Schaeffer's Midday Options Update Features Cisco Systems.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Cisco Systems (NASDAQ:CSCO). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Options Update: Is The Cisco Kid Corralled?

The major market indices appear to be consolidating some of their recent gains today, as a flood of seemingly positive economic reports should have inspired at least a little bit of buying on the Street. As it stands, most equities are hovering in the red just below breakeven as we head into the latter half of the trading session.

In economic news, there are signs that the housing market may be coming out of its funk. Existing-home sales climbed for a second straight month, and inventories fell during November. Home re-sales jumped to an annual rate of 6.28 million, from October's 6.24 million. Median home price slipped to $218,000 in November, down from $225,000 in November of 2005.

Elsewhere, new claims for unemployment insurance increased by 1,000 to 317,000 in the week ended December 23. Claims for those drawing benefits for more than one week rose for the fourth time in five weeks, suggesting some weakening of the labor markets.

Finally, in an unexpected turn, the Conference Board's consumer confidence index rose to 109 in December, its highest level since April, compared with the upwardly revised 105.3 seen in November. Analysts had been expecting a reading of just 102.5.

Most-Active Options Update

At 1:46 pm Eastern Time, the Dow Jones Industrial Average (DJIA - 12,497.3) is 13.4 points lower, while the S&P 500 Index (SPX - 1,425.37) has slipped 2.47 points. The Nasdaq Composite (COMP - 2,425.4) has dropped 5.8 points. At 1:47 p.m. Eastern Time, 1,633,364 calls have changed hands compared to 1,340,981 puts, equaling a single-day put/call volume ratio of 0.82. The CBOE's equity put/call volume ratio stands at 0.82, while the ISE's ratio weighs in at 0.80.

Cisco Systems

With all the speculation surrounding Apple Computer's (AAPL) "iPhone," it may surprise some of you to know that an iPhone actually exists, but AAPL doesn't make the product. In a recent article on The New York Times online, the Times reported that Cisco Systems (NASDAQ:CSCO) has held the iPhone trademark since 2000, giving it the exclusive right to sell something called an iPhone. Linksys, a subsidiary of CSCO, announced several new iPhone products last week, including the WIP320, a small wireless handset that lets you make calls over Wi-Fi networks using the Skype service.

However, the entire take of iPhones has not benefited CSCO shares. Since the stock gapped sharply higher following its last earnings report on November 9, the equity has been trapped below technical resistance at the 28 level, and some staunch options-related resistance at the 27.50 level. In fact, CSCO has been range bound between these resistance levels and support in the 26.50-27 region, with its 10-day and 20-day trendlines attempting to offer up some support in the interim. These short-term trendlines have been very supportive of CSCO, as the security has added more than 60 percent along their guidance since early August.

From a long-term perspective, CSCO has cleared some major hurdles recently. From October 2005 through November 2005, the shares hovered around support at their 160-month moving average, rebounding from this trendline in mid-November. Rallying from this rebound, CSCO is poised to close its third consecutive month above its 80-month trendline - marking only the fourth such occurrence since February 2001. Looking again at a monthly chart, the only barrier to a continued run higher from a long-term perspective lies at the round-number 30 level, which CSCO has not bested since February 2001.

But, before we break out the champagne and start buying CSCO left and right, the stock must still break out of its current trading range. Should today's call option volume translate into fresh positions, this task could become much harder. Currently, some 76,823 calls reside at CSCO's January 2007 27.50 strike, and while this accumulation is a far cry from the more than 184,000 calls in residence at the 20 strike in January, it could still ferment options-related resistance at the level. What's more, roughly 11,000 calls have changed hands at this front-month strike so far today, potentially strengthening the resolve of this resistance.

However, optimism is out of character for CSCO options players, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.63 ranks above 89 percent of those taken during the past year. That being said, potential options related support doesn't really kick in for CSCO until the 20 level, where more than 162,000 puts reside in the January series.

The other indicators I like to look at are far from reassuring for a bullish investor. Short sellers are shying away from CSCO, as roughly one percent of the stock's float is sold short, lessening the chances of short-covering support (let alone a short-covering rally). Meanwhile, Wall Street has doled out 20 "buy" or better ratings compared to just four "hold" or worse opinions. Downgrades could certainly be damaging for CSCO, and there is little room for anymore upgrades to enter the picture.

The stock does earn a Schaeffer's Equity Scorecard rating of 7.0 out of 10, but I feel this is mainly based on the stock's technical performance. Don't get me wrong, CSCO has a solid technical backdrop, but its short-term performance since early November is reason to give me pause. Going forward, a breach of resistance in the 27.50-28 area could lend credence to an eventual move above 30. After that, the sky is the limit. However, a breakout to the downside for CSCO at this point could be exacerbated by bullish investors abandoning their positions, thus sending the shares down for a re-test of support in the 25 area, or below that the 20 region.

As always, thank you for reading and good luck in your trading!

Click here to see a Monthly chart of CSCO since February 2001 with 80-month and 160-month moving averages and a Daily chart of CSCO since November 2006 with 10-day and 20-day moving averages: http://www.schaeffersresearch.com/wire?ID=17959 .

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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 .