Schaeffer's Midday Options Update Features IBM, Bowater, DuPont, Occidental Petroleum, and Micron Technology.

CINCINNATI -- Today's Schaeffer's Midday Options Update features IBM (NYSE:IBM), Bowater (NYSE:BOW), DuPont (NYSE:DD), Occidental Petroleum (NYSE:OXY), and Micron Technology (NYSE:MU). 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=PRMOU1M&PAGE=1.

Options Update: MU Buyers Must Have a Short Memory

Early trading saw stocks lose ground. Contributing to this drop was a case of nerves ahead of key consumer confidence data. The Conference Board data revealed that U.S. consumer confidence declined for the third straight month. The consumer confidence index dropped to 97.7 in April from March's number of 103.0. The decline was sharper than expected.

However, stocks have staged a bit of a comeback, as all the news was not bad. The Commerce Department reported that U.S. new home sales saw a 12-percent increase in March. This increase resulted in a record 1.431 million seasonally adjusted annual rate. The previous record was 1.304 million homes, set in October. The 12 percent marks the largest percentage gain in nearly 12 years. Oil and gas futures are headed lower today after Saudi Arabia stated that the kingdom would produce as much crude oil as buyers want. A top Saudi aide stated yesterday that $50-per-barrel oil is "clearly too high." While I'm glad he feels the same way I do, he didn't provide immediate steps to impact oil prices.

Big Blue's News 

IBM (NYSE:IBM) announced earlier this morning that its board has approved the buyback of up to $5-billion worth of its common stock. The computer company also authorized a dividend increase of 11 percent. IBM plans to pay a regular quarterly cash dividend of 20 cents per share on June 10 to shareholders of record on May 10. IBM noted that the two-cents-per-share boost to its dividend marks the 10th straight year that it has been able to increase its payout. Furthermore, this is the largest buyback authorization in IBM's history.

BOW-ing Out

Bowater (NYSE:BOW) reported first-quarter earnings of two cents per share this morning, far better than last year's loss of 57 cents per share. Revenue for the quarter came in at $837 million, compared to last year's same-period revenue of $743.5 million. Excluding charges, the paper concern lost 22 cents per share for the quarter. While this is still much better than last year's first-quarter loss, it missed the Street's estimate of a 17-cents-per-share loss. BOW's chairman noted that its pricing for major paper grades "continues to improve," and believes that this trend will "support better financial results throughout the year."

Super DuPer Earnings?

Chemical concern, DuPont (NYSE:DD), stepped into the earnings spotlight, reporting earnings of 96 cents per share in the first quarter, compared to 66 cents per share last year. While the earnings missed the Street's bar of $1.01 per share, revenue came in at $7.83 billion while the Street expected $7.71 billion. DD reaffirmed its 2005 earnings forecast for earnings between $2.65 and $2.85 per share. However, the firm forecast raw material costs to come in "significantly" higher than previously forecast.

OXY Clean

Occidental Petroleum Corp. (NYSE:OXY) reported first-quarter income of $2.08 per share, compared to last year's $1.23 per share. The jump in earnings was attributed to strong oil and gas prices, as well as improved chemical margins. The consensus estimate for OXY's earnings stood at $1.9 per share, on average. Net sales for the quarter increased to $3.30 billion from last year's first-quarter net sales of $2.56 billion. The gas firm's oil and gas segment earnings totaled $1.3 billion in the first quarter, a 47-percent increase over last year's fist-quarter segment earnings of $915 million.

Most-Active Options Update

At 1:29 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,194.2) has moved 0.47-percent lower, followed by the S&P 500 Index (SPX - 1,158.15), which has dropped 0.33 percent. The Nasdaq Composite (COMP - 1,938.7) was lower by 0.59 percent. By 1:29 p.m., 1,668,796 calls and 1,062,942 puts had crossed the tape, for a composite put/call ratio (across all six options exchanges) of 0.63. The CBOE put/call volume ratio for equity options stood at 0.67.

Micron Technology

In the memory chip market, Micron Technology (NYSE:MU) trails only Samsung Electronics for the number-one spot in the world for production. MU produces dynamic random-access memories (DRAMs), flash memory chips, and memory modules along with image sensor chips. Yesterday, Citigroup Smith Barney upgraded the chipmaker to "hold" from "sell." This upgrade was part of a global upgrade of companies that dabble in DRAM, as the brokerage predicts an expected bottoming of DRAM fundamentals in the second and third quarters. Today, Moors & Cabot issued an upgrade on MU, elevating the firm from "hold" to "buy." This recent coupling of upgrades has MU trading 0.73-percent higher today.

Options buyers also felt like taking a trip down memory lane today, as MU has found its way onto our active calls list. The company's May 10 call (MU EB) has seen 9,911 contracts cross the tape. Currently, MU's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.51, lower than 65 percent of the readings taken over the past 52 weeks. This is approaching an optimistic extreme that I like to cordon off with an 80th percentile ranking. Further optimism is evidenced by MU's short interest backdrop, as pessimism unwound to the tune of 16 percent over the past month.

Options players aren't the only bunch that is buying into the dean of DRAMs. Analysts are also filing MU into their memory banks. According to Zacks, MU garners five "strong buy," two "buy," nine "hold," and one rather pessimistic "strong sell" rankings from the analysts. Take note, this data does not take into account today's upgrade from "hold" to "buy." Any change of heart from this gaggle of optimists could result in a bit of a downward slide for the equity.

Is the optimism toward MU warranted? Only if you can forget the company's technical performance. Let's start with MU's daily chart. After hitting resistance at 12.97 (a near-term high) in mid-September, MU has been driven lower thanks to the resistance of both its 10-day and 20-day trendlines. This is not saying that MU hasn't enjoyed a few flashes of brilliance, but these spikes were quickly negated after slipping below these trendlines. Currently, MU has fought its way above its short-term daily moving average, but recent history dictates that the 20-day moving average will promptly usher MU lower. There is some support waiting for MU in the nine region, can it hold? Added pressure at this level comes from MU's weekly moving averages. The chart below shows that MU's decline has been a gradual blood-letting since bumping its head on the 18.25 level in April 2004. Since hitting this high, MU has dropped nearly nine points thanks to resistance from its 10-week and 20-week moving averages. By my count, a mere three weeks have seen MU close above this double-barreled resistance. Note, that throughout this drop, levels of support have been broken at 15, 13.5, 12.5, 11.5, 11, and 10. Can we assume that the nine level is going to cowboy up, bow its back, and (just to use one more sports cliche) bend not break? A bearish cross by its 10-month trendline of its 20-month trendline seems to suggest that MU is going to see a continuance of its drop.

Click on the following link to see the Weekly Chart and Equity Scorecard of MU since January 2004 with 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/wire?ID=13039.

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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.