Coinstar Hammered After Disappointing Earnings

In addition to the quarterly top-line disappointment, Coinstar shaved its 2010 revenue forecast. The company now anticipates full-year sales of $1.425 billion to $1.505 billion, down from its prior outlook for revenue of $1.505 billion to $1.595 billion.

As a result, CSTR gapped lower at the open Friday, with the shares shedding roughly 8%. The stock is in danger of ending the session below support at its 20-week moving average, which hasn't been breached on a weekly closing basis since mid-February.

However, the shares seem to have found a floor in the $44 neighborhood. This chart region marked the site of a bullish gap for CSTR back in late April, and previously proved its mettle as technical support on July 19 and 20. Currently, this area is still holding steady as a backstop for the stock.

Profit-taking by short sellers could also be creating a tailwind for the struggling equity. Roughly 18% of CSTR's float has been sold short, and bearish bettors could be buying back their shorted shares in order to capitalize on the stock's post-earnings swoon.

Meanwhile, in the options pits, it looks like put players are also taking some money off the table. The equity's in-the-money August 46 put has seen 1,453 contracts change hands so far, with 61% trading at the bid price -- indicating they may have been sold to close.

On the other hand, call traders seem to be abandoning hope on their out-of-the-money August 50 calls, which has also attracted a heavy dose of selling activity today. This activity could indicate a capitulation by the bulls, but it could also be the result of short sellers closing out their option hedges as they take profits on their shorted shares.

Elizabeth Harrow is a senior equities 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.