Goldcorp Inc. (NYSE: GG) shares turned lower this morning after the company announced a $750 million offering of convertible senior notes due 2014. The commodity issue said that proceeds from the offering will be used to repay outstanding debt under its revolving term credit facility, with any remaining funds to be applied toward general corporate purposes.
Despite today's drop, GG shares have blazed an impressive path higher during the past month. Since finding a floor near the $27 level in late April, the stock has added 48.7%.
Judging by a recent jump in short interest, some investors are speculating that GG has run too far, too fast. The number of Goldcorp shares sold short jumped by nearly 8% during the most recent reporting period, and these bearish bets now account for 1% of the equity's available float.
Meanwhile, option players have set their sights on GG's in-the-money June 35 call. This option carries peak front-month open interest of 11,529 contracts; meanwhile, the most popular front-month put option is also the 35 strike, with a comparatively paltry accumulation of 3,341 contracts.
If speculators are honing in on the 35 level, it's likely because this area has been a critical one for the shares. GG was rejected at $35 in late March, but the stock has now closed two consecutive weeks -- plus the month of May -- above this closely watched strike. It's a technical feat last accomplished in mid-2008, and it could indicate that the security's recent rally has legs to run higher.
However, during the short term, additional consolidation is likely. Look for GG's pullback to find a floor just north of $37, which is home to its rising 10-day moving average.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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