Schaeffer's Daily Market Blog Features: Merck, 3M Company, Vical, Xilinx, and Caterpillar.

CINCINNATI -- Among the stocks featured in the October 20 edition of Schaeffer's Market Blog are Merck (NYSE:MRK), 3M Company (NYSE:MMM), Vical (NASDAQ:VICL), Xilinx (NASDAQ:XLNX), and Caterpillar (NYSE:CAT). Schaeffer's Market Blog is just one of the many free market commentaries written every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. The Market Blog is written throughout every trading day by Schaeffer's financial analysts and traders. They are quick insights to the day's most notable market activity from an options perspective. To have this report delivered to you free via email every day click on the following link and you'll also get an opportunity to win an iPod Nano. http://www.schaeffersresearch.com/redirect.aspx?CODE=PROB13M&PAGE=1

Don't forget that many of our observations are available as audio presentations that you can hear on your computer or download from Apple's iTunes Music Store to play on a portable device such as an iPod. To see the full menu of podcasts, please visit http://www.schaeffersresearch.com/commentary/podcasts/

7:53 AM Free Financial Videos and Podcasts

Good morning. We're busy building a new video studio here at Schaeffer's. Yesterday, we produced shows that featured Boston Scientific, UPS, Citigroup, eBay, plus a half dozen publicly traded stock exchanges such as the Chicago Mercantile Exchange.

We also produce podcasts, audio presentations that you can hear on your computer or download from Apple's iTunes Music Store to play on a portable device such as an iPod. Our library features about 900 podcasts so far, and our founder Bernie Schaeffer has agreed to appear in "Podcast 1000" next month.

You can find all these shows at http://www.schaeffersresearch.com/commentary/podcasts/. You'll see podcasts in the left-hand column and videos in the right-hand column.

9:15 AM CAT Got Your Portfolio?

They say that curiosity killed the cat, but this morning the real culprit could very well be earnings. Before the open, Dow Jones construction equipment company Caterpillar (NYSE:CAT) lobbed up third-quarter earnings of $1.14 per share, whiffing the Street's expectations for a profit of $1.35 per share. The company also lowered its 2006 earnings forecast to a range of $5.05 to $5.30 per share, compared to the consensus estimate for a profit of $5.52 per share. According to a report on Marketwatch, CAT was seen lower by roughly eight percent in pre-market trading.

Technically, CAT was in the process of pulling back from round-number resistance at the 70 level. The stock's 10-month trendline is also in the area, muddying the waters considerably. On the sentiment side, expectations for a solid report were high, as CAT's Schaeffer's put/call open interest ratio (SOIR) dropped from its mid-September reading near 1.30 to yesterday's perch at 0.96. Also in the options pits, heavy call open interest resides at the 70 strike in the October and November series. Basically, even a solid earnings report from CAT would have had trouble pushing the shares higher. This morning's earnings whiff could really test that theory that cat's always land on their feet.

10:43 AM Xilinx Soars on Earnings Report

After the close last night, Xilinx (NASDAQ:XLNX) reported earnings of $93 million, or 27 cents per share, on revenue of $467.2 million. Analysts had predicted a profit of 23 cents per share on revenue of $456 million. On a conference call to discuss the results, Chief Executive Wim Roelandts said new products made up 20 percent of the firm's, up from 10 percent a year ago. At last check, the shares were up nearly seven percent on the positive news. Heading into the report, investors had grown extremely pessimistic of the shares. The equity's Schaeffer's put/call open interest ratio had risen from 0.75 on October 16 to its current perch of 1.15, as puts were added at a faster pace than calls among near-term options. What's more, the current ratio is now higher than 97 percent of those taken during the past 52 weeks. XLNX could see further gains as this pessimism unwinds.

12:56 PM Bulls Encouraged by...Ferrets?

The second-biggest winner on the Nasdaq at last check was Vical (NASDAQ:VICL), which is up almost 13 percent at $6.04. The company announced that its lead bird-flu vaccine protected ferrets from a lethal dose of the H5N1 virus. The stock gapped higher this morning to hit the most elevated levels we have seen since mid-June, and volume was hefty.

Zacks lists just three brokerages that rate the stock. One has it at a "buy" but the other two keep it at a cautious "hold," leaving room for upgrades and fresh coverage. However, I notice that sentiment in the options pits is very positive, warning that sideline money might be scarce. The Schaeffer's put/call open interest ratio (SOIR) for VICL is just 0.11, indicating that calls are about nine time more popular than puts in the front three months of options.

2:49 PM 3M Looks MMM Good

Pessimism was on the rise in the options pits heading into 3M Company's (NYSE:MMM) earnings report this morning. The stock's Schaeffer's put/call open interest ratio (SOIR) jumped from a reading of 1.29 on October 12, to today's perch at 1.35 - the highest such reading taken during the past 52 weeks. Not only does a reading of 1.35 indicate that puts easily outnumber calls for MMM, but options speculators have not been more bearish toward the security during the past year.

It would seem, however, that this pessimism was ill placed, as MMM has rallied more than 3.5 percent following its Street-beating performance in the earnings confessional. While the equity seems to have found a bit of resistance in the 79-80 region heading into the latter half of the session, MMM did blow past peak call open interest and long-term technical resistance at the 75 level on the news. Looking forward, there is little in the way of options-related resistance above the shares. With only technical resistance at the 80 level holding MMM back at the moment, we could see a continuation of this rally if the stock can hold its momentum going forward.

3:31 PM Merck Rallies, No Ferrets

Merck (NYSE:MRK) has rallied more than two percent so far today, and is helping to push the Dow Jones Industrial Average (DJIA -12,009.3) back above the 12,000 level today. And it didn't even need ferrets! But seriously, the company impressed investors this morning when it reported third-quarter earnings excluding charges of 51 cents per share on revenue of $5.41 billion. Analysts were looking for a profit of 50 cents per share on revenue of $4.97 billion. Furthermore, MRK lifted its outlook for the full year.

It's surprising to see pessimism on a blue-chip stock, let alone a member of the DJIA. But MRK's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks in the 87th percentile of its annual range, 10 of the 16 analysts covering the shares rate them a "hold" or worse, and short interest would take nearly four days to buy back. Needless to say, an unwinding of this pessimism today could be one of the big drivers pushing MRK to new 52-week highs today.

For more information on these stocks or any stock in your portfolio, feel free to visit our Schaeffer's Equity Scorecard feature. Click here to read all of today's Market Blog: http://www.schaeffersresearch.com/redirect.aspx?CODE=PROB13C&PAGE=1

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Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com, is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method.