Late last week, analysts at Macquarie launched coverage of AOL, Inc. (NYSE: AOL, Stock Forum) with a "neutral" rating and a $27 price target, essentially implying that they don't expect the stock to move much higher in the near future.
Nevertheless, unenthusiastic ratings are practically par for the course for AOL, with only one out of 11 analysts offering up a "buy" or better endorsement, according to Zacks. In the same vein, Thomson Reuters deems the average 12-month price target on the security at $25.95, representing a slight discount to AOL's current price near $26.
Likewise, despite depleting by 4.8% during the most recent reporting period, short interest still accounts for 5.6% of the stock's total available float. In fact, at the equity's average pace of trading, it would take almost two weeks to buy back all of these bearish bets.
In similar fashion, the stock’s Schaeffer’s put/call open interest ratio (SOIR) has stair-stepped higher during the past couple of months, indicating that short-term options traders have opened AOL puts at a faster pace than calls. What’s more, this ratio now stands at 0.97 – just a stone’s throw from a pessimistic peak.
Technically speaking, the widespread pessimism plaguing AOL seems somewhat excessive, with the stock outshining the broader S&P 500 Index (SPX) by 3.2% during the past 40 sessions. From a longer-term perspective, the security has spent the latter half of 2010 riding its 10-week moving average into the black, but is now facing a familiar foe in the $27-$28 neighborhood. This region has acted as a technical ceiling since AOL's debut late last year, and could continue to exert resistance.
However, should the shares finally surmount this long-term layer of resistance, the skeptics could get spooked. A significant feat on the charts could prompt a plethora of upbeat analyst endorsements, an unwinding of skepticism in the options pits, or a short-squeeze situation – all potential catalysts to help AOL extend its journey higher.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column.