Schaeffer's Midday Options Update Features DuPont, Lockheed Martin, General Electric, Marsh &...

CINCINNATI -- Today's Schaeffer's Midday Options Update Features DuPont (NYSE:DD), Lockheed Martin (NYSE:LMT), General Electric (NYSE:GE), Marsh & McLennan (NYSE:MMC), and QUALCOMM (Nasdaq:QCOM). 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=PROB1M&PAGE=1

Options Update: QUALCOMM Qualms

The market has managed to rebound this afternoon despite another round of lackluster economic news. The Conference Board announced this morning that the U.S. Consumer Confidence Index slipped to 92.8 in October from September's revised reading of 96.7. Not only does this month's reading rest at its lowest level since March, but it also marked its third consecutive monthly decline. For more the economic report, check out:"Consumer Confidence Wanes."

Earnings Rush

The earnings insanity continues, with blue-chip giant DuPont (NYSE:DD) stepping into the earnings confessional. The chemical company posted third-quarter earnings of $331 million, or 33 cents per share, compared to its year-ago loss of 88 cents per share. Excluding items, the firm saw a profit of 25 cents per share, besting its earnings of 13 cents per share for the same period a year ago and the Street estimate of 24 cents per share. The company cited higher volumes and favorable currency transactions for the positive results. Sales for the quarter came in at $6.03 billion, sliding below revenue of $6.4 billion for the same period a year ago, but surpassed the consensus forecast of $5.49 billion. Looking ahead, DD warned that industrial production growth was slowing due to higher energy costs.

Lockheed Martin (NYSE:LMT) posted third-quarter earnings this morning, surpassing the Street estimate. The firm raked in $307 million, or 69 cents per share, for the quarter, slipping past its year-ago profit of $217 million, or 48 cents per share. Analysts had forecast gains of 65 cents per share for the three-month period. Sales for the quarter rose by four percent to $8.4 billion. What's more, the company lifted its 2004 earnings outlook to $2.65 - $2.75 per share on sales of $34.4 - $34.8 billion. The consensus estimate currently stands at $2.68 per share. Unfortunately, LMT's 2005 earnings guidance came in a little light. The defense contractor is looking for a gain of $3.00 - $3.25 per share on revenue of $34.5 - $36 billion. On the other hand, the Street is forecasting a per-share gain of $3.29. For more on the LMT's earning report, check out:"Lockheed Martin Beats Street, Lifts Guidance."

Not to be left out of the fun, General Electric (NYSE:GE) stepped forward this morning to reaffirm its 2004 earnings guidance of $1.57 - $1.60 per share. The firm also said that it stands behind its "double-digit" per-share profit growth outlook for 2005.

A Sigh of Relief

The insurance sector has breathed a sigh of relief this afternoon on reports that criminal charges are not going to be leveled against Marsh & McLennan (NYSE:MMC) in relation to the probe of industry practices. The company said that it will stop receiving contingent commissions from insurers as part of a series of reforms targeting practices uncovered by New York State Attorney General Eliot Spitzer. The S&P Insurance Index (IUX - 286.66) has tacked on more than four percent in trading this afternoon.

An Eye on Oil

Crude oil prices have managed to rebound in trading today after tagging an early-morning low of $53.85. The December futures contract is currently up 18 cents at $54.72, as investors grow anxious ahead of tomorrow's weekly report from the Department of Energy and American Petroleum Institute on crude oil stockpiles. While the Street is fairly confidence that crude supplies will once again increase, traders are nervously eyeing distillate levels to see if heating oil levels fall for a sixth straight week.

Most-Active Options Update

At 1:44 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 9845.9) is up 0.98 percent and the S&P 500 Index (SPX - 1105.93) is higher by 1.02 percent. The Nasdaq Composite (COMP - 1918.0) is up 0.21 percent. At 1:45 p.m. in the options pits, 1,635,425 calls and 1,080,881 puts traded for a composite put/call ratio across all five exchanges of 0.66. The CBOE put/call ratio for equity options weighed in at 0.68.

QUALCOMM

QUALCOMM (Nasdaq:QCOM) was smacked with a downgrade this morning, with the brokerage firm moving the security from "equal weight" to "underweight." According to a recent article on the Dow Jones Newswire, Morgan Stanley believes that QCOM will have a tough time sustaining its current P/E - which is considerably higher than other chip stocks - next year. While the company's WCDMA growth "is a strong positive," the brokerage firm states that QCOM's CDMA sales growth is likely to disappoint next year. In addition, WCDMA has competition from other high-speed technologies like WiMax, which is backed by Intel.

The stock has recently had a rough time of it, as the equity closed yesterday below support at its 10-day and 20-day moving averages for the first time since September 28. In fact, the stock has shed almost seven percent since Friday's close. What's more, the security has tumbled below its 10-week moving average and appears poised for a retest of support at its 20-week trendline at the 37 level. The shares have not suffered a weekly close below this moving average since May 2003. If this level should give way, the next layer of potential support lies in the 34.50 region in the form of QCOM's 10-month moving average. Meanwhile, a 50-percent retracement of the stock's rally from its May 2003 low to its October 2004 high rests at 29.60 - a representing a loss of almost 25 percent from its current price.

While the stock has several layers of support resting below, the shares have to face what could still be a prickly situation; earnings. The company is slated to step into the earnings limelight on November 3, with the Street forecasting a profit of 29 cents per share. This estimate more than doubles the company's earnings for the same period a year ago. Historically, the firm has surpassed the consensus estimate four out of the past five quarters and missed once. The company's earnings report next week could prove to be a make or break point for one of the aforementioned support levels.

Following this morning's downgrade, options trading has been particularly brisk on this security. The equity's November 40 call has seen more than 6,200 contracts cross the tape. With open interest resting at more than 12,400 contracts, we shall have to wait until tomorrow to see if this surge in volume translates into new positions. Meanwhile, the security's November 37.50 put has had almost 6,400 contracts change hands on open interest of 7,909 contracts. Furthermore, its November 42.50 put has traded 3,900 contracts on open interest of 9,544.

Checking our various sentiment indicators, the stock's Schaeffer's put/call open interest ratio (SOIR) dropped sharply following October option expiration to a relatively complacent reading. Over the past week, the equity's SOIR has remained flat at 0.82 in the 47th percentile. Meanwhile, short interest dipped one percent lower in September (October data is due out this week) to 34.2 million shares. Short interest has been on the decline for the past two years and the current level continues to rest near a three-year low, indicating a lack of pessimism toward the security.

Ahead of today's downgrade, Zacks reported that 11 of the 26 analysts rated the shares a "buy" or better, while 14 gave the stock a "hold" and one even awarded it a rare "strong sell." While the Street is still camped among the bears, there is still ample room for additional downgrades.

Traders may want to keep an eye on the security's 20-week moving average as we approach the company's earnings report. A breach at this intermediate-term support level could foreshadow darker days ahead for the stock.

Click the following link to see the Daily Chart of QCOM since August 2004 with 10-Day and 20-Day Moving Averages: http://www.schaeffersresearch.com/wire?ID=11556&obspage=2 .

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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 .