Is Hot Topic (HOTT) Beginning to Burn the Bears?

Brief Summary:

This article acknowledges that trendy retailer Hot Topic (HOTT: sentiment, chart, options) has performed well despite the "terrible economic challenges" of late, but questions whether or not the stock's success is sustainable. Earlier this week, the company reported that same-store sales in February jumped 10.8% from the year-ago period, with total sales surging 13.7% to $57.3 million. However, the Motley Fool wonders "how much the popularity of items related to the vampire franchise Twilight may be helping out," and says she's "not convinced" it's a trend that will continue.

The author argues that regardless of HOT advancing 84% during the past year, investors can get other successful retailers far more cheaply. "Even if I'm off base with my theories about the company's authentic appeal," the columnist concludes, "Hot Topic still looks like an overpriced stock in the retail universe."

Contrarian Takeaway:

As far as extending their run on the charts, the shares of HOTT have the potential to power higher, thanks to an overabundance of skepticism on the Street.

Since dipping to the 4 neighborhood in early 2008, the security has more than doubled, outperforming the S&P 500 Index (SPX) by 25% during the past 60 trading sessions. The equity is now trending along support at its 30-month moving average, currently hovering in the 8.50 region. However, one potential concern for HOTT is the round-number 10 level, which acted as support during most of 2007, and could now switch roles and play the part of resistance.

Despite the retailer's impressive same-store sales report and muscle on the charts, the Street remains cynical toward the security. During the past couple of weeks, speculators on the International Securities Exchange (ISE) have bought to open almost 65 puts for every call on HOTT. What's more, the stock's ascending Schaeffer's put/call open interest ratio (SOIR) now rests at an annual pessimistic peak of 2.71, implying that puts nearly triple their bullish rivals among options slated to expire within 3 months.

Echoing the Street-wide skepticism is HOT's analyst configuration. The equity currently harbors only 3 "buy" or better ratings, according to Zacks, compared to 5 lukewarm "holds." Plus, Thomson Reuters pegs the average 12-month price target on the stock at $9.33, less than half a point from today's intraday high.

In addition, short interest on the security escalated by 21.3% during just the past month, indicating that short sellers are increasing their pessimistic positions on HOTT. Short interest now accounts for 7.8 million shares, or 18% of the company's total available float. Should the shares of HOT continue to heat up the charts, these skeptics could get spooked. At the stock's average trading volume, it would take short sellers almost 9 sessions to buy back their bearish bets, providing an ample amount of fuel for a short-covering rally.

Overall, if HOTT can maintain its fundamental and technical tenacity, an unwinding of skepticism � whether via a reversal in sentiment in the options pits, a fresh wave of upgrades and/or price-target boosts, or a short-squeeze boost � could help fuel the stock through potential round-number resistance.