Schaeffer's Trading Floor Blog

Stocks On the Move: Ascena Retail Group Inc, AstraZeneca plc (ADR), and CarMax, Inc

ASNA, AZN, and KMX are moving sharply in Tuesday's trading

by 9/23/2014 11:44 AM
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Around midday, three of the top market movers are Lane Bryant parent Ascena Retail Group Inc (NASDAQ:ASNA), pharmaceutical issue AstraZeneca plc (ADR) (NYSE:AZN), and used car dealer CarMax, Inc (NYSE:KMX). Here's a quick roundup of how ASNA, AZN, and KMX are performing on the charts so far.

  • ASNA has tumbled 17% to rest at $13.72 -- which also represents a new two-year low -- after announcing a lower-than-expected fiscal fourth-quarter profit and weak forward guidance. The shares also received a price-target cut to $18 from $22 at Piper Jaffray. Taking a step back, Ascena Retail Group Inc has shed more than 35% of its value in 2014. Option traders have responded by upping the bearish ante at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 50-day put/call volume ratio across this trio of exchanges is 11.77 -- just 4 percentage points from an annual high.

  • AZN is down 3%, as the U.S. Treasury's crackdown on tax inversions may stop Pfizer Inc. (NYSE:PFE) from placing another takeover bid on its smaller rival. Despite today's losses, AstraZeneca plc (ADR) remains up 22% year-to-date to trade at $72.47. In options land, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.40 registers in the bearishly skewed 83rd percentile of its 12-month range.

  • KMX has given back 9% today to hover near $48.07, thanks to a poorly received fiscal second-quarter earnings report. With this move lower, the equity is barely in the green year-to-date, up just 2.1%. Meanwhile, bearish betting on CarMax Inc has picked up during the past two weeks. The security's 10-day put/call volume ratio of 2.47 at the ISE, CBOE, and PHLX stands just 9 percentage points shy of a 52-week peak.

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Analyst Downgrades: Pandora Media Inc, Bed Bath & Beyond Inc., and AutoZone, Inc.

Analysts downwardly revised their ratings on P, BBBY, and AZO

by 9/23/2014 9:27 AM
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Analysts are weighing in today on streaming music concern Pandora Media Inc (NYSE:P), home goods retailer Bed Bath & Beyond Inc. (NASDAQ:BBBY), and car parts specialist AutoZone, Inc. (NYSE:AZO). Here's a quick roundup of today's bearish brokerage notes on P, BBBY, and AZO.

  • Since early July, P has been churning between $24 and $28, with the equity closing last night's session near the lower end of this range, at $25.43. This lackluster price action may have been what prompted Topeka to start the stock with a tepid "hold" rating. Overall, both analysts and option traders have displayed optimism toward Pandora Media Inc, which is off 4.4% year-to-date. Specifically, 73% of covering analysts maintain a "buy" or better rating. Elsewhere, the security's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.23 ranks in the 98th percentile of its annual range. Should the shares continue to struggle, an unwinding of this bullish sentiment could apply additional pressure to P.

  • William Blair weighed in on a number of retailers this morning, and for BBBY, the brokerage firm cut its outlook to "market perform" from "outperform." On the charts, the equity has shed nearly 21% in 2014 to trade at $63.69, and could be poised to extend these losses when Bed Bath & Beyond Inc. unveils its fiscal second-quarter earnings report tonight. In fact, following its last turn in the earnings confessional in late June, the stock shed 7.2% in the subsequent session. Additionally, with six out of 20 analysts still maintaining a "strong buy" recommendation, the security could be poised for another round of downgrades, should its earnings once again disappoint.

  • AZO, meanwhile, offered up a poorly received earnings report yesterday morning, sending the shares down 4% to $505.38 -- their lowest daily close since Feb. 5 -- and this morning, AutoZone, Inc. received price-target cuts from Deutsche Bank (to $500 from $520), J.P. Morgan Securities (to $562 from $590), and Raymond James (to $600 from $620). On the options front, short-term speculators have shown a distinct preference for AZO puts over calls of late. Specifically, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.38 ranks just 2 percentage points from an annual peak, meaning traders have rarely been more put-skewed toward options set to expire in the next three months.

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Buzz Stocks: Allergan, Inc., Koninklijke Philips NV (ADR), and Starbucks Corporation

Today's stocks to watch in the news include AGN, PHG, and SBUX

by 9/23/2014 9:19 AM
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The major market indexes are sitting lower ahead of the bell, as investors digest news that the U.S. and several Middle Eastern allies carried out airstrikes against the Islamic State last night. In company news, today's stocks to watch include Botox maker Allergan, Inc. (NYSE:AGN), diversified healthcare and tech firm Koninklijke Philips NV (ADR) (NYSE:PHG), and coffee king Starbucks Corporation (NASDAQ:SBUX).

  • AGN is reportedly attempting to acquire Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP), though an agreement is not imminent. If Allergan, Inc. can pull the deal off, it would likely derail a hostile $53 billion bid from Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Pershing Square Capital Management. All of this takeover talk has had a positive effect on AGN shares, which are up nearly 50% year-to-date to rest at $166.12. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have shown a strong preference of late for long puts over calls -- per the stock's 50-day put/call volume ratio of 0.90, which ranks in the 80th percentile of its annual range. However, given AGN's technical tenacity, some of these bearish bets may have been at the hands of shareholders hedging against a pullback.

  • PHG announced plans to split into two companies. One will focus on health care and consumer technology -- dubbed HealthTech -- and the other will specialize in LED components and automotive lighting. The news comes amid a rough year for shares of Koninklijke Philips NV (ADR), which are down 18.5% in 2014 to last night's perch at $30.14. Accordingly, options traders have been scooping up long puts over calls at a faster-than-usual clip in recent months, per the equity's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.24 -- which is higher than more than two-thirds of all other readings from the past year.

  • Finally, SBUX is testing a stout-flavored latte, which contains whipped cream, dark caramel drizzle, and "chocolatey stout flavored sauce," among other ingredients. However, the beverage is non-alcoholic. Technically speaking, Starbucks Corporation is sitting about 5% below breakeven on a year-to-date basis to trade at $74.60, yet remains beloved on the Street. In fact, 16 out of 20 covering analysts have doled out "buy" or better opinions on the shares, and the equity's consensus 12-month price target resides in record-high territory, at $90.32. If SBUX continues to struggle on the charts, a round of downgrades and/or price-target reductions could pressure the stock lower.

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Analyst Upgrades: Canadian Solar Inc., EMC Corporation, and FedEx Corporation

Analysts upwardly revised their ratings on CSIQ, EMC, and FDX

by 9/23/2014 9:11 AM
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Analysts are weighing in today on alternative energy concern Canadian Solar Inc. (NASDAQ:CSIQ), tech issue EMC Corporation (NYSE:EMC), and package delivery giant FedEx Corporation (NYSE:FDX). Here's a quick roundup of today's bullish brokerage notes on CSIQ, EMC, and FDX.

  • Canaccord Genuity raised its price target on CSIQ to $48 from $44, representing expected upside of 27.7% to last night's closing price of $37.60. The brokerage firm also maintained its "buy" rating on the equity, echoing the opinion of all five analysts covering the stock. Year-to-date, shares of Canadian Solar Inc. have tacked on 26.1%, yet CSIQ has recently run headlong into congestion near $40. Option traders have switched sides in recent weeks, and are betting on the security to continue to struggle near this round-number mark. Specifically, CSIQ's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.51 ranks in the bearishly skewed 69th annual percentile.

  • It was a big day for EMC on Monday, which rallied to a fresh 13-year peak of $30.18 before settling the session 0.5% higher at $29.68, amid a bevy of M&A-related rumors. Against this backdrop, Macquarie upped its price target for the shares to $32 from $28, although kept its tepid "neutral" rating. Overall, most analysts maintain a bullish outlook on EMC Corporation -- which is up 18% this year -- with more than 83% of covering brokerage firms maintaining a "buy" or "strong buy" recommendation, and not a single one doling out a "sell."

  • Ahead of FDX's annual shareholder meeting -- slated for next Monday morning -- Nomura boosted its target price for the shares to $155 from $145. Since taking a sharp bounce off its 40-day moving average in mid-June, FDX has added more than 14% to trade at $157.86, and just last Wednesday, hit its highest mark on record following a well-received earnings report. Elsewhere, FedEx Corporation's Schaeffer's put/call open interest ratio (SOIR) of 0.72 ranks lower than 92% of similar readings taken in the past year, meaning short-term speculators have rarely been as call-skewed toward the stock as they are now.

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Is Volatility Really Back?

Recent volatility spikes in the FXE and VIX are likely a function of low absolute levels

by 9/23/2014 8:42 AM
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Pay no attention to that CBOE Volatility Index (VIX) on your screen. It took a 13% rally yesterday just to get it back to the mid-13s.

Volatility is back, baby! So says David Rosenberg:

After such a long period of relative calm -- only briefly interrupted by the "taper tantrum" of the spring of 2013 and the emerging market turmoil at the turn of the year -- volatility has reared its head yet again, and as is often the case, it started first in the currency market.

Near-6% moves in the U.S. dollar against the likes of the sterling and euro in a two-month span are hardly regular occurrences. Measures of implied volatility in the FX market have surged 50% over this time span.

Well, I do very much agree with his point that volatility can start in one asset class and then spread virtually everywhere. And, sure, the currencies did make a nice move recently. But the resulting volatility spike isn't exactly one for the ages. Not to mention the fact that the spike we did see is already in the rearview.

Here's the Guggenheim CurrencyShares Euro Trust (FXE) since the start of 2013. At the bottom of the graph, I include 10-day historical volatility (in purple) and the VIX formula of implied volatility (in light blue):

Daily chart of FXE since January 2013
(click to enlarge)
Daily chart of Guggenheim CurrencyShares Euro Trust (FXE) since January 2013

Implied volatility peaked at 8 a few days ago. Yes, that's right: 8. It's the same level it saw in late May, and late March, and most of February. It's also a level that was pretty much a floor in 2013.

On the other hand, implied volatility did nearly double from lows in the mid-4s back in early August. So, if anything, Rosenberg undersells the implied volatility lift when expressed in percentage terms.

But it's a good example of why you have to be careful using percentage moves in volatility from low bases. They can paint misleading pictures.

Here's a better description of implied volatility in FXE: It has lifted from the unusually low and unsustainable levels of the summer back to levels that are still on the low end of historical norms.

Now, the absolute move in FXE over the last four months is pretty large, and it has accelerated over the last month, but it's a pretty orderly directional move. Ten-day historical volatility barely budged, save for a one-day spike right after Labor Day. And I'm guessing that's misleading, as it skips a day where currencies were open, but our markets were closed. Thus, the day-over-day gap move really took two days.

Again, I don't dispute that volatility emanating from the currency market can slosh over to our equities, I just disagree that this is any sort of alarming move yet. It's akin to VIX drifting to 10, then popping back to the mid-teens. Hey, maybe that's happening right now, in which case we're already into the big pop. It would seem volatile on a relative basis, but only because it was so low to begin with.

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

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