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Joseph Hargett, Option Advisor, 05.08.09 in Forbes.com
The sharp moves higher in share prices of Apple and RIM look to be tired, but Palm is still full of pep.
Smartphones have quickly become the greatest thing since sliced bread for the wireless and handheld sector. Gone are the days when the slick clamshell design of the Motorola RAZR was enough to virtually guarantee success. Throughout this revolution, cellphones have practically become pocket PCs, and every manufacturer in the world is attempting to get in on the action.
With the pool of rivals growing at a seemingly exponential rate, prospects for the three most revered smartphone makers are becoming increasingly grim. In fact, companies such as Apple ( AAPL - news - people ), Research In Motion ( RIMM - news - people ) and Palm ( PALM - news - people ) have their work cut out for them if they wish to hold on to their crowns as the premier smartphone investment opportunities in the current market environment.
While Apple was far from first on the scene in the smartphone market, the arrival of the company's industry-defining iPhone, complete with a slick touch-screen user interface and an award-winning digital music player, quickly placed CEO Steve Jobs' firm at the top of the heap. Even industry leader Research In Motion followed Apple's lead and created a touch-screen version of its extremely popular BlackBerry line of smartphones. Apple changed the game once again by beating smartphone makers to the punch when it included 3G support in its second iteration of the iPhone.
Smartphones are not cheap, and prospects for slackening consumer demand due to tightening budgets prompted selling pressure to sweep across the sector in late 2008. AAPL shares, once trading near $200, plunged more than 54% in 2008. An, while the stock did eventually hit bottom in November 2008, the chilling effect of the recession has held the equity in check for the ensuing months, with AAPL trending sideways between support at the $80 level and resistance near the century mark.
In early March, evidence that the economic downturn was slowing provided a much needed boost for AAPL. The stock vaulted higher, logging a year-to-date gain of more than 51%, vs. the S&P 500's gain of roughly 0.5%. What's more, AAPL has enjoyed the support of its 10-day and 20-day moving averages since March.
Apple shares now face another technical test before they can continue their recent turn of good fortune. AAPL was recently rejected by long-term resistance at the $135 level--a region that capped the equity in February and March 2008. Additionally, the stock's 20-month moving average is descending into the area, and could complicate matters further.
AAPL's sentiment backdrop is also a concern for the stock's bullish case. Currently, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.02 ranks above 91% of all those taken during the past year, but developments within the options pits point toward a spike in optimism just as AAPL encounters technical resistance.
According to the International Securities Exchange and the Chicago Board Options Exchange (CBOE), approximately 1.6 calls have been bought to open on their exchanges for every put purchased during the prior two weeks. This ratio ranks above 60% of all those taken in the past year, pointing toward rising expectations even as AAPL struggles with technical resistance.