A contrarian-related boost may be on the cards for manufacturer United Technologies Corp. (NYSE: UTX, Stock Forum) which could help the stock surmount a formidable technical wall, allowing it to extend its quest for new stock market highs.
United Technologies has been victorious both on and off the charts in December, with the shares soaring in the wake of a handful of encouraging headlines.
The manufacturer kicked off the month on a positive note, with the stock vaulting to new highs after the firm said its Pratt & Whitney unit would supply turbofan engines for Airbus’ next generation of narrow-body jets.
Then, just last week, United Technologies predicted full-year earnings of $5.05 to $5.35 per share in 2011, with the high end of that range exceeding analysts’ average per-share projection of $5.30.
In similar fashion, CFO Greg Haynes on Tuesday said the firm would be more than receptive to “a deal of scale,” should a willing takeover target emerge. “We’d love to find another deal like GE Security,” noted Haynes, referring to UTX’s $1.82 billion acquisition of General Electric Co.’s (NYSE: GE, Stock Forum) security arm.
Technically speaking, the shares of UTX have tacked on roughly 4.7% since the start of December, with their 10-day moving average serving as support.
As a result, the equity is now approaching a former foe in the $78-$82 neighborhood, which acted as an impenetrable layer of resistance in 2007. However, a contrarian-related boost may be in the cards for UTX, which could help the stock surmount this once formidable technical wall.
Despite the equity’s fundamental and technical accomplishments of late, Thomson Reuters pegs the consensus 12-month price target at only $86.69, implying expected upside of roughly 10% to UTX’s current price near $79.
In the same skeptical vein, short interest on the security skyrocketed by 22.4% during the past month, and now accounts for more than 10 million UTX shares. In fact, at the stock’s average pace of trading, it would take around three sessions for all of these bearish bets to unwind.
Furthermore, the stock’s Schaeffer’s put/call open interest ratio (SOIR) of 1.50 implies that puts outnumber calls among options slated to expire within three months.
What’s more, this ratio stands just six percentage points shy of an annual pessimistic peak, suggesting that short-term speculators have rarely been more skeptically skewed toward UTX during the past year.
As contrarians, the stock’s solid fundamental and technical backdrop, juxtaposed with the widespread skepticism on the Street, points to a potential bullish opportunity.
Should UTX extend its quest for new highs, conquering resistance in the $80 region, a round of price-target boosts, a short-squeeze situation, or a reversal in sentiment in the options pits could all act as catalysts even higher for the shares.