Schaeffer's Street Chatter Highlights the Following Stocks: American International Group, Borders Group, and Vodafone.

CINCINNATI -- Today's "Street Chatter" from Schaeffer's Investment Research focuses on: American International Group (NYSE:AIG), Borders Group (NYSE:BGP), and Vodafone (NYSE:VOD). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Street Chatter:

American International Group

On Wednesday, I wrote about New York Attorney General, Eliot Spitzer's latest campaign against H&R Block. Today, one of Spitzer's original targets, American International Group (NYSE:AIG), is making news. The insurer announced fourth-quarter earnings of 17 cents per share after logging more than $2 billion of charges for regulatory settlements and increased reserves. Analysts expected AIG to report earnings of 24 cents per share.

So far this morning, AIG has dropped more than two percent. Looking at a daily chart for the insurer, I am not too terribly surprised that the shares have dropped. Yesterday was the first day that the shares closed above the 69 level since the middle of January. This level has acted as staunch resistance, turning the shares away twice . . . dare I say, a double-top? Of course, the shares are dropping toward the 65 level, which is the site of peak put open interest in the front three months of options activity. In fact, the May series 65 strike is home to more than 28,000 put contracts. This configuration could establish this level as support for the near future. If the options configuration isn't enough to provide support, notice that the 65 level has acted as a trampoline for the shares on three different occasions. While I have been known to be wrong (just ask my wife), I feel safe in saying that we have a trading range here.

It certainly seems that there may be a floor set to today's drop. We just need to sit tight and see if the 65 level will hold as support. Looking at options on AIG, that May 70 contract looks mighty attractive with an ask price of 90 cents. However, 70 is the site of peak call open interest in the front three months (don't forget that today is the last for the March series).

There are two other caveats when it comes to that May contract. The first is analyst coverage. Before today's news, Zacks shows that 13 analysts rate AIG a "buy" or better and six rate it a "hold" or worse. The chance for the shares to come under more downside pressure from downgrades is higher, but AIG is currently near the mid-point of its trading range.

The other caveat is that there is little in the way of short-covering interest to push the shares higher. However, an increase in short selling could make that May 70 call (AIG EN) look even more attractive, as it could provide the fuel for a serious short-covering rally. Keep in mind that the updated short interest numbers will be released in the next week or so.

Click the following link to see a monthly chart of AIG since January 2002 with 80-month moving averages: http://www.schaeffersresearch.com/wire?ID=15568 .

Borders Group

Late yesterday, Borders Group (NYSE:BGP) announced fourth-quarter income of $1.78 per share. The bookseller also announced that its same-store sales increased 2.5 percent. Unfortunately, all the news wasn't good. The company also announced that it is looking at a deeper first-quarter loss, ranging between 20 to 30 cents. The larger loss is blamed on the nationwide launch of a customer-loyalty program and the planned second-quarter opening of a new distribution center. The shares have dropped more than 2.5 percent following yesterday's news.

Options are rather lightly traded on the baron of books, so there is little in the way of options-related resistance or support for the shares. However, the 25 level is extremely noteworthy. This level has alternated between support and resistance for the past two-plus years, and is acting as resistance as we speak. While the stock retreats, there is a bit of technical support in the form of its 80-week moving average. This trendline has served in this role since the middle of January.

The picture is similar when looking at a monthly chart for BGP. The 25 level is still acting as resistance, but the support comes in the form of the equity's 10-month moving average. This moving average provided support throughout BGP's run from 2003 through 2005. The question is if it will be able to serve in the same role again.

There is little in the way of short-covering support to help boost the shares, but as I stated in the previous Street Chatter, new short-interest information is due in the next week or so. Should there be a sizeable change, BGP could see its potential short-covering fuel tank refilled.

According to Zacks, five of the seven analysts covering BGP rate it a "hold." Should this group have a change of heart, the shares could benefit. While the company's news could drive the two "strong sell" ratings to the negative side, the drop may not be horrible.

Click the following link to see a monthly chart of BGP since January 2003 with 10-month moving average: http://www.schaeffersresearch.com/wire?ID=15569 .

Vodafone

Earlier today, Vodafone (NYSE:VOD) agreed to sell 97.68 percent of its Japanese arm to SoftBank for 8.9 billion pounds. VOD will receive 6.8 billion pounds cash on closing, and will then return 6 billion pounds to shareholders. The company's CEO, Aruru Sarin state, "in the case of Japan, we have been making progress on the turnaround in recent months. However given the relative competition position of the business, the reduced prospects for superior long term returns and a good offer from SoftBank, the board took the decision to sell."

Technically, VOD has made a bit of a comeback, reclaiming its 10-day and 20-day moving averages. In fact, the recent run higher pulled the former into a bullish cross of the latter. As has been exhaustively noted on this website, this technical development is often the precursor of a continued bullish run. However, let's not get excited here, it seems that the 23 level is almost daring the shares to try and advance. The last time the equity was able to finish a day above this level was close to the start of January.

The resistance levied by this level becomes stronger when we take into account VOD's 10-month and 20-month moving averages. The last time the shares topped their 10-month moving average was October. What's more, this trendline completed a bearish crossover of its 20-month moving average. While a bullish cross could signal an uptrend, a bearish cross often signals a downtrend. Which of these two technical developments will win, we shall see. Options players have basically ignored VOD's longer-term struggles. VOD's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.33, which is lower than 82 percent of the readings taken during the past 52 weeks. This percentile ranking falls inside what I consider a bullish extreme.

The stock could receive a bit of a boost from the analyst community. According to Zacks four of the six analysts covering VOD rate it a "hold" or worse. Should this dour group change its mind, the shares could be subject to a bit of upward pressure.

Click the following link to see a monthly chart of VOD since January 2001 with 10-month and 20-month moving averages: http://www.schaeffersresearch.com/wire?ID=15375 .

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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 .