Schaeffer's Trading Floor Blog

Is Transocean LTD (RIG) At Risk of Additional Losses?

Pockets of optimism can still be found on struggling Transocean LTD

by 11/26/2014 2:14 PM
Stocks quoted in this article:

With energy prices on the decline -- and more recently, news of a suspended dividend payment from one of its sector peers -- it's been a terrible month for Transocean LTD (NYSE:RIG). The stock is down almost 8% today to churn near $23.31 -- and earlier hit a 10-year low of $23.22 -- extending its month-to-date decline to 22%. Not surprisingly, option players have shown a distinct bearish bias toward RIG in recent weeks.

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 10-day put/call volume ratio of 1.56 ranks in the 76th percentile of its annual range. Simply stated, puts have been bought to open over calls at a faster-than-usual clip of late.

Echoing this put-skewed bias is the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.35, which rests higher than 90% of similar readings taken in the past year. In other words, short-term speculators have been more put-heavy toward RIG just 10% of the time within the past year.

This glass-half-empty approach has spilled outside of the options arena, as well. Short interest jumped 6.3% during the last two reporting periods, and now accounts for more than one-quarter of the stock's float. What's more, looking back to June 2000, the 83.54 million shares currently sold short are the most RIG has seen over this 14-year time span.

That said, not everyone has climbed on the bearish bandwagon. Specifically, the stock's average 12-month price target of $27.70 stands at a nearly 19% premium to current trading levels -- leaving RIG at risk of future price-target cuts, which could pressure the shares lower. Today, in fact, Zephirin Group reiterated its "sell" rating on Transocean LTD (NYSE:RIG), and slashed its price target by $8 to $20 -- territory not charted by the stock since December 2003.

permanent link

Why Contrarians Should Feast Their Eyes On Nike Inc (NKE)

Outperforming NKE remains a target of skeptics

by 11/26/2014 11:09 AM
Stocks quoted in this article:

Athletic apparel retailer Nike Inc (NYSE:NKE) has put in a strong performance on the charts in 2014, with the shares up more than 24% to trade at $97.77. This week alone, the equity has edged 0.4% higher, which shouldn't come as a surprise. In fact, according to data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, NKE has averaged a 2.2% return over the last 10 Thanksgiving weeks, and has been positive 90% of the time. Longer term, the equity could be poised to extend this momentum should skeptics both in and out of the options arena capitulate to its upward trajectory.

Daily Chart of NKE Since January 2014

In the options pits, speculators have been initiating long puts over calls at a near-annual-high clip over the past few months. Specifically, NKE's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.81 ranks in the bearishly skewed 96th annual percentile.

In recent weeks, however, traders have been switching sides, per the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 4.06, which ranks higher than 77% of similar readings taken in the past year. A continued capitulation by option players could translate into tailwinds for NKE.

Elsewhere on the Street, eight out of 19 covering analysts maintain a tepid "hold" rating toward a stock that's outperformed the broader S&P 500 Index (SPX) by more than 19 percentage points over the past three months. Plus, the consensus 12-month price target of $97.35 stands at a discount to current trading levels. Simply stated, the door is wide open for a round of upgrades and/or price-target hikes to help propel NKE higher.

One final note, short interest jumped 11.7% during the last two reporting periods -- a time frame in which shares of NKE surged roughly 12%, and tagged a series of higher highs along the way. The ability of Nike Inc (NYSE:NKE) to soar in the face of this selling pressure speaks volumes to the security's underlying strength.

permanent link

Buzz Stocks: Yahoo! Inc., Microsoft Corporation, and Twitter Inc

Today's stocks to watch in the news are YHOO, MSFT, and TWTR

by 11/26/2014 9:28 AM
Stocks quoted in this article:

Futures are pointed slightly higher this morning, as traders wait to react to a raft of economic data. Among equities in focus are Internet issue Yahoo! Inc. (NASDAQ:YHOO), software specialist Microsoft Corporation (NASDAQ:MSFT), and microblogging name Twitter Inc (NYSE:TWTR).

  • After announcing last week that it had snagged the rights to be the default search engine to Mozilla away from Google Inc (NASDAQ:GOOGL), YHOO has set its sights on its next target -- Apple Inc. (NASDAQ:AAPL). Currently, AAPL uses GOOGL as the default search engine for its Safari browser, but with the contract set to expire next year, rumors are circling that YHOO -- along with MSFT -- are working together to dethrone the tech titan. In the wake of the reports, YHOO is up 0.1% in pre-market trading, looking to add to its already impressive 27.9% year-to-date gain that has the shares trading at $51.72. Should the stock continue its uptrend, an unwinding of pessimism in the options pits could help propel the shares higher. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Yahoo! Inc.'s 50-day put/call volume ratio of 0.35 ranks in the 90th annual percentile. Simply stated, puts have been bought to open over calls with more rapidity just 10% of the time within the past year.

  • In other MSFT news, the software giant is rumored to be on the hook for a $140 million back-tax bill in China -- the largest on record. Although no confirmation has been given, reports are suggesting that Microsoft Corporation is the only U.S. firm that fits the description offered by the Chinese state media. On the charts, MSFT has had a standout year, rallying nearly 27% to its current perch at $47.47, and tagging a fresh 14-year peak of $50.04 earlier this month. In spite of this technical tenacity, the majority of analysts covering the shares maintain a "hold" or worse suggestion, and the consensus 12-month price target of $49.10 stands at a slim 3.4% premium to present trading levels. Should these skeptics follow in the footsteps of option traders, who have recently begun to capitulate to the equity's momentum, a fresh wave of buying power could ensue.

  • Is TWTR ready to partner up with Justin Bieber? Speculation is swirling that the company is in takeover talks with self-portrait app Shots -- which is partially owned by the pop star -- but the reports could not confirm if this is the firm TWTR's chief financial officer, Anthony Noto, was referencing in Monday's accidental tweet. Technically speaking, TWTR has had a rough go of things, with the shares off 37.5% year-to-date to $39.76. More recently, the stock has been pressured lower by its 20-day moving average -- currently located at $40.61 -- since early October. Option traders have kept the faith, though, as evidenced by the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 3.05, which ranks higher than 93% of similar readings taken in the past year. Echoing this is Twitter Inc's Schaeffer's put/call open interest ratio (SOIR) of 0.62, which ranks in the 26th percentile of its annual range. In other words, short-term speculators are more call-skewed than usual.

permanent link

Analyst Upgrades: Hewlett-Packard Company, Tiffany & Co., and Whole Foods Market, Inc.

Analysts upwardly revised their ratings on HPQ, TIF, and WFM

by 11/26/2014 8:56 AM
Stocks quoted in this article:

Analysts are weighing in today on tech titan Hewlett-Packard Company (NYSE:HPQ), luxury jeweler Tiffany & Co. (NYSE:TIF), and organic grocer Whole Foods Market, Inc. (NASDAQ:WFM). Here's a quick roundup of today's bullish brokerage notes on HPQ, TIF, and WFM.

  • Last night, HPQ reported fiscal fourth-quarter earnings that were in-line with the Street's expectations. The results were met with no fewer than four price-target hikes, the most ambitious of which came from BMO, which raised its target to $42 from $41 and reiterated its "market perform" rating. Technically speaking, it's been a good year for Hewlett-Packard Company, which has rallied 34.5% in 2014 to perch at $37.63. That said, additional positive brokerage notes could be on the horizon, as 55% of covering analysts have given HPQ a "hold" or worse assessment. Plus, the stock's consensus 12-month price target of $40.34 stands at a slim 7.2% premium to current trading levels.

  • Following yesterday's earnings-induced rally of 2.5%,TIF scored a trio of price-target hikes. Specifically, Barclays, KeyBanc, and Goldman Sachs raised their respective price targets to $96, $122, and $130, with the former underscoring an "equal weight" rating, and the other two reiterating "buy" recommendations. Longer term, Tiffany & Co. has advanced 16% year-to-date to trade at $107.60, and notched a record high of $110.60 in Tuesday's session. Additional upside could be in store, given heavy short interest on the equity. Specifically, short interest on TIF rose 51.7% during the two most recent reporting periods, and now makes up nearly 5% of the stock's float -- which would take more than a week to cover, at average daily trading levels.

  • Finally, WFM received a price-target hike to $46 from $42 at BMO, which also reaffirmed its "market perform" opinion. On the charts, the shares have been on a tear since the end of October, gaining 22.5% month-to-date to rest at $48.18 -- helped by a successful turn in the earnings confessional in early November. What's more, Whole Foods Market, Inc. has outperformed the broader S&P 500 Index (SPX) by roughly 20 percentage points during the past two months. Should the stock continue to trend higher, it could get an additional boost as short sellers continue to hit the exits. More than 9% of WFM's float is currently sold short, which represents more than eight sessions' worth of pent-up buying demand, at typical daily trading volumes.

permanent link

How the NFL Season Will Shake Out ... Maybe

Breaking down the odds in the AFC North and NFC South

by 11/26/2014 8:49 AM
Stocks quoted in this article:

Happy Thanksgiving to all. Yes, it's time for that extended weekend where we can all sit back and watch our waistlines expand and our equity options decay. Oh, and we can watch LOTS of terrific football (and maybe augment all those Black Friday savings)!

The 2014 NFL is the "Tale of Two Divisions." It is the "Best of Times" in the AFC North -- the Bengals are 7-3-1 and everyone else is 7-4. And it's the "Worst of Times" in the NFC South, where the Falcons and Saints set the pace at 4-7. So, how's it all going to turn out?

Well, let's go to the AFC North first. The odds via are as follows.

AFC North Odds

For those not familiar, +180 on the Bengals means that if you wagered $100 on the Bengals to win the division and they won, you would win $180. Conversely, if you wanted the non-Bengals "field," you would have to pay $220 to win $100. Is there any play here?

Well, I'm glad you asked. I've written a not-terribly-complex NFL algorithm to power-weight the teams based on almost entirely objective data. I tweak very modestly for injuries and coach effect. I set it so that a team rated at zero should finish at exactly 8-8 playing an exactly league average schedule. Right here, right now, I have the Broncos at the top at 6.12 and the Jaguars at the bottom at -6.43, which means that if they played each other on a neutral field, I'd expect to see the Broncos as a 13.5 point favorite.

Anyways, on that scale, here is how I rate the NFC North teams.

  • Ravens 2.94
  • Bengals 2.21
  • Steelers 1.14
  • Browns 0.66

Then, if I translate all power ratings to point spreads and convert the point spreads to win expectancies, I project the teams to end with the following win totals.

  • Ravens 10.27
  • Bengals 10.26
  • Steelers 9.65
  • Browns 9.25

Maybe there is some value on the Ravens here? I believe so, but with some caveats. In the real world, they won't have fractional records. I show the Ravens as the better team over the Steelers, and they have a more favorable schedule going forward, but it's unclear who wins a real-world tiebreaker. You would need a model that simulates the season thousands of times and then solves for the NFL tiebreaking procedures. The Bengals' tie versus the Panthers gives them a de facto edge from the perspective of today.

The human observer in me says one of these teams gets to 11 wins, and the dispassionate robot in me says the Ravens have essentially the same chance as the Bengals to get there -- but you get better odds on the Ravens.

I should also note that as recently as two weeks ago, I showed the Browns as the favorite. But, hey, it's a dynamic market!

Now to the red-headed step child of the NFL: the NFC South. One of the Saints/Falcons/Panthers/Bucs will make the playoffs, unless Roger Goodell changes the system on the fly (note: there is a non-zero probability that happens). Here's how the market caps the division.

NFC South Odds

I have them power-rated as follows.

  • Saints -1.08
  • Panthers -2.96
  • Falcons -2.99
  • Bucs -4.79

After throwing it into my "OdellBeckhamCatch-o-tron 5000" (yes, I'm now naming it), I get the following end-of-season win totals.

  • Saints 6.76
  • Falcons 5.94
  • Panthers 5.77
  • Bucs 3.65

We still have five all-NFC South matchups left, and someone has to win them. Seven wins looks golden in the SEC-Least here, and there is a reasonable chance no one hits it. It's theoretically possible for the Panthers to win the division at 5-10-1.

The market looks like it has it right, though. The Saints still get the Panthers and Falcons in New Orleans. I'd rather take either the Falcons or Panthers with points, or the moneyline versus the Saints, than the division prop. Even though the Saints look pretty horrible on the field, they have a relatively easy path to seven wins. And if they just win those two home games, they might even advance at 6-10.

Well, if you've made it this far, here are some tidbits on tomorrow's games, in no particular order.

I rate the Cowboys over the Eagles, but I show the Eagles as more likely to win the NFC East, especially if I consider their current tiebreaker edge. If you're inclined to play the Birds on Turkey Day and you think a blowout from the Buddy Ryan era impacts a game taking place tomorrow, there's this bit of random noise.

Similar story in the NFC West -- I show the Seahawks better than the Niners, but the Niners more likely to finish with a superior record. This could matter in a big way -- right now they are fighting for the last playoff spot. And that spot projects into a relatively winnable first round game at the Eagles.

My system loved the Lions until very recently. They peaked at second after beating the Dolphins two weeks ago, but have since dropped to 11th. They also fell from projecting as the second seed and a bye to almost missing the playoffs entirely. Real-world-me didn't actually see them as the second best team in league, but on the flip side, I see them making the playoffs, albeit as a wild card.

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

permanent link

Partner Center

© 2014 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email:

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by | Data delayed 15-20 minutes unless otherwise indicated.