Schaeffer's Market Observation Features VeriSign, PMC-Sierra, and Genentech: VRSN, PMCS, DNA.

Business Editors

CINCINNATI--(BUSINESS WIRE)--Feb. 27, 2004

Today's Market Observation From Schaeffer's Investment Research features VeriSign (Nasdaq:VRSN), PMC-Sierra (Nasdaq:PMCS), and Genentech (NYSE:DNA). Market Observations are market-based reports that provide insight and analysis from a unique and unbiased perspective. These are published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link:

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Reader Requested Stock Analysis - A Double Shot of Tech and a Quick Revisit of Genentech

While I usually try to focus on one stock at a time, I wanted to change things up by hitting on couple of stocks that you could evaluate this weekend. Today we look at one time high flyers VeriSign (NASDAQ: VRSN) and PMC-Sierra (NASDAQ: PMCS) and revisit Genentech (NYSE: DNA) given its volatile move since we looked at it on Tuesday (www.schaeffersresearch.com/commentary/observations.aspx?ID=9527). As always, my intent is to show points of interest from the Expectational Analysis(R) (www.schaeffersresearch.com/shop/smp_faq.aspx) point of view as an educational tool. This column is not meant as a call to action but as a way to see sentiment indicators on stocks you follow and to find stocks that may not be on your radar screen. If you are looking for more direct stock recommendations, I urge you to click on the link above. For more information about this series, please read A Primer to Understanding How to Use This Column (www.schaeffersresearch.com/commentary/observations.aspx?ID=9278). To submit a stock, see the link at the end of this page.

Note: As I mentioned earlier this week, last Friday was option expiration for February's stock options and this impacts the list below. This is why I have some of the fields marked as "n/a". For more complete explanation of how expiration can impact these indicators, please read this link (www.schaeffersresearch.com/commentary/observations.aspx?ID=9287).

PMCS Fact Box -

    --  Schaeffer's put/call open interest ratio (SOIR): 1.901
    --  SOIR Percent Rank: 88%
    --  Call open interest: 14,786
    --  Put open interest: 28,115
    --  Change in call open interest in the last week: n/a
    --  Change in put open interest in the last week: n/a
    --  Number of shares sold short: 13,568,968
    --  Short interest ratio: 1.6
    --  Short interest change from the previous month: -5%
    --  Percent of analysts tracked by Zacks who rate the stock with a
        "buy": 13%
    --  Yesterday's closing price: 20.54
    --  Return over the last six months: 44%
    --  Return of the S&P 500 (SPX) over the last six months: 14%
    --  Percent the stock is from its 50-day moving average: -3%
    --  9-Day RSI: 40.36
    --  10-Day historical volatility: 41%
    --  100-Day historical volatility: 55%
    --  Historical volatility ratio: 0.73
    --  Schaeffer's Volatility Index (SVI): 54%
    --  Percent of Range for the SVI: 25%

In a nutshell, I would say that PMCS is interesting because I think there is a lack of optimism in the options market and Wall Street refuses to acknowledge the stock. The 13 percent as "buys" above means that just 2 of the 16 analysts rank the stock with a "buy" rating. Three months ago, the percent of ratings at "buys" stood at just 7 percent. This is on a stock that has soundly trounced the market over the last six months. My main issue of contention here would be that I would like to see more signs of skepticism out of short interest. However, I think that even without a short interest "kicker" the overall picture is quite skeptical. It is also worth noting that the "historical volatility ratio" is less than one. Regular readers know that a ratio near 50 percent is a more indicative of an extreme but I think it is worth noting the historical volatility is starting to get compressed. More information on this indicator can be found in the "primer" link at the top of the page.

Click the following link to see the Weekly Chart of PMCS Since September 2002 With 20-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=9564.

In an effort to get through everything I need to today, I have skipped directly to the price chart. Here we can see a solid weekly trend that is highlighted by the uptrending channel. This trend has also demonstrated a habit of pulling to, and bouncing off of, its 20-week moving average. PMCS has currently pulled back to the average which coincides with a short-term support zone. Another area of support can be seen near 18. This uptrend, which has so far remain intact, is what makes the skepticism so intriguing. With performance like this, you would expect the sentiment to be much more upbeat. The fact that many refuse to accept the rally is an encouraging sign from the contrarian perspective.

VRSN Fact Box -

    --  Schaeffer's put/call open interest ratio (SOIR): 0.563
    --  SOIR Percent Rank: 78%
    --  Call open interest: 14,943
    --  Put open interest: 8,420
    --  Change in call open interest in the last week: n/a
    --  Change in put open interest in the last week: n/a
    --  Number of shares sold short: 8,454,323
    --  Short interest ratio: 2.4
    --  Short interest change from the previous month: -14%
    --  Percent of analysts tracked by Zacks who rate the stock with a
        "buy": 29%
    --  Yesterday's closing price: 17.94
    --  Return over the last six months: 20%
    --  Return of the S&P 500 (SPX) over the last six months: 14%
    --  Percent the stock is from its 50-day moving average: 1%
    --  9-Day RSI: 48.70
    --  10-Day historical volatility: 33%
    --  100-Day historical volatility: 42%
    --  Historical volatility ratio: 0.79
    --  Schaeffer's Volatility Index (SVI): 43%
    --  Percent of Range for the SVI: 8%

VRSN is interesting as it follows a similar sentiment profile as PMCS. If you compare the two fact boxes, I think that PMCS registers a bit more pessimism but there is still enough going on with VRSN to make it worth looking into. The SOIR is near the upper edge of its yearly range and Wall Street is not tripping over themselves to recommend the stock with just six of the 21 analysts rank the stock with a "buy" rating. The price performance has not been as strong as PMCS but the stock has still beat the return of the market. As with PMCS, short interest is not going to offer much help for the rally but there is still a degree of skepticism in the overall picture. The volatility ratio is also showing some signs of compression which fits with the chart below.

Click the following link to see the Weekly Chart of VRSN Since June 2002 With 20-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=9564.

Once again we see an uptrending channel and the 20-week moving average. The shares recently overtook a zone near 16 which had capped them since last summer. The stock is now pulling back to retest this zone which has converged with the 20-week trendline. This should make for an interesting test. A long-term resistance zone is shown, which has its roots in the price action from early 2002. Given where the stock is now, this zone is definitely not an immediate concern, but I thought it was worth keeping in mind for a potential discussion down the road.

DNA Fact Box -

    --  Schaeffer's put/call open interest ratio (SOIR): 0.699
    --  SOIR Percent Rank: 29%
    --  Call open interest: 59,909
    --  Put open interest: 41,905
    --  Change in call open interest in the last week: n/a
    --  Change in put open interest in the last week: n/a
    --  Number of shares sold short: 10,928,054
    --  Short interest ratio: 5.6
    --  Short interest change from the previous month: -3%
    --  Percent of analysts tracked by Zacks who rate the stock with a
        "buy": 46%
    --  Yesterday's closing price: 103.10
    --  Return over the last six months: 30%
    --  Return of the S&P 500 (SPX) over the last six months: 14%
    --  Percent the stock is from its 50-day moving average: 9%
    --  9-Day RSI: 76.93
    --  10-Day historical volatility: 41%
    --  100-Day historical volatility: 24%
    --  Historical volatility ratio: 1.71
    --  Schaeffer's Volatility Index (SVI): 35%
    --  Percent of Range for the SVI: 26%

Those who follow DNA are probably already aware that positive news from the FDA has sent the stock surging in the last two days. As such, I thought it would be worthwhile to do a quick update on the indicators and charts that we look at on Tuesday (www.schaeffersresearch.com/commentary/observations.aspx?ID=9527).

Given that some indicators such as short interest are only updated periodically, not everything should be expected to change. However, we can see that the SOIR has dropped from a percent rank of 42 percent to this mornings reading of 29 percent. While this might seem drastic, I don't think that it is extreme given the stock move.

One of the biggest changes has to do with the volatility ratio. On Tuesday we discussed how it had pushed to level that that may indicate an increase in short-term volatility is to be expected. This ratio has now swung to an extreme on the opposite direction. This can be explained by the chart below.

Click the following link to see the Weekly Chart of VRSN Since May 2003 With 20-Week Moving Average: http://www.schaeffersresearch.com/wire?ID=9564.

In this updated chart, we can see that DNA has exploded higher allowing it to break above the uptrending. Regular readers may remember that this is the same type of move that we saw last month with QLT Inc. (www.schaeffersresearch.com/commentary/observations.aspx?ID=9344). While they are fascinating to watch, they can be challenging to trade because of the increased volatility.

With DNA breaking out of the channel, it will be important to monitor for drastic changes in the sentiment. With the stock move being so new, there doesn't appear to be much of a change. The fact box above shows the SOIR has started to dip, but some of the indicators won't change quickly. In times like this, it can be advantageous to monitor the media as they relay comments by analysts. A good source of this type of data can be found in Schaeffer's Daily Contrarian (www.schaeffersresearch.com/commentary/DailyContrarian.aspx). At present there is nothing posted, and I would consider it encouraging if this move continued the trend of the stock's rally getting little fanfare. Stay tuned to the link above in the coming days for signs of this changing.

If you would like to submit stocks, send your requests to [e-mail]. Please keep in mind that I will not be able to provide individual responses.

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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.