Schaeffer's Street Chatter Highlights the Following Stocks: Red Hat, RealNetworks, and SINA Corporation

1 January 1970

Today's "Street Chatter" from Schaeffer's Investment Research focuses on: Red Hat (NASDAQ:RHAT), RealNetworks (NASDAQ:RNWK), and SINA Corporation (NASDAQ:SINA). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research.

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Street Chatter:

1. According to Hoover's, Red Hat (NASDAQ:RHAT) dominates the market for Linux, Microsoft's (MSFT) chief rival to its Windows operating systems. Tomorrow (according to Zacks), the operating system firm will step into the earnings confessional where it is expected to post quarterly earnings of seven cents per share. This is the main reason that RHAT has been on the tips of traders' tongues this morning.

Technically, RHAT has shown a bit of strength lately. The stock has been able to make an advance along its 10-day and 20-day moving averages, taking out resistance at the 13.50 and 15.50 levels on the trek higher. Currently, the strength of RHAT's 10-unit trendline is helping the shares challenge resistance at a near-term high of 17.15. This level is slightly below the site of peak call contracts for October; this could provide further resistance to the stock's advance.

While there is overhead resistance at the 17.50 level, it appears that RHAT's 10-week and 20-week moving averages are ready to lend further support to the company's ascension. Notice that the shares have not closed below this double-barreled support since the beginning of May. It should also be noted that the shares are set to finish September above the 16 level, which has not happened in more than a year. This region could act as support for RHAT if needed.

Ahead of tomorrow's earnings announcement, the options pits are a bit optimistic. RHAT's Schaeffer's put/call open interest ratio (SOIR) checks in at 0.54, which is lower than 73 percent of the readings taken during the past 52 weeks.

In fact, there has been a bit of optimism evident in the short-interest action for the equity. Digging into the fresh short interest information for RHAT, I see that pessimistic bets actually unwound to the tune of nearly 10 percent during the past month. Despite this decrease in dour bets, it would take more than seven days to cover the 16.88 million shorted RHAT shares. This configuration leaves ample fuel to fire a short-covering rally on any good news. Adding to this potential is the fact that this collection of pessimistic bets against the firm accounts for more than 11 percent of its available float. Should we see a short-covering rally, this configuration heightens the chance that it could be substantial.

Speaking of a short-covering rally, let's not forget that tomorrow will bring us RHAT's earnings report. If the company beats the consensus estimate, we could see said rally, which could help obliterate any overhead resistance.

Not only could we see a short-covering rally on a positive earnings report, but analysts could shift their coverage. According to Zacks, seven of the 16 analysts rating the firm feel it is worthy of a "hold" or worse. Tomorrow's earnings announcement could cause this group to change its feelings, which could help any rally.

Click the following link to see the Weekly Chart of RHAT Since January 2005 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/commentary/observations.aspx?ID= 14222&obspage=1 .

2. One of the joys of owning a computer is the fact that you can put your entire music collection on the hard drive. One of the myriad choices for how you can listen to your R.E.M. or Frank Sinatra is RealNetworks' (NASDAQ:RNWK) offering, RealPlayer. However, if you would rather watch the Tragically Hip perform Grace, Too, you don't have to close out RealPlayer, just use its video component to watch your video. In fact, if you want to watch a streaming Beck concert, you can continue to use RealPlayer. Additionally, if you would like to purchase music online, you can use RNWK's Rhapsody, RealPlayer Music Store, or RadioPass services to buy your Pearl Jam offerings.

Technically, RNWK has been fighting a bit of an uphill battle. Since May 2005, the shares have been fighting to use their 10-day and 20-day moving averages to move higher. The good news is that the stock has been able to advance through peak call open interest at the five level. By no means is RNWK out of the woods as far as this possible resistance goes, but it always helps to be looking down at resistance rather than up at it. In fact, this level has been acting as support since May. What's more, the five level has served as the support end of a trading range that RNWK has been shrouded in since moving above this level in May 2003. The upper end of this range is set by the seven level. While the resistance here is firm, some form of support or positive news could help the titan of tunes break through this glass ceiling.

Short sellers are also a bit down on RNWK. During the past month, pessimistic bets increased to the tune of 14.53 percent toward the music megalith. However, it would still take less than four days to cover the shorted shares, leaving little in the way of short-covering rally fuel. While RNWK's short-interest ratio shows little promise in sparking a short-covering rally, the 5.94 million shorted RNWK shares make up more than eight percent of the firm's total float. This configuration could help spark a short-covering rally.

Zacks shows that analyst coverage on the jukebox hero is mildly optimistic, as half of the analysts rating the company give it a "buy" or better, with the other half bestowing "hold" rankings on RNWK. Should any good news cause the holds to move to the positive side of the equation, the shares could experience some upside pressure. Of course, the opposite could always happen.

Click the following link to see the Weekly Chart of RNWK Since January 2003 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/commentary/observations.aspx?ID= 14222&obspage=2 .

3. Turning to Hoover's, to find some background information for SINA Corporation (NASDAQ:SINA), our final company today, I see that it was formerly SINA.com. Currently, SINA is feeling the pinch between the resistance of its 10-week and 20-week moving averages and the 25 level. This is the site of peak put open interest, which could provide some underlying support; however, the company's descending trendlines appear poised to levy some rather serious pressure against this support as they push the shares lower.

Further pressure, in the form of SINA's 10-month and 20-month moving averages, is poised to join the fray. Right now, the shares are continuing to find resistance from their 10-month moving average. This trendline is going to put some serious pressure on the support of the 25 level, which is currently holding fast. However, as the equity continues to come under fire from these trendlines, something has to give. Considering that it has been nearly a year since SINA has been able to close above this resistance, my bet is on the support giving way.

What's more, analyst coverage is skeptical to slightly bullish. Zacks shows that all seven of the analysts covering SINA rate it a "hold" or better. This means that the stock could fall further should any negative news cause this bunch to abandon ship.

What do you think is the firm's Equity Scorecard rating?

If you guessed four, you are wrong, SINA's performance and sentiment backdrop garner it a Schaeffer's Equity Scorecard rating of 3.0 out of 10.

Click the following link to see the Weekly Chart of SINA since January 2005 With 10-Week and 20-Week Moving Averages: http://www.schaeffersresearch.com/commentary/observations.aspx?ID= 14222&obspage=2 .

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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 .