Schaeffer's Market Observation Features Broadcom, Gilead Sciences, and Juniper Networks.

CINCINNATI -- Today's Market Observation features Broadcom (NASDAQ:BRCM), Gilead Sciences (NASDAQ:GILD), and Juniper Networks (NASDAQ:JNPR). 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 .

Broadcom

Semiconductor concern Broadcom (NASDAQ:BRCM) was the focus of many a trader in the options pits yesterday. Some 5,950 puts were added to the stock's November 45 strike, pushing open interest up to 9,692 contracts. However, despite this heavy accumulation of puts, the 42.50 strike easily outstrips the 45 level in terms of open interest for the front three months of options. On the other hand, the 45 level harbors peak call open interest for the same period.

Technically speaking, BRCM could be at a rather important juncture. The shares are pulling back from what appears to be a double top in the 47 area (the stock was rejected at the 47.05 level in July 2004). However, the equity still maintains support at its 10-day and 20-day moving averages. With peak call open interest and the equity's 20-day trendline in the 45 area, a breach of this level could be bad for BRCM. But there is still hope for the security, as its 10-week trendline (in the 44 area) is quickly ascending into the region. The stock has not logged a weekly close below this intermediate-term trendline since April.

Switching to the sentiment picture, we find that BRCM's Schaeffer's put/call open interest ratio (SOIR) has been on the rise lately, a positive sign from our contrarian perspective. In fact, this ratio has advanced from its September 23 reading of 0.55 in the 31st percentile to today's perch at 0.81 in the 83rd percentile. What's more, a look at BRCM's SOIR chart reveals that the equity has a tendency to trend in the direction of this ratio, offering up more evidence for a continued run higher for the shares.

While short interest does little to support this bullish outlook, arriving with a measly short-interest ratio of 1.38, the analyst picture is rather encouraging from our contrarian point of view. With 10 of the 22 covering analysts rating BRCM a "hold," there is ample room at the top for additional upgrades. Such a move from this bunch of holdouts could add fuel to the stock's run higher.

Finally, this combination of solid technicals and lingering bearish sentiment has earned BRCM a Schaeffer's Equity Scorecard rating of 7.0 out of 10. I would like to add a caveat to this positive contrarian outlook. What concerns me is BRCM's technical outlook, and that double top in particular. If in fact the shares continue to find resistance in this area, a drop below the 20-day and 45 level (peak call open interest) could prove many of those bearish investors right. You might want to hold on this one for now, until that double-top formation is either confirmed or denied during the next several trading sessions.

Click the following link to see a Weekly Chart of BRCM Since May 2004 With 10-Week Moving Average: http://www.schaeffersresearch.com/commentary/observations.aspx?click= home&ID=14221 . (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.)

Gilead Sciences

Attracting attention from the bullish contingent of options speculators, biotechnology concern Gilead Sciences (NASDAQ:GILD) saw more than 4,500 calls added to its November 50 strike during yesterday's session. As a result, open interest at this back-month strike now numbers 7,216 contracts, vaulting this option into the lead for peak call accumulation for the front three months of options. Meanwhile, peak put open interest for the same period resides at the 45 level.

Checking the charts, we find that the potential resistance from peak overhead call open interest resides more than six percent above the equity's current position. However, technical resistance in the 48 area appears to be causing a bit of turbulence for the shares. Recently, key support at the 45 level from that heavy accumulation of puts has come into play, as GILD waits for the support of its 10-day and 20-day moving averages to catch up. Along with this short-term support, GILD has rallied into new all-time high territory with the assistance of its 10-week and 20-week trendlines.

But can the newest baron of biotech maintain this break-neck pace skyward? Sentiment seems to indicate that the answer is no. Now, optimistic investor opinions are to be expected on an outperforming issue, but when that bullish drive reaches a pinnacle, there is little left on the sidelines to push the shares higher. GILD's recent technical troubles could be a harbinger of this impeding problem. Further evidence lies in the fact that options players have bid the equity's SOIR into the 18th percentile of its annual range, indicating heavy optimism among the group.

Furthermore, Wall Street has joined the speculative crowd, as Zacks reports that 13 of the 21 covering analysts rate the shares a "buy" or better. This configuration leaves little room at the top for further bullish ratings, and actually increases the risk of downgrades that could certainly end this fairy-tale rally higher.

Providing an additional problem for the security is its distinct lack of short-covering support. Currently, it would take less than two days to cover the 7.9 million GILD shares sold short. I want to reiterate that optimism toward an outperformer is expected. However, when technical problems rear there heads and there isn't a reaction from the trading public, stocks can quickly find themselves in trouble. Thus, GILD's Schaeffer's Equity Scorecard of 4.5, while not an extremely bearish reading, could be construed as a bit of a warning shot.

Click the following link to see a Daily Chart of GILD Since February 2005 With 10-Day and 20-Day Moving Averages: www.schaeffersresearch.com/commentary/observations.aspx?ID=14221 .

Juniper Networks

Moving to our last focus stock, we find that Juniper Networks (NASDAQ:JNPR) was also the recipient of some heavy call activity yesterday. Nearly 4,000 contracts were added to its October 22.50 strike, forcing open interest up to 14,879 contracts. While this is quite an accumulation, peak call open interest for the front three months resides at the 25 level, while peak put open interest for the same period lies at the 22.50 strike.

Technically speaking, JNPR has settled into a series of lower highs since setting a multi-year high in January 2004. Currently, the shares are struggling with overhead resistance at their 10-week trendline, which has forced JNPR lower since July. While peak call open interest is too far out of the money to create any real options-related resistance, the peak put open interest at the 22.50 level has become a bit of a touchstone for JNPR lately. With the stock trading below all of its major 10-unit and 20-unit trendlines, this area, combined with technical support at the 22 level, seems to be all that is keeping JNPR from spiraling lower.

Sentiment toward the equity is mixed to bullish. Options players remain rather complacent toward JNPR, with the stock's SOIR of 0.69 falling near the mid-range of the past year. Meanwhile, short interest is far from supportive, as it would take a mere 2.64 days to cover the 21.4 million shorted shares. Finally, Wall Street appears poised to cause the most damage to the shares. According to Zacks, 14 of the 26 covering analyst rate the shares a "buy" or better.

This collection of complacency and bullish sentiment readings combines with the security's rather lackluster technical performance to earn JNPR a Schaeffer's Equity Scorecard rating of 2.0 out of 10.

Click the following link to see a Weekly Chart of JNPR since January 2004 With 10-Week Moving Average: www.schaeffersresearch.com/commentary/observations.aspx?ID=14221 .

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About Schaeffer's Investment Research (www.SchaeffersResearch.com)

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 .