Schaeffer's Midday Options Update Features General Motors, Computer Sciences, Fred's, Medtronic, and Texas Instruments.

CINCINNATI -- Today's Schaeffer's Midday Options Update features General Motors (NYSE:GM), Computer Sciences (NYSE:CSC), Fred's (NASDAQ:FRED), Medtronic (NYSE:MDT), and Texas Instruments (NYSE:TXN). 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. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1

Options Update: A Look at Texas Instruments

After two days with little in the way of economic news, the floodgates opened today. The morning started with news from the Commerce Department that U.S. durable goods orders dropped 4.8 percent in April. Economists were looking for a much smaller drop of 0.6 percent. As a result of this weaker-than-expected report, gold futures more than erased yesterday's gain of $16. The front-month gold contract lost more than $30 as the durable goods report stoked the belief that interest rate hikes may no longer be needed. The Commerce Department also announced that new home sales increased 4.9 percent in April, hitting the highest seasonally adjusted rate of the year (1.20 million). MarketWatch pegged expectations for 1.15 billion units thanks to a general slowdown in the housing sector. While new home sales are 5.7 percent lower on a year-over-year basis, April was the second straight month that new home sales increased.

Further data came courtesy of the Energy Department in the form of weekly crude inventory report. According to government data, crude supplies dropped by three million barrels to 343.9 million barrels. Despite the drop, crude stockpiles remain 3.6 percent higher than a year ago. Distillate supplies increased 2.5 million barrels to 117.1 million, which is 8.1 percent higher than a year ago. The big news came in the form of gasoline, which increased by 2.1 million barrels to 208.5 million.

Shifting Out of Neutral

General Motors (NYSE:GM) is more than five percent higher today following an upgrade from Merrill Lynch. The brokerage upped the motor city manufacturer to "buy" from "neutral," citing expectations that roughly 30,000 of the company's workers will accept its buyout program. This total would represent "a significant acceleration in GM's restructuring plan." Merrill Lynch based the estimate on comments by the United Auto Workers union that, as of May 3, 12,400 GM workers had asked to take buyouts. The brokerage and the union believe that this rate will increase as the June 23 acceptance deadline approaches.

Blinded Me With Science

Computer Science Corp. (NYSE:CSC) is backtracking today after issuing an earnings and revenue forecast that fell shy of the consensus estimate and reporting fourth-quarter earnings. CSC posted a fourth-quarter profit of $1.16 per share (excluding items), which topped the consensus estimate. Revenue for the quarter came in at $3.88 billion, topping the Street's expectations as well. However, today's drop of more than one percent was precipitated by a first-quarter forecast in the mid-60-cent range on revenue of $3.4 to $3.5 billion. The consensus has set the bar at 69 cents per share on revenue of $3.71 billion.

Right Said Fred, Apparently

Memphis retailer Fred's (NASDAQ:FRED) is more than six percent higher this afternoon after issuing its first-quarter earnings report. FRED earned 18 cents per share in the first three months of fiscal 2006, topping expectations by a penny per share. Revenue came in at $416.9 million, shy of the consensus estimate of $421.7 million. FRED affirmed its estimate that fiscal 2006 will see sales increase 11 to 15 percent on higher same store sales.

Super-Medtronic

Yesterday afternoon, Medtronic (NYSE:MDT) announced fourth-quarter earnings of 62 cents per share on sales of $3.08 billion. Analysts on the Street expected earnings of 62 cents per share on sales of $3.07 billion. The company also upped its own forecast for fiscal 2007 to $2.54 to $2.60 per share yesterday, excluding 12-cents worth of stock-option expensing charges. The company also forecast earnings of $2.78 to $2.88 per share in fiscal 2008. According to Thomson First Call, expectations stand at $2.50 in 2007 and $2.90 in 2008.

Most-Active Options Update

Texas Instruments

Early momentum in the semiconductor sector has forced several large semiconductor names higher, including Texas Instruments (NYSE:TXN). Heavy activity on the chip champ's June 32.50 put (TXNRZ) is the reason that TXN appears on our most-active puts chart this afternoon. Prior to this activity, this strike is was already the site of peak put open interest in June with nearly 7,000 contracts. Combined with the 9,000-plus contracts in the July series, 32.50 is the site of peak put open interest in the front two months. Regular readers of this article and our website can tell you that heavy (much less peak) put open interest can potentially provide a layer of options-related support.

If you have looked up TXN's current price, you may wonder why I just focused on the 32.50 level (TXN is currently at 31.39 per share). That is because TXN's best chance for technical support has given way. The next foreseeable support for the faltering stock is the 30 level. Notice on the weekly chart below that 30 is a significant historic level of support, so there is a chance that the bleeding could stop. I also included TXN's 50-week moving average, as its support has given way as well. Now, if TXN reclaims this support and is able to move higher, notice the staunch historical resistance it faces at the 34 level. I think we are dealing with a range-bound stock here (cue the dramatic chord).

The past two years have been successful for TXN, there is no denying that. However, there is one foreboding technical development on the firm's monthly chart. Let's span back to January 2001 and trace TXN's performance. Notice that the 35 level has capped the shares several times. That's strike one. Strikes two and three come in the form of TXN's 80-month moving average, which has held TXN back since June 2002. Of course, this resistance isn't necessarily a bad thing, as the trendline has pointed higher. However, notice how this moving average appears to be in the throes of turning over. If this formation comes to fruition and the trendline turns over, its resistance could push the shares lower.

I can't deny the fact that TXN has performed well in the past, but it does seem to have fallen into a bit of a short-term downtrend. Let's see how TXN's sentiment stacks up:

--Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 69%

--Number of analysts tracked by Zacks: 29

--Short-interest ratio: 1.82

--Schaeffer's put/call open interest ratio (SOIR): 0.39

--SOIR percent rank: 1%

--Overall Schaeffer's Equity Scorecard rating: 3.0

I would say that analysts and options players stack up rather bullishly on a stock that seems to have fallen on hard times. TXN's SOIR percentile ranking is a hair away from a 52-week low, indicating that optimism is running at near-extreme levels. In addition, Zacks shows that 20 of the 29 analysts ranking TXN deem it worthy of a "buy" or better. The problem with this coverage is that the effect of upgrades may be marginally less than that of downgrades. Finally, TXN can not depend on short-covering support to help boost the shares. Less than two percent of TXN's float is sold short and it would take less than two days to cover these shorted shares.

TXN is slumping, yet the Street is rather bullish about its prospects. This combination is exactly what we look for in a bearish contrarian play.

Click here to see a Monthly Chart of TXN Since January 2001 With 80-Month Moving Average: http://www.schaeffersresearch.com/wire?ID=16081

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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.