQQ Trust (QQQQ), Goldcorp Incorporated (GG), GT Solar International Inc (SOLR), Abercrombie & Fitch (ANF), SunTrust Banks (STI), Vimpel Communications (VIP), ICICI Bank (IBN), Netflix Inc (NFLX), Prudential Financial (PRU), Xilinx (XLNX), Aruba Networks, Inc. (ARUN), Boston Scientific (BSX), Best Buy Co. (BBY), EOG Resources (EOG), Digital River (DRIV), State Street (STT), Lennar Corp. (LEN), ITT Educational Services (ESI), Home Depot (HD), Nokia Corp. (NOK), Annaly Mortgage Management (NLY), Sara Lee (SLE), Whole Foods Market (WFMI), Corning Incorporated (GLW), Caterpillar (CAT).

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Stocks Advancing Amid Heavy Short Interest - Netlist Inc, YRC Worldwide Inc, Clearwire Corp, Alkermes Inc

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Last week we saw that Netlist, Inc. (NASDAQ: NLST) had broken the pattern of lower highs. The recent price action has been generally positive and a short-term uptrend is in place off the early-February bottom.

As noted last month, YRC Worldwide Inc. (NASDAQ: YRCW) is one of the heavily-shorted equities that has yet to recover. The stock still appears to be rebounding from the low and oversold condition hit in mid-February but I wouldn't call this an uptrending situation.

Clearwire Corporation (NASDAQ: CLWR) is in an intermediate-term trading range but the shares are trying to overtake short-term resistance from their January highs.

Alkermes, Inc. (NASDAQ: ALKS) appeared on the list of stocks seeing unusual option volume yesterday afternoon with a bias toward calls. The equity has been moving steadily higher since November and hit a new annual high yesterday. The positive price action could spur covering and call buys for hedging short positions.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: American International Group Inc (AIG), Netlist, Inc. (NLST), Brunswick (BC), AirTran Holdings Inc (AAI), Zale Corp. (ZLC), Freddie Mac (FRE), Aruba Networks, Inc. (ARUN), CompuCredit (CCRT), Ambac Financial Group (ABK), XenoPort, Inc. (XNPT), YRC Worldwide Inc (YRCW), Fannie Mae (FNM), Astec Industries (ASTE), Rosetta Stone Inc (RST), Incyte Corp. (INCY), Pacific Capital Bancorp (PCBC), Texas Industries (TXI), Continental Airlines (CAL), Ascent Solar Technologies Inc (ASTI), MBIA Inc (MBI), Clearwire Corporation (CLWR), Buckle (BKE), Sangamo Biosciences Inc (SGMO), C&D Technologies (CHP), Alkermes (ALKS).

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If so, you can get it delivered to your inbox every day. To try it, simply click here and sign in with your Schaeffer's username and password. If you don't have a free membership, you can create one in just seconds. Once on the alerts page, select "phrase" from the first drop down box, select "intraday", and enter "Stocks Advancing Amid Heavy Short Interest" into the third box. You can repeat that process for other regular posts or change the setting to "author" and enter "Nick Perry" to get all the posts. Just remember, I make multiple posts a day so you will get numerous emails if you select intraday...

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Stocks Showing Unusually Heavy Volume - Fannie Mae, Freddie Mac, Citigroup Inc, American International Group Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: Comerica Incorporated (CMA), Netlist, Inc. (NLST), Travelzoo Inc (TZOO), Fannie Mae (FNM), Cost Plus (CPWM), First Marblehead (FMD), C&D Technologies (CHP), Freddie Mac (FRE), Denbury Resources (Holding) (DNR), Mediacom Communications (MCCC), Thor Industries (THO), Clearwire Corporation (CLWR), Alkermes (ALKS), Susquehanna Bancshares (SUSQ), Maguire Properties Inc (MPG), Achillion Pharmaceuticals, Inc. (ACHN), Hoku Scientific, Inc. (HOKU), Citigroup Inc (C), Skechers USA Inc (SKX), American International Group Inc (AIG), Cisco Systems Inc (CSCO), Chesapeake Energy Corp (CHK), EPIX Pharmaceuticals (EPIX), Sohu.com (SOHU), CIENA Corp. (CIEN).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a Flat Open

Good morning everyone - welcome to the middle of the trading week. We start the day with stock futures more or less flat. The S&Ps are within a point of fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening gain of 10 points.

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Daily Wrap-up - A 12-Point Gain for the Dow Jones Industrial Average

The day ends with some afternoon weakness dragging the indexes off their midday highs. The Dow Jones Industrial Average (DJIA) was up as much as 60 points but closed with a gain of just 12 points. The S&P 500 (SPX) was also close to flat. The Nasdaq Composite (COMP) and Russell 2000 (RUT) held minor gains.

Chart Courtesy of Thomson Reuters

The sector action ended mixed. The Dow Jones Transport Index (.TRAN), CBOE Internet Index (INX), and Amex Networking Index (NWX) led while the Amex Gold Bugs Index (HUI), US Oil Fund (USO), and S&P Retail Index (RLX) lagged.

Click here for symbol descriptions

My midday post noted that the Nasdaq Composite was pushing above former resistance. That COMP managed to hold the breakout into the close.

Charts Courtesy of Thomson Reuters

The COMP and RUT are each above their January highs while the DJIA and SPX are still below. All of the charts show overbought readings. Heading into tomorrow I will be watching whether the Nasdaq Composite holds its breakout and whether the S&P 500 can push through resistance. And that is where I will pick up in the morning. Have a nice evening.

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Rally Sparks Call Buying on Ambac Financial Group, Inc.

Call players have set their sights on Ambac Financial Group, Inc. (ABK) today, with more than 2,000 of these optimistically oriented contracts changing hands so far. By contrast, ABK was expected to see just about 350 calls cross the tape today -- approximately one-sixth of its actual call volume.

The center of attention today is ABK's April 1 call, where 1,246 contracts have traded at last check. About 92% of these calls have changed hands at the ask price, indicating a bias toward buying activity. With just 439 contracts currently in residence at the April 1 strike, it's safe to say that most of today's call volume will translate to new open interest tomorrow.

With ABK trading near 75 cents per share at last check, these calls are out of the money. However, today's call speculators aren't necessarily betting on a short-term bounce from ABK -- the stock is up roughly 3% this afternoon, and a hefty 19% of ABK's float has been sold short. In other words, there's no shortage of bears who might be looking to hedge their bets against a continued rally.

However, it's probably too soon for pessimistic players to abandon hope entirely. ABK's gains today have been capped by its 20-week moving average, which hasn't been toppled on a weekly closing basis since October 2009.

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Midday Market Check - The Dow Jones Industrial Average Gain 55 Points

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) up 55 points and sitting near its highs. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) are also showing moderate gains. After very mild weakness at the open, buyers have been steadily stepping in and lifting the market. The COMP and RUT are both trading at new annual highs.

Chart Courtesy of Thomson Reuters

The sector action shows widespread, but mostly mild, buying. Today's strongest groups are the Dow Jones Transport Index (.TRAN) and Amex Networking Index (NWX). The iShares Treasury Bond (TLT) is the weakest area but the loss is small.

Click here for symbol descriptions

QLogic Corporation (NASDAQ: QLGC) and Commercial Metals Company (NYSE: CMC) are among the stocks seeing unusual option volume so far today.

Click image to see live data from
WhatsTrading.com in our Options Center

QLogic and Commercial Metals are both seeing heavy call action. Shares of QLGC are up 2% while shares of CMC are up 7%. There seems to be M&A rumors floating on both companies.

We ended the action yesterday with the Russell 2000 trading above former resistance and the Nasdaq Composite flirting with a breakout. As noted above, the COMP has now joined the RUT.

Charts Courtesy of Thomson Reuters

Barring an afternoon reversal, the SPX is the next to test its January highs...

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Traders Add New Front-Month Puts on Huntington Bancshares Incorporated

Put volume has skyrocketed today on Huntington Bancshares Incorporated (HBAN), with more than 4,200 of these bearishly oriented options crossing the tape. This represents roughly 28 times the stock's expected daily put volume of about 150 contracts.

Most of this activity is centered around HBAN's March 6 put, where 4,000 contracts have changed hands so far. Nearly 90% of these contracts have traded at the ask price, suggesting a bias toward buying activity. With open interest at this strike currently totaling just 40 contracts, it's a safe bet that nearly all of today's volume consists of newly opened March 6 puts.

HBAN is no stranger to skeptically skewed speculation, though. The stock's 10-day International Securities Exchange (ISE) put/call volume ratio of 0.32 ranks in the 68th annual percentile, suggesting that traders have purchased puts over calls at a faster pace than usual in recent weeks.

And, in the same bearish vein, short interest accounts for more than 7% of the stock's available float. This supply of shorted shares surged by 37% during the most recent reporting period.

On the charts, HBAN is currently trading just shy of $5 -- placing those popular March 6 puts in the money by a slim margin. The stock is resting comfortably above support from both its 10-day and 10-week moving averages, but the $5 level is proving to be a tough technical hurdle. This region has kept a tight lid on HBAN's progress since May 2009.

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The Sentiment Behind Skechers USA, Inc

Skechers USA, Inc. (NYSE: SKX) is an interesting situation. We are only an hour or so into the regular session but the stock's volume is already on par with total volume from yesterday. Furthermore, the daily chart below shows buyers have been steadily chasing the equity.

Chart Courtesy of Thomson Reuters

This short-term view shows the pattern of higher lows in place since last summer. The stock peaked in January and has been consolidating the gains since then. With today's jump of 5%, shares of Skechers are in a position to breakout. Curiously though, the sentiment profile doesn't really show much in the way of optimism.

(Click image to see live data)

To be fair, this profile isn't skewed toward pessimism and there are some hints of optimism. For example, the Schaeffer's Put/Call Open Interest Ratio (SOIR) has been trending steadily lower. However, the open interest configuration chart shows near-term open interest is light. Furthermore, if you click on the open interest configuration links for March and April, you will see the biggest build up of calls is at the 30 strike, which is slightly in the money. In other words, there doesn't seem to be much speculation with the out-of-the-money calls.

The majority of analysts do rate Skechers with a buy rating, but only 5 analysts cover the stock. Fellow footwear firm Deckers Outdoor Corporation (NASDAQ: DECK) is followed by 13 analysts so there might be room for coverage to grow.

All in all, the optimism shown seems tame when you consider this is a stock that rallied more than 470% over that last 52 weeks.

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Option Skews - Relatively Heavy Call Activity on Citigroup Inc, Cisco Systems Inc, Visa Inc

Here are the stocks that saw a bias toward call activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective.

As mentioned below, put activity was lighter than normal but the call activity seems routine. Citigroup Inc. (NYSE: C) tops today lists, which is a fairly regular occurrence. However, what stands out is that the equity is testing the upper boundary of the recent trading range. Last week I touched on the recent shift in trend as the downtrend was broken. A push above resistance near 3.70 would break congestion and mark a further evolution.

The constructive price action from Cisco Systems, Inc. (NASDAQ: CSCO) has morphed into outright strength. The equity gained over 3% yesterday as it broke out to a new annual high.

Visa Inc. (NYSE: V) also pushed to a new high yesterday. This breaks the short-term term consolidation and continues the intermediate-term uptrend.

Companies included in today's scan results: Citigroup Inc (C), Cisco Systems Inc (CSCO), DryShips Inc. (DRYS), Research in Motion Limited (RIMM), McDonald's (MCD), EMC Corp. (EMC), Bank of America Corp (BAC), Palm Inc (PALM), Visa Inc. (V), Microsoft Corp (MSFT), Morgan Stanley (MS), Wells Fargo & Co (WFC), Intel Corp. (INTC), Biogen Idec Inc (BIIB), AES Corp. (AES), MetLife (MET), Texas Instruments Incorporated (TXN), EXCO Resources, Inc. (XCO), Airgas (ARG), Alkermes (ALKS), Annaly Mortgage Management (NLY), Kroger (KR), Halliburton (HAL), Pfizer (PFE), Energy Conversion Devices, Inc (ENER).

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Option Skews - Relatively Heavy Put Activity on Sprint Nextel Corp, XenoPort Inc, Best Buy Co Inc, Akamai Technologies Inc

Here are the stocks that saw a bias toward put activity in the previous session. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Regular readers will quickly notice that the table below is shorter than normal. The call skews scan, which will be published shortly, shows relatively normal activity so it would seem that puts just weren't as in demand as usual. Given yesterday's moderately subdued market action I wouldn't read too much into this single occurrence but it is worth noting should we see it continue.

Sprint Nextel Corporation (NYSE: S) was one of the exceptions to the "light" put activity. However, the stock has been drifting aimlessly so I would want to see signs of a uptrend before getting interested. XenoPort, Inc. (NASDAQ: XNPT) is another situation where the put activity doesn't seem significant from a contrarian perspective. The equity plunged lower last month and is showing a year-to-date loss of more than 50%.

Best Buy Co., Inc. (NYSE: BBY) is a bit more interesting. The shares are rebounding from a short-term pullback that followed an intermediate-term uptrend.

Akamai Technologies, Inc. (NASDAQ: AKAM) is a case of outright strength. The stock hit another new high yesterday, which continues the intermediate-term uptrend in place since November 2008.

Companies included in today's scan results: PowerShares QQQ Trust (QQQQ), SPDR Trust Series I (SPY), Sprint Nextel (S), Best Buy Co. (BBY), XenoPort, Inc. (XNPT), Cemex SAB de CV (CX), Akamai Technologies (AKAM), Altera Corp. (ALTR), Developers Diversified Realty (DDR), Select Comfort (SCSS), SunTrust Banks (STI), Abercrombie & Fitch (ANF), Terra Industries (TRA), Citrix Systems (CTXS), Target Corp. (TGT), Transocean (RIG), FedEx Corp. (FDX).

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Stocks Advancing Amid Heavy Short Interest - American International Group Inc, Travelzoo Inc, Energy Conversion Devices Inc, Cell Therapeutics Inc

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Cell Therapeutics, Inc. (NASDAQ: CTIC) appeared on yesterday's short interest scan and I noted the pre-market strength. The stock tops today's list as shares of CTIC closed with a gain of 28%. If you hover over the symbol above, you will see the stock has now recouped the early-February selloff.

Online travel concern Travelzoo Inc. (NASDAQ: TZOO) was also very strong Monday. The 21% surge leaves the equity testing the resistance near 15 that marked the November peak. A push above 15.38 would put Travelzoo at a new annual high.

American International Group, Inc. (NYSE: AIG) continues its push higher. Last week I noted the resistance near 28 and the shares managed to close above that level yesterday. If the stock can hold these gains, it would break the near-term downtrend that has been in place since September.

I have often mentioned that I watch these daily scan for themes. Yesterday's scan noted the repeated appearance of names from biotech group and I still watching that. With Energy Conversion Devices, Inc. (NASDAQ: ENER) and Fuel Systems Solutions, Inc. (NASDAQ: FSYS) making today's list, I am also keeping an eye on the alternative energy group. The unusual stock volume scan showed some fuel cell names as well as Energy Conversion Devices.

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

Companies included in today's scan are: Cell Therapeutics (CTIC), Travelzoo Inc (TZOO), Conn's (CONN), BankAtlantic Bancorp (BBX), Clearwire Corporation (CLWR), Energy Conversion Devices, Inc (ENER), Fuel Systems Solutions Inc (FSYS), Ruth's Chris Steak House, Inc. (RUTH), TBS International Limited (TBSI), Bronco Drilling Company, Inc. (BRNC), Cascade Bancorp (CACB), XenoPort, Inc. (XNPT), Overstock.com (OSTK), EnerNOC, Inc. (ENOC), Winnebago Industries (WGO), DealerTrack Holdings, Inc. (TRAK), Boyd Gaming Corp (BYD), Office Depot (ODP), J. Crew Group, Inc. (JCG), Pacific Capital Bancorp (PCBC), C&D Technologies (CHP), SL Green Realty (SLG), Hanmi Financial (HAFC), American International Group Inc (AIG), United States Steel Corp (X).

Like this post?

If so, you can get it delivered to your inbox every day. To try it, simply click here and sign in with your Schaeffer's username and password. If you don't have a free membership, you can create one in just seconds. Once on the alerts page, select "phrase" from the first drop down box, select "intraday", and enter "Stocks Advancing Amid Heavy Short Interest" into the third box. You can repeat that process for other regular posts or change the setting to "author" and enter "Nick Perry" to get all the posts. Just remember, I make multiple posts a day so you will get numerous emails if you select intraday...

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Stocks Showing Unusually Heavy Volume - Xyratex Ltd, China GrenTech Corporation Ltd, DryShips Inc, Nu Skin Enterprises Inc, Plug Power Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: CRM Holdings, Ltd. (CRMH), Rosetta Genomics Ltd. (ROSG), Xyratex Ltd (XRTX), infoUSA (IUSA), Travelzoo Inc (TZOO), Ballard Power Systems (BLDP), China GrenTech Corporation Limited (GRRF), NCI Building Systems (NCS), Bronco Drilling Company, Inc. (BRNC), Maguire Properties Inc (MPG), Cost Plus (CPWM), Clearwire Corporation (CLWR), DryShips Inc. (DRYS), Nu Skin Enterprises Inc (NUS), Cell Therapeutics (CTIC), Plug Power Inc (PLUG), J. Crew Group, Inc. (JCG), CDC Corp. (CHINA), Winnebago Industries (WGO), Cepheid (CPHD), InterMune (ITMN), Energy Conversion Devices, Inc (ENER), CIENA Corp. (CIEN), Cisco Systems Inc (CSCO), Yingli Green Energy Hold Co Ltd (YGE).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a 30-Point Loss

Good morning everyone - welcome to Tuesday. We start the day with stock futures showing a minor downside bias. The S&Ps are 5 point below fair value. As they stand now, futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening drop of 30 points.

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Daily Wrap-up - A 14-Point Loss for the Dow Jones Industrial Average

The day ends with the Dow Jones Industrial Average (DJIA) showing a minor loss of 14 points. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) were essentially flat as well. The day started with a very small rally but that quickly evolved into a mild loss and then the action just flat lined. The Dow traded in a low-to-high range of only 45 points.

Chart Courtesy of Thomson Reuters

The midday sector action was very quiet but we see a little net movement at the close. The SPDR Homebuilders (XHB), Broker/Dealer Index (XBD), and CBOE Internet Index (INX) led while the Amex Gold Bugs Index (HUI) and streetTRACKS Gold (GLD) lagged.

Click here for symbol descriptions

My midday post noted that the RUT had broken above its former highs near 650 and that the COMP was flirting with a breakout of its own. A lack of significant action this afternoon left that picture unchanged.

Charts Courtesy of Thomson Reuters

As we head deeper into the week, I will be watching for the Nasdaq Composite to confirm the RUT's breakout. The large cap indexes seem to be lagging but I am not sure whether that is really a concern. I will also be keeping in mind the points Bernie raised in the two posts below -

• Bernie Schaeffer - Defining a Bull Market
• Bernie Schaeffer - Long-Term Indicators on the S&P 500

The talk of the March 2009 bottom spurred me to check the archives from one year ago. In retrospect, I seems sorely lacking that I was only looking for a bear-market snapback rally. And that is where I will pick up in the morning. Have a nice evening.

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