Schaeffer's Market Observation Features Mercury Interactive.

Business Editors

CINCINNATI--(BUSINESS WIRE)--May 27, 2004

Today's Market Observation features Mercury Interactive (NASDAQ:MERQ). Schaeffer's Market Observations are market-based reports that provide insight and analysis from a unique and unbiased perspective. Market Observations

are published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. To receive a free email notification each time a new commentary is written about one of the featured stocks or any of your favorite stocks, click on the following link: http://www.schaeffersresearch.com/addinfo.

Mercury Interactive: Looking for an Upgrade

One of the screens that I typically run in order to generate ideas filters Zacks analyst rankings and relative strength. The idea behind this screen is that Wall Street analysts will not want to maintain a "sell" rating on outperforming stocks for very long. If the security in question outperforms the market, this leaves the door open for potential upgrades. One such name that has recently come to my attention is Mercury Interactive (NASDAQ:MERQ).

MERQ has outperformed the S&P 500 Index by seven percent over the past 20 days. Technically, the stock appears to be forming a double bottom near 40. In the past, this level has served as both support and resistance. Additionally, the round-number 40 level coincides with support from the stock's 20-month moving average. As the following monthly chart shows, this level has been key.

Click the following link to see the Monthly Chart of MERQ since October 2002 with 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=10258.

Another notable item for the company was a recent earnings surprise. In April, MERQ reported earnings of 24 cents per share, versus First Call estimates of 22 cents per share. This nine-percent surprise was evidence of some fundamental life for the equity, as MERQ had merely met estimates in the two prior quarters. Year-over-year, revenues for the first quarter also increased 42 percent.

Despite the recent strong technical and fundamental performance, Wall Street analysts have an inordinate amount of "hold" ratings on MERQ. Of the 25 analysts who currently cover the stock, 12 have "hold" ratings. There is also one outright "sell" rating on the shares. Because the firm recently beat earnings estimates and has been outperforming the market, there is a strong possibility for future upgrades.

Options speculators are also bearish on MERQ. The Schaeffer's put/call open interest ratio on MERQ stands at 1.02, indicating that there are more puts open relative to calls. In fact, there are currently 13,403 total puts outstanding versus 13,190 calls. This bearishness from both Wall Street analysts and options speculators makes for a very pessimistic sentiment back-drop on MERQ. Investors and position traders may consider conducting further due diligence on the stock.

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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.