Schaeffer's Trading Floor Blog

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
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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.

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Analyst Update: Netflix, Inc., NVIDIA Corporation, and Level 3 Communications, Inc.

Analysts are weighing in on NFLX, NVDA, and LVLT

by 11/25/2014 1:44 PM
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U.S. markets have been on both sides of breakeven today, as traders digest the latest batch of economic reports. Meanwhile, among equities in focus are streaming giant Netflix, Inc. (NASDAQ:NFLX), semiconductor concern NVIDIA Corporation (NASDAQ:NVDA), and networking specialist Level 3 Communications, Inc. (NYSE:LVLT).

  • NFLX has given back 2.3% today to linger near $348.38, after Stifel downgraded the stock to "hold" from "buy." Specifically, the brokerage firm said it remains upbeat on the company's "longer-term international opportunity, but think[s] third-quarter results were a sign that investors are still focused on domestic subscriber growth in the near term." Netflix, Inc. has made some volatile moves since reporting earnings in mid-October, with the shares off more than 22% from their Oct. 15 close at $448.59. A continued slide could prompt another round of bearish brokerage notes, considering more than half of analysts covering the shares maintain a "buy" or better rating, and the consensus 12-month price target of $417.81 stands at a roughly 20% premium to current trading levels.

  • NVDA, meanwhile, hit a three-year peak of $20.72 earlier -- and was last seen lingering near breakeven at $20.58 -- following a price-target hike to $25 from $23 at Nomura, with the brokerage firm underscoring its "buy" opinion. The equity has been a technical standout in 2014, boasting a 28.5% year-to-date advance -- and, more recently, gaining a foothold atop the round-number $20 mark. However, not everyone has climbed on board the bullish bandwagon, considering a healthy 7.2% of the stock's float is sold short. What's more, it would take more than six sessions to cover these shorted shares, at average daily trading volumes, leaving the door wide open for a short-covering rally, should NVIDIA Corporation extend its longer-term advance.

  • Macquarie cut its rating on LVLT to "neutral" from "outperform," saying it believes the stock is "overvalued." Since bottoming out at its most recent low of $37.61 in mid-October, the security has rallied more than 29% to its current perch at $48.61, yet option traders have taken a glass-half-empty approach. 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 1.04 ranks in the 70th percentile of its annual range. Echoing this put-skewed trend is LVLT's Schaeffer's put/call open interest ratio (SOIR) of 0.72, which sits higher than 83% of similar readings taken in the past year. Simply stated, short-term speculators are more put-heavy than usual toward Level 3 Communications, Inc.

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U.S. markets have retreated from the record highs tagged earlier, as a drop in consumer confidence overshadows an unexpected rise in third-quarter gross domestic product (GDP). Among equities making significant moves are China-based mobile gaming platform iDreamSky Technology Ltd (ADR) (NASDAQ:DSKY), Internet radio concern Pandora Media Inc (NYSE:P), and environmental solutions specialist Nuverra Environmental Solutions Inc (NYSE:NES). Here's a quick look at how DSKY, P, and NES are performing on the charts today.

  • Similar to sector peer Qihoo 360 Technology Co Ltd (NYSE:QIHU), DSKY is in rally mode after the company unveiled its third-quarter earnings results. Since going public in early August, shares of DSKY have tacked on 4% to trade at $18.21 -- including today's 8% pop -- and sentiment among the brokerage bunch remains decidedly optimistic. In fact, both of the analysts covering the shares maintain a "strong buy" recommendation. Plus, the consensus 12-month price target of $28.50 stands at a 56.5% premium to current trading levels -- and resides in territory yet to be charted by iDreamSky Technology Ltd (ADR).

  • P, meanwhile, has plunged nearly 6% -- and surrendered a short-term foothold atop its 20-day moving average along the way -- to churn near $18.59. Sparking today's sell-off is a downgrade to "underperform" from "market perform" at FBR Securities, and given the equity's more than 30% year-to-date deficit, another round of bearish brokerage notes could be on the horizon. At present, 72% of analysts covering the shares deem them worthy of a "buy" or better rating, while the average 12-month price target of $30.25 represents expected upside of 63% to the stock's present price. Meanwhile, in the options pits, P's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 3.26 ranks higher than 89% of similar readings taken in the past year. An unwinding of these bullish bets in the face of Pandora Media Inc's downward trajectory could pressure the shares lower.

  • A freshly inked contract with XTO Energy -- a division of Exxon Mobil Corporation (NYSE:XOM) -- has taken front seat to a pair of mixed brokerage notes, with shares of NES up 10.7% at last check to linger near $11.12. Specifically, Stifel cut its price target on the stock to $16 from $20 -- and reiterated its "buy" rating -- while Cowen waxed optimistic on the new partnership, saying, "We believe [the contract] is indicative of the transformation happening both in the region and at Nuverra's operations." It's been a tough year for Nuverra Environmental Solutions Inc, which has shed roughly one-third of its value in 2014. Nevertheless, call buying has reached fever pitch in recent weeks, as evidenced by the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 26.00, which ranks in the highest percentile of its annual range. Considering 39% of the stock's float is sold short, though, a portion of this activity may have been at the hands of shorts hedging against any unexpected upside.

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Buzz Stocks: Digital Ally, Inc., Tiffany & Co., and Wal-Mart Stores, Inc.

Today's stocks to watch in the news are DGLY, TIF, and WMT

by 11/25/2014 9:34 AM
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Markets are poised to continue their record-setting run today, as traders digest the preliminary update on third-quarter gross domestic product (GDP). Among specific equities in focus are security and surveillance specialist Digital Ally, Inc. (NASDAQ:DGLY), high-end retailer Tiffany & Co. (NYSE:TIF), and blue chip Wal-Mart Stores, Inc. (NYSE:WMT).

  • DGLY jumped more than 12% yesterday to close at $14.05, ahead of last night's grand jury decision to not indict a police officer in the shooting death of an unarmed teenager. Following the announcement -- and despite the subsequent eruption of riots in Ferguson, Missouri -- shares of the wearable camera maker are roughly 0.9% lower right out of the gate. Year-to-date, Digital Ally, Inc. has tacked on around 50%, yet short sellers have been betting on the stock's momentum to run out of steam. Short interest jumped 5.4% in the last two reporting periods, and now accounts for more than one-quarter of the stock's available float.

  • TIF is opened nearly 5% higher, after closing last night at $105.01 -- and tagged a new record peak of $110.51 -- as traders digest the company's third-quarter earnings results. While both top- and bottom-line numbers missed consensus estimates due to sluggish growth in the Asia-Pacific region, a robust reading on same-store sales in the Americas has sparked some optimism around the Street. Heading into today's session, the stock was enjoying a respectable 13.2% year-to-date lead, and option traders have been gambling on more upside for Tiffany & Co. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, TIF's 10-day call/put volume ratio of 2.22 ranks in the bullishly skewed 76th percentile of its annual range. Echoing this call-skewed bias is the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.80, which ranks lower than 77% of similar readings taken in the past year.

  • WMT has edged 0.2% lower at the open, as traders react to reports the company's chief merchandising officer is ready to announce his departure just a few days before the all-important Black Friday shopping event. On the sentiment front, analysts are skeptical toward a stock that's tacked on more than 8% in 2014. In fact, more than half of those covering the shares maintain a "hold" or "strong sell" suggestion, while the consensus 12-month price target of $82.04 stands at a discount to the equity's current perch at $85.40. Should Wal-Mart Stores, Inc. resume its uptrend, a round of upgrades and/or price-target hikes could help propel the shares higher.

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Analyst Downgrades: Cyberark Software Ltd, Nu Skin Enterprises, Inc., and Workday Inc

Analysts downwardly revised their ratings on CYBR, NUS, and WDAY

by 11/25/2014 9:33 AM
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Analysts are weighing in today on cyber-security firm Cyberark Software Ltd (NASDAQ:CYBR), nutritional supplements marketer Nu Skin Enterprises, Inc. (NYSE:NUS), and HR specialist Workday Inc (NYSE:WDAY). Here's a quick roundup of today's bearish brokerage notes on CYBR, NUS, and WDAY.

  • CYBR got hit with a pair of bearish brokerage notes earlier. William Blair downgraded the stock to "market perform" from "outperform" -- which cited long-term growth concerns -- while Nomura reduced its rating to "neutral" from "buy." This, despite the shares advancing 88% since their late-September public debut to close last night at $47.01. Out of the gate, though, Cyberark Software Ltd has given back 4.8%. On the sentiment front, options traders have bought to open 5.91 calls for every put during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). However, short interest on CYBR spiked 66.5% in the latest reporting period, suggesting some of these bullish options bets may have been at the hands of short sellers seeking an upside hedge.

  • NUS was initiated with a "neutral" rating at Citigroup, which is about par for the course. Of the six analysts covering the shares, two-thirds rate them the equivalent of a "hold" or "sell." Short sellers are also skeptical of Nu Skin Enterprises, Inc., as 11.3% of the stock's float is sold short -- which would take a week to buy back, at average daily trading volumes. On the charts, NUS has shed about 70% of its value in 2014 to rest at $41.43, and has underperformed the broader S&P 500 Index (SPX) by roughly 19 percentage points during the last month.

  • Finally, WDAY has plunged 6% out of the gate, following a poorly received third-quarter earnings report, and a round of bearish brokerage notes. Specifically, no fewer than seven brokerage firms reduced their price targets on Workday Inc, including Deutsche Bank, which lowered its target by 10% to $90, and reiterated its "hold" opinion. On the charts, the equity was up 11.2% year-to-date as of Monday's close at $92.49, but this morning has broken south of its month-long sideways pattern in the $90-$97 range, at $86.97. Should WDAY continue to plummet in the wake of today's negative analyst attention, there will be plenty of short sellers cheering. More than 9% of the stock's float is sold short, which would take almost seven sessions to cover, at WDAY's average daily trading rate.

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