Schaeffer's Street Chatter Highlights the Following Stocks: Walt Disney, United Parcel Services, webMethods.

CINCINNATI -- Today's "Street Chatter" from Schaeffer's Investment Research focuses on: Walt Disney (NYSE:DIS), United Parcel Services (NYSE:UPS), webMethods (NASDAQ:WEBM). "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:

Walt Disney

Walt Disney (NYSE:DIS) is popular on the message boards today. The shares have been in an uptrend since August 2002, spoilt by a decline that started earlier this year and pushed the stock below its powerful 80-week moving average. Only the support of the 160-week trendline saved the day.

But the long-term picture is even more intriguing. The stock price is caught between the 80-month and 160-month moving averages, a situation that usually bodes for a major movement. With DIS currently resting on the lower of these trendlines, perhaps now is the time for a break down. Some investors follow Fibonacci retracement levels, and I notice that the stock was rejected at a key 50-percent retracement level in February. I wrote about Fibonacci retracement back in April.

The 50-percent retracement level appears to add strong resistance at 28.65, limiting the potential upside, though it's important to note that different traders use different strategies, and retracement is just one weapon in the Wall Street arsenal.

Despite the equity's recent lackluster performance, the blue-chip stock is still blanketed in optimism. The security's Schaeffer's put/call open interest ratio (SOIR) has dropped from its September peak close to 0.50 to its current perch of 0.28. This decline indicates that calls have been added at a faster pace than puts in the front three months of options. What's more, the current SOIR is lower than 98 percent of readings taken over the past year, indicating an extreme of optimism.

Furthermore, short interest is less than two percent of DIS's float, sharply reducing the likelihood of the stock benefiting from a short-covering rally.

Wall Street sentiment is mixed toward DIS. From Zacks, I see that 19 analysts rate the stock, awarding:

--8 "strong buys"

--2 "buys"

--9 "holds"

--0 "sells"

--0 "strong sells"

I see room for downgrades here.

The stock earns itself a Schaeffer's Equity Scorecard reading of 2.0 out of 10, suggesting that the downside is the more attractive direction for DIS. The daily chart shows the most recent leg of the downtrend, driven by the 80-day moving average, which is currently in the 25.25 region, and descending rapidly.

Click the following link to see a Daily Chart of DIS since February 2005 with 80-Day and 160-Day Moving Averages: http://www.schaeffersresearch.com/commentary/observations.aspx?click= home&ID=14329 .

United Parcel Services

According to Hoover's, United Parcel Services (NYSE:UPS) is the number-one package delivery company in the world, carrying more than 13 million packages and documents per business day throughout the U.S. and to more than 200 countries and territories. It uses a fleet of nearly 600 jet aircraft and more than 88,000 motor vehicles.

The company is due to step into the earnings confessional on October 20, according to Zacks, and market watchers are expecting average earnings of 85 cents per share for the quarter. The stock has beaten expectations for the past three quarters, so perhaps Wall Street will secretly be hoping for more than the consensus estimate. If UPS disappoints, we could see a few falls on October 20.

Click the following link to see the Daily Chart of UPS since February 2005 with 80-Day and 160-Day Moving Averages: http://www.schaeffersresearch.com/commentary/observations.aspx?ID= 14329 .

Technically, the stock entered a horizontal trading range back in March, and it looks to be going nowhere. It does not appear to have shown a great deal of respect for its longer-term daily moving averages, so I'm disinclined to worry about those trendlines. What intrigues me is the possibility of sniping a profit when the stock moves from one rail to the other. For example, from July 7 to July 20 we saw a tidy 12-percent gain. A little nimble use of calls to amplify profits on the upside and puts to amplify profits on the downside, could turn UPS into a nice little earner.

Wall Street is not positive toward UPS. From Zacks I see that 18 analysts rate the stock, awarding:

--6 "strong buys"

--2 "buys"

--10 "holds"

--0 "sells"

--0 "strong sells"

This leaves room for downgrades, but those 10 cautious "hold" ratings allow for upgrades, too.

The security has a SOIR of 1.09, indicating that puts outnumber calls in the front three months of options. This SOIR lies in the 84th percentile, so it is toward an extreme of pessimism.

Short interest dropped 12 percent in September to 11.2 million shares. These pessimistic positions would take 5.1 days to cover at the current average daily trading volume, but they represent just 1.04 percent of the float, so the possibility of a short-covering rally is not strong.

The stock earns itself a Schaeffer's Equity Scorecard reading of 5.5 out of 10, which suggests that it's hard to call this stock one way or the other at the moment. But remember to check back, because we update these SOIRs every day.

webMethods

webMethods (NASDAQ:WEBM) was a child of the heady days before the Internet bubble burst and new hires at dot-coms were given books telling a strange story of old rules broken, and new paradigms that didn't have much space for rules at all. But the tale now is different, and begins with more sober words. "It was a dark and stormy chart ..."

Click the following link to Monthly Chart of WEBM since February 2000: http://www.schaeffersresearch.com/commentary/observations.aspx?ID= 14329 .

But don't stop reading! The shorter-term picture looks very different. Let me zoom in on the price performance this year and you'll see what I mean. From late April to mid-September, you had an opportunity to make something close to a 63-percent profit on WEBM, which isn't shabby at all.

Let's look at the sentiment to see what the future might hold. From Zacks I see that seven analysts rate the stock, awarding:

--3 "strong buys"

--0 "buys"

--3 "holds"

--1 "sell"

--0 "strong sells"

That puts more than half the ratings at a cautious "hold" or worse.

Short interest would take more than six days to cover at the current average trading volume. We monitor short interest because sometimes sudden good news comes along and pushes a stock's price up sharply. This might shake out some of the short sellers, who suddenly see that it will cost more money to buy their stocks back than they tucked under the mattress when they originally sold the positions. If these turncoat short sellers suddenly transform into buyers, they can push the stock price yet higher and perhaps provoke further short covering. We usually take note when the short-interest ratio passes five.

In the options pits, calls dominate puts. The SOIR for WEBM is just 0.05 thanks to massive front-month call open interest at the five strike. When the options markets opened this morning, there were 10,919 contracts of open interest at the October 5 call (UUW JA).

The stock earns itself a Schaeffer's Equity Scorecard reading of 6.0 out of 10 suggesting that the upside, by a small margin, is the more attractive direction for WEBM, and I'm going to be watching the action. I'd love to know who opened all those October 5 calls. Those 10,919 options contracts represent 1,091,900 shares. WEBM trades only half a million shares a day, very approximately, so those options represent a whole day or two of trading.

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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

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