Schaeffer's Midday Options Update Features Apple Computer, General Motors, and Exxon Mobil.

CINCINNATI -- Today's Schaeffer's Midday Options Update features Apple Computer (NASDAQ:AAPL), General Motors (NYSE:GM), and Exxon Mobil (NYSE:XOM). 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: Bobbing for Sentiment on Apple Computer

As we head into the final two hours of trading before tomorrow's Thanksgiving holiday, the Dow is trying to hold onto the breakeven level. Major weakness has befallen two Dow components, General Motors (NYSE:GM) and Exxon Mobil (NYSE:XOM). GM has slipped more than two percent today after Kirk Kerkorian disclosed in a filing that he reduced his sake in the automaker. XOM has dropped more than one percent thanks to weakness in the oil patch. The Nasdaq Composite and the S&P 500 Index are both doing their best to hold their heads above water.

This morning, the Energy Department announced that crude supplies increased 5.1 million barrels to 341.1 million last week. Motor gasoline supplies rose for the first time in six weeks, adding 1.4 million barrels to 201.7 million. Distillates dropped for a seventh-straight week, shedding 1.2 million barrels to 133.8 million. The American Petroleum Institute (API) issued a bit of conflicting data, reporting a 1.7-million-barrel drop in crude last week. Motor gasoline supplies slipped 766,000 barrels, and distillates decreased by 1.4 million barrels. Black gold has shed more than one dollar and is currently hovering near the $59 level.

Elsewhere, the (BCS second-ranked . . . for now, Go Bucks!) University of Michigan consumer sentiment index inched lower to 92.1 in late November from 92.3 earlier in the month. Meanwhile, the Labor Department said that initial jobless claims rose to their highest level since late October during the most recent week, climbing by 12,000 to 321,000.

Most-Active Options Update

At 1:33 p.m. Eastern Time, the Dow Jones Industrial Average (DJIA - 12,316.5) has dropped 0.04 percent, while the S&P 500 Index (SPX - 1,404.05) is 0.09 percent higher. The Nasdaq Composite (COMP - 2,461.1) has advanced 0.26 percent. At 1:35 p.m. Eastern Time, 2,675,131 calls have changed hands compared to 1,930,012 puts, equaling a single-day put/call volume ratio of 072. The CBOE's equity put/call volume ratio stands at 0.70, while the ISE's ratio weighs in at 0.78.

Apple Computer

Bright and early this morning, Apple Computer (NASDAQ:AAPL) surged to a new all-time high of 89.99. I am sure that some of the stock's strength is born of the belief that the impending Christmas shopping season will be fruitful for the company. Perhaps it was this belief that gave option players reason to pile into the equity's December 90 call (QAALR). Today's activity is important, as it now firmly establishes the 90 level as the site of peak call open interest for December. This is important, as heavy accumulations of call open interest can act as resistance, which isn't exactly what the shares need as they struggle with a new-all-time high.

Why wouldn't options players believe that the stock is headed higher? Since January 2004, AAPL has outpaced the Dow Jones Industrial Average (DJIA). Let's take a look at the equity's technical prospects and see if AAPL is going to break through the 90 level.

AAPL's short-term strength is undeniable, since July the stock has added some 79 percent! Impressive returns? Yes. A hint of strength to come? Let's see.

What it boils down to is whether or not the 90 level is going to buckle. If it rejects the stock, how far will AAPL fall from the tree? (bad pun, I know) Let's look for levels of support. The first could be the 75 level, which is the site of peak put open interest, but a drop of this sort could be more than this thrill-seeker can tolerate. It is entirely possible for the shares to find a measure of support from the 85 level. However, I am more inclined to assign the mantle of potential support to the round-number 80 level. Why? This is the site of AAPL's 10-week moving average, which has guided the shares higher since the middle of July. Should this support give way, the 20-week moving average lurks below, ready to lend a hand if needed.

Longer-term support may be inconsequential, as AAPL's 10-month trendline is currently positioned at the 70 level. Why do I call this inconsequential? Well, the stock would have to drop through all the aforementioned support to reach 70, and then it would be a loss of 29 percent. Of course, this could open the door for a bearish play . . . it's your choice.

We need to take a look at AAPL's sentiment makeup to see if we can get a read on its direction. Let's start by getting a read on the pervasive sentiment from the options pits. AAPL's Schaeffer's put/call open interest ratio (SOIR) of 1.37 is higher than 98 percent of those taken during the past 52 weeks. This is encouraging, as pessimism of this sort could unwind into buying pressure. If this situation comes to fruition, we could see the stock break through the 90 level.

This pessimistic sentiment isn't shared by the analyst community. According to Zacks, 13 of the 17 analysts following AAPL rate it a "buy" or "strong buy." I find this a bit discouraging, as it leaves the door wide open for downgrades, which could push the stock lower. A development of this sort would leave the stock searching for some support.

Another discouraging development is that AAPL is left lacking for short-covering support. Roughly three percent of AAPL's float is sold short, and it would take one day to buy back the shorted AAPL shares at the firm's average daily trading volume. Bottom line: any good news holds little chance of sparking a short-covering rally.

Want some direction on how to trade AAPL? Well, its Schaeffer's Equity Scorecard ranking of 6.0 out of a possible 10 indicates that the path of least resistance leads higher. That said, you may want to wait and see how this battle at the 90 level plays out. A rejection could send the stock spiraling lower to potential support. A breach of this level could be the beginning of a significant move higher.

Click here to see a Weekly Chart of AAPL Since January 2005 With 10-Week and 20-Week Moving Averages, and a Monthly Chart of AAPL Since January 2002 With 10-Month Moving Average: http://www.schaeffersresearch.com/wire?ID=17776 .

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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 .