Schaeffer's Trading Floor Blog

Analyst Upgrades: Citigroup Inc., Palo Alto Networks, Inc., and GrubHub, Inc.

Analysts upwardly revised their ratings on Citigroup Inc (C), Palo Alto Networks Inc (PANW), and GrubHub Inc (GRUB)

by 3/3/2015 9:27 AM
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Analysts are weighing in today on financial firm Citigroup Inc (NYSE:C), cybersecurity issue Palo Alto Networks Inc (NYSE:PANW), and online restaurant concern GrubHub Inc (NYSE:GRUB). Here's a quick roundup of today's bullish brokerage notes on C, PANW, and GRUB.

  • C is making headlines this morning, after the firm said it agreed to sell its OneMain Financial Holdings consumer finance unit to Springleaf Holdings Inc (NYSE:LEAF) for a cool $4.25 billion in cash. Meanwhile, J.P. Morgan Securities upgraded Citigroup Inc to "overweight" from "neutral," and lifted its price target by $4 to $58, citing the company's deal with Visa Inc (NYSE:V) and Costco Wholesale Corporation (NASDAQ:COST). On the charts, C is staring up at former support in the $54 region -- also home to its year-to-date breakeven level -- which could reverse roles to serve as resistance. In fact, C sports a 14-day Relative Strength Index (RSI) of 68 -- on the cusp of overbought territory, suggesting a short-term pullback could be in the cards. The stock closed Monday at $53.49.

  • PANW unveiled stronger-than-expected fiscal second-quarter earnings (subscription required) and offered upbeat guidance, triggering a bounty of bullish brokerage notes. Nearly a dozen analysts have upped their price targets on PANW, including Raymond James, which lifted its target to $173 from $160. Palo Alto Networks Inc has been a broad-market standout of late, more than doubling over the past year to sit at $145.98. In fact, the security touched a record high of $146.40 just yesterday. As such, option players have been upping the bullish ante. The stock's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.14 -- just 6 percentage points from an annual peak.

  • Finally, GRUB jumped 5% yesterday to land at $44.09 -- a six-month high -- thanks to well-received guidance. Brean Capital weighed in on GrubHub Inc this morning, lifting its price target by $5 to $50 and underscoring a "buy" recommendation. Most analysts are already aboard the stock's bullish bandwagon, as GRUB boasts 13 "strong buys," compared to two lukewarm "holds" and not a single "sell." Likewise, the consensus 12-month price target of $48.63 stands in uncharted territory for the shares, which have added 21.4% in 2015.

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Analyst Downgrades: MannKind Corporation, Micron Technology, Inc., and Chesapeake Energy Corporation

Analysts downwardly revised their ratings on MannKind Corporation (MNKD), Micron Technology, Inc. (MU), and Chesapeake Energy Corporation (CHK)

by 3/3/2015 9:27 AM
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Analysts are weighing in today on biopharmaceutical company MannKind Corporation (NASDAQ:MNKD), chip producer Micron Technology, Inc. (NASDAQ:MU), and natural gas concern Chesapeake Energy Corporation (NYSE:CHK). Here's a quick roundup of today's bearish brokerage notes on MNKD, MU, and CHK.

  • MNKD is taking it on the chin in electronic trading, pointed 9.5% lower due to a downgrade at Goldman Sachs. The brokerage firm cuts its outlook on the shares to "sell" from "neutral," and slashed its price target in half to $3, citing a slower-than-anticipated launch of the company's Afrezza insulin device. The expected drop will put a major dent into what was previously a strong 2015 for MannKind Corporation, as it had added 27.2% year-to-date. Over one-third of MNKD's float is held by short sellers, though, so not everyone is disappointed. The shorted shares account for almost two weeks' worth of trading, at the equity's normal daily trading pace. What's more, short interest increased 12% just in the past two reporting periods. MNKD closed at $6.64 on Monday.

  • MU is off 2.5% in pre-market action, after being downgraded to "neutral" from "buy" at Nomura, which also reduced its price target on the equity to $30 from $40. Since hitting a decade-plus high of $36.59 on Dec. 8, the shares have given back over 17% to sit at $31.24, and option bears couldn't be happier. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Micron Technology, Inc. has accumulated a put/call volume ratio of 0.66, which is only 6 percentage points from an annual bearish peak. In other words, puts have been bought to open over calls at a faster-than-normal rate. Analysts, though, are almost entirely bullish on the shares. Nineteen out of 22 covering brokerage firms say MU is a "buy" or better.

  • Since yesterday's close, CHK has seen its price target cut by Susquehanna and Barclays. The former lowered it price target by $4 to $18 and kept a "neutral" rating, with the latter dropping its price target by $3 to $10 -- multi-year low territory -- and maintaining an "underweight" opinion. The negative attention comes as Chesapeake Energy Corporation continues to fall after last week's earnings-induced bear gap. Just yesterday, the shares hit an annual low of $16.23, and are hovering around breakeven at $16.60 ahead of the bell. On the Street, six analysts give CHK a "buy" or better rating, with 11 handing out "holds," and two calling it a "sell" or worse.

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Buzz Stocks: Kate Spade & Co, AutoZone, Inc., and Ocwen Financial Corporation

Today's stocks to watch in the news include Kate Spade & Co (KATE), AutoZone, Inc. (AZO), and Ocwen Financial Corp (OCN)

by 3/3/2015 9:25 AM
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U.S. benchmarks appear ready to take a breather today, following Monday's historic session. In company news, today's stocks to watch include high-end fashion designer Kate Spade & Co (NYSE:KATE), car parts seller AutoZone, Inc. (NYSE:AZO), and mortgage lender Ocwen Financial Corp (NYSE:OCN).

  • KATE's latest turn in the earnings confessional was mixed, as the company's adjusted per-share profit of 24 cents fell short of the consensus estimate, but its sales were better than expected. On the charts, the stock has added 10.3% year-to-date to trade at $35.30. This technical tenacity has led to accelerated call buying at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, Kate Spade & Co's 50-day call/put volume ratio of 4.24 rests above 90% of comparable readings from the last year.

  • AZO topped the Street's consensus earnings and sales forecasts for its fiscal second quarter, helped by higher inventory levels and new store openings. As such, the shares are nearly 4% higher in electronic trading, putting them on pace for a record peak out of the gate. AutoZone, Inc. closed Monday at $649.53, just below last Friday's all-time high of $651.95. Despite this impressive price action, AZO is facing skepticism from analysts. Fifteen out of 18 brokerage firms have designated the equity a "hold" or worse, and its average 12-month price target of $639.44 stands below current trading levels -- potentially paving the way for a round of upgrades and/or price-target hikes. On the flip side, option traders have blazed a more bullish path toward AZO.

  • Finally, OCN has agreed to sell the servicing rights on $45 billion in Fannie Mae loans to an undisclosed party, just a week after a similar $9.8 billion sale. The company is trying to raise money to offset mounting legal expenses. On the charts, Ocwen Financial Corp has had a rough go of it, surrendering nearly 77% of its value over the last 52 weeks to trade at $8.54 -- though the security is pointed 6.6% higher in electronic trading. Short sellers have turned up the heat, too, as short interest rose 29% during the most recent reporting period, and now makes up 38.8% of the stock's total float.

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Should We Be Worried About the VIX Implosion?

Don't short the market on the CBOE Volatility Index (VIX) dip

by 3/3/2015 8:44 AM
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Happy Nazz 5,000, everybody. Do I hear 6,000? 8,000? 10,000?

The TV spent most of the day discussing whether we were in a bubble. The consensus was basically "no." That's not to say we actually kept lifting, just that it's not 2000 again (the year, not the Nasdaq price). I would agree on the non-bubble part, though I find bubble discussions pretty much useless. Is there really some sort of official bubble designation? Does it add any value to an investor? Everyone pretty much knew we sat in a frothy environment in 1999-2000. But it wasn't all that easy to go short anything and time it well enough to actually make money when we finally dropped. I wouldn't just go short now, or ever, because of price or some value metric. Overpriced can become very overpriced before it turns. I'd rather miss the top.

Anyway, we're more of a CBOE Volatility Index (VIX) operation here anyways. And as noted the other day, VIX just came off its worst month ever in percentage terms. It closed February down 36.39%. And even with that, VIX isn't cheap relative to realized volatility.

So, does this VIX dip mean much for the market? Here is the top 25 monthly VIX dips of the past decade:

Top 25 Monthly VIX drops vs. Top 25 Monthly SPY drops

The Start Date is the last trading date of the month preceding the VIX dip. The Starting VIX is the VIX close on that date. VIX Next Month is … well, I hope self-explanatory. And SPY Next Month is how SPDR S&P 500 ETF Trust (SPY) did in the following calendar month, hence the '???' in the top line, as we have to wait until the end of March to find out.

So, should this VIX implosion worry us? Not really. As you can see, SPY performance going forward runs all across the gamut. Throw all 120 cycles over the last decade together and we find the monthly VIX move has a negative-17 correlation to the SPY move the next month. Thus, it's a moderately positive tell going forward.

But I suspect it's less "signal" and more "train in motion staying modestly in motion." If the VIX is doing that poorly, it probably means the market is rallying and worries are decreasing that the rally will continue. That's often complacency, and complacency is very tricky to time on a contrary basis.

The best contra-tell in this sample was in December 2008. VIX dropped 27.64% for the month, then SPY dipped 8.21% in January. It's very important to note that the market was a disaster zone at the time, and VIX was 55 at the start of the whole cycle, so it was only complacency relative to the panic before that.

Long story short -- don't go shorting the market based off this swift VIX drift. It might work, but there's no suggestion that VIX is "calling" it.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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Earnings Preview: Ambarella, Inc., AutoZone, Inc., and Best Buy Co., Inc.

Analyzing recent option activity on Ambarella Inc (AMBA), AutoZone, Inc. (AZO), and Best Buy Co Inc (BBY)

by 3/2/2015 2:11 PM
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Among the stocks gearing up to report earnings tomorrow are semiconductor issue Ambarella Inc (NASDAQ:AMBA), car parts retailer AutoZone, Inc. (NYSE:AZO), and home electronics retailer Best Buy Co Inc (NYSE:BBY). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on AMBA, AZO, and BBY.

  • AMBA, which will release its fourth-quarter earnings report Tuesday night, has been a technical outperformer, with the shares up a staggering 184.5% -- including a 7.1% gain to $61.46 today-- since hitting an annual low of $21.60 on May 9. Accordingly, call activity is popular in Ambarella Inc's options pits, as its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.52 sits higher than four-fifths of all similar readings taken over the past year. Meanwhile, in the session following its last seven earnings reports, the shares of AMBA have gained an average of 1.4%. Traders are paying historically fair prices for their near-term bets on the stock, as its Schaeffer's Volatility Index (SVI) of 60% sits in the 46th percentile of all similar readings taken over the past year.

  • AZO has also been on a hot streak, with the shares advancing 31% from their Oct. 15 yearly low of $491.93 to hit $644.48. In fact, the equity notched an all-time best of $651.95 on Friday. In AutoZone, Inc.'s options pits, bullish sentiment is prevalent ahead of tomorrow morning's fiscal second-quarter earnings release. Specifically, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 1.28 sits in the 80th percentile of its annual range. Traders hoping for a positive post-earnings move from AZO have history on their side:- in the session following its last six earnings reports, the stock has added an average of 1.7%, including a 4.3% gain this past December. Historically speaking, short-term speculators are paying expensive prices for their bets on AZO, as its SVI of 22% sits in the 80th percentile of all similar readings from the past year.

  • The shares of BBY have fallen recently, with the stock down about 1% year-to-date to hit $38.58, despite a 1.3% gain today. However, calls are fairly prominent in the options pits, as Best Buy Co Inc's 50-day ISE/CBOE/PHLX call/put volume ratio of 1.91 sits in the 61st percentile of all similar readings taken annually. The company, which will report fourth-quarter earnings tomorrow morning, has not performed well, on average, in the session following its last five earnings reports. Drilling down, the shares have only enjoyed a positive post-earnings trading session twice out of the last five times, shedding an average of about 1.7%. Near-term options for the security are available for below-average prices, as its SVI of 42% sits in the 30th percentile of its annual range.

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