Schaeffer's Market Observation Features Synaptics, Weyerhaeuser, and XTO Energy

Business Wire, Oct 18, 2005

CINCINNATI -- Today's Market Observation features Synaptics (NASDAQ:SYNA), Weyerhaeuser (NYSE:WY), and XTO Energy (NYSE:XTO). Schaeffer's Market Observations are market-based reports that provide insight and analysis from a unique and unbiased perspective. Market Observations are published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. To receive a free email notification each time a new commentary is written about one of the featured stocks or any of your favorite stocks, click on the following link: http://www.schaeffersresearch.com/addinfo .

Synaptics

According to Hoover's, Synaptics (NASDAQ:SYNA) develops input products for portable electronic devices including notebook and handheld computers, digital music players, and web-enabled phones. Its TouchPad and TouchStyk systems control a computer's cursor, much like a mouse does for desktop PCs.

The firm is slated to step into the earnings confessional on October 20 after the market close. The Street is forecasting a profit of 25 cents per share, a 56-percent improvement over the company's profit of 16 cents per share for the same period a year ago. Overall, the firm has surpassed the consensus estimate in each of the past five quarters by an average of 17.7 percent.

As we head into SYNA's report, we are seeing options players pile into the stock's calls. In trading on Monday, open interest at the stock's December 20 call spiked from 2,003 to 7,532 contracts. The strike saw a block of 5,000 contracts cross the tape at an ask price of 1.75 at 3:38 p.m. Eastern time. Furthermore, the security's November 20 call had a block of 2,500 contracts change hands at an ask price of 1.50 at roughly the same time. It appears that investors may be looking for a longer-term breakout of the shares to the upside.

What's more, this pop in call open interest forced the security's Schaeffer's put/call open interest ratio (SOIR) from a reading of 0.71 to its current perch of 0.41 in the 38th percentile. While the ratio is still far from an optimistic extreme, the decline indicates a significant increase in bullishness among speculators.

On the other hand, short sellers still have their doubts about the firm. The number of SYNA shares sold short jumped by 12 percent to 4.7 million. This accumulation of bearish bets not only accounts for 20 percent of the equity's float, but they also give the stock a short-interest ratio of 5.22. A positive earnings report could create a short-squeeze situation, as bears rush to buy back their pessimistic positions in an effort to stem their losses.

Wall Street has yet to jump on the stock's bandwagon. According to Zacks, only three analysts follow the firm. Of those three, one rates the stock a "hold" and the remaining two award the equity a "strong sell." This bearish configuration leaves ample room for potential upgrades and/or fresh coverage from other brokerage firms.

From a technical perspective, the shares have stair-stepped lower since their February peak, but are now attempting to rebound off support at the 15 level. However, the stock is now struggling with resistance at the 20 level. In fact, the equity finds itself back in a trading range that had trapped the stock from December 2003 through September 2004. From a longer-term point of view, the security has moved below its 10-month and 20-month trendlines, which have been pulled into a bearish cross.

Click the following link to see a Weekly Chart of SYNA Since April 2003: http://www.schaeffersresearch.com/commentary/observations.aspx?click= home&ID=14406 .

While there is ample fuel to push the shares higher should SYNA post strong earnings and/or outlook for the rest of the year, I am concerned about the buildup of calls at the 20 strike. Not only is this level an area of technical resistance, but these bearish bets could also supply a layer of options-related resistance. Traders may want to wait and see if the stock can bust above the 20 level before piling into any bullish bets.

Weyerhaeuser

Hoover's states that Weyerhaeuser (NYSE:WY) is one of the largest U.S. forest products companies. The security saw a jump in put activity on Monday, as traders flocked to the equity's November 65 put. Open interest at this back-month option surged from 339 to 5,327 contracts. The option saw a block of 5,000 contracts trade at a bid price of 3.90 at 1:06 p.m. Eastern time.

Overall, the stock has earned a SOIR of 0.79, which is higher than two-thirds of the readings taken during the past 52 weeks. Furthermore, pessimism is on the rise within the short-selling crowd. In September, the number of WY shares sold short increased by 18 percent to 3.8 million shares. However, the stock's short-interest ratio rests at a meager 3.9 days to cover, offering up only modest short-covering support.

Wall Street is also rather skeptical of the shares. Zacks reports that nine of the 14 analysts following the firm rate it a "hold" or worse.

Technically speaking, the shares briefly broke below support at the 62 level, which marked the bottom of the stock's trading range for the almost a year. The stock has since reclaimed support at the 62 level and could be on its way back up for a test of resistance at the 70 level. Meanwhile, WY has breach support at its 20-month moving average, which it has closed only one month below since July 2003.