Schaeffer's Trading Floor Blog

Analyst Downgrades: 3D Systems Corporation, EMC Corporation, and Molycorp Inc

Analysts issued bearish notes on DDD, EMC, and MCP

by 10/23/2014 10:13 AM
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Analysts are downwardly revising their ratings on 3-D printing firm 3D Systems Corporation (NYSE:DDD), IT issue EMC Corporation (NYSE:EMC), and rare earths specialist Molycorp Inc (NYSE:MCP). Here's a quick look at today's bearish brokerage notes on DDD, EMC, and MCP.

  • A dismal quarterly and full-year revenue forecast from DDD sent the shares 15% lower yesterday, and analysts were quick to weigh in with a round of price-target cuts and downgrades. Brean, for example, lowered its outlook for the stock to "hold" from "buy," while Pipar Jaffray slashed its price target by $13 to $37, and underscored its "neutral" rating. More bearish brokerage notes could be on the horizon for a stock that's down 60.5% year-to-date to trade at $36.67. At present, seven out of 16 covering analysts maintain a "strong buy" recommendation toward 3D Systems Corporation, while the average 12-month price target of $52.80 stands at a 44% premium to current trading levels.

  • EMC made a number of headlines yesterday, after reporting worse-than-expected third-quarter earnings, downwardly revising its full-year earnings forecast, and saying it will absorb most of Cisco Systems, Inc.'s (NASDAQ:CSCO) stake in VCE. In the wake of yesterday's busy day, at least four brokerage firms reduced their price targets on the stock, including Pacific Crest, which cut its target by $2 to $30, yet reiterated its "outperform" suggestion. Technically speaking, EMC Corporation has added roughly 9% in 2014 to trade at $27.36, but option traders have taken the bearish route in recent months. In fact, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 50-day put/call volume ratio of 0.35 ranks just 10 percentage points from an annual pessimistic peak.

  • MCP is down 3.1% at $1.27, after Morgan Stanley slashed its price target on the equity by 60% to $1. In addition, the brokerage firm offered up a chilly "underweight" rating. The downbeat analyst attention isn't too surprising, considering Molycorp Inc has surrendered more than three-quarters of its value in 2014. Still, options traders are gambling on even more downside, as the equity's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.50 sits just 1 percentage point shy of an annual peak, pointing to accelerated put buying over call buying during the past two weeks. In addition, short interest makes up roughly 36% of MCP's total available float, and would take more than two weeks to buy back, at the equity's average daily trading volume.

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Buzz Stocks: Dunkin Brands Group Inc, Yelp Inc, and Alibaba Group Holding Ltd

Today's stocks to watch include DNKN, YELP, and BABA

by 10/23/2014 10:05 AM
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Stocks are on pace to recover a portion of yesterday's losses, with help from solid earnings from Caterpillar Inc. (NYSE:CAT). In other company news, breakfast behemoth Dunkin Brands Group Inc (NASDAQ:DNKN), online review issue Yelp Inc (NYSE:YELP), and Chinese e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA) are three stocks to watch in today's trading.

  • DNKN is down 6.2% at $43.89, after a full-year sales warning (subscription required) trumped stronger-than-expected third-quarter earnings. The shares of DNKN are now down 9% year-to-date, and could get slapped with a few downgrades. In fact, 10 out of 18 analysts offer up "buy" or better opinions. Meanwhile, the stock's Schaeffer's put/call open interest ratio (SOIR) sits near an annual low at 0.23, implying short-term speculators have rarely been more call-biased during the past year. An unwinding of optimism in the options pits could exacerbate selling pressure on Dunkin Brands Group Inc.

  • In a similar situation is YELP, which has plummeted 16% to $59.07 as its disappointing fourth-quarter guidance overshadows a stronger-than-expected third quarter. More than a dozen analysts have cut their price targets as a result, and Stifel Nicolaus downgraded YELP to "hold" from "buy." (However, B. Riley upped its opinion to "buy" from "neutral.") More than a few options traders will likely be cheering Yelp Inc's earnings miss, though. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.84 sits in the 81st percentile of its annual range, reflecting a growing appetite for bearish bets over bullish of late. As a result, the security's SOIR is docked at 1.34 -- just 8 percentage points from an annual peak.

  • BABA is up 1.6% at $93.10, amid reports the company is looking to expand its U.S.-made content offerings in China. In addition, Barclays launched coverage of Alibaba Group Holding Ltd with an "overweight" endorsement and a $107 price target -- which would mark a record high for the shares, which have yet to explore triple-digit territory. Most analysts are already fans of BABA, which sports six "strong buy" ratings, compared to not one "hold" or "sell." Ahead of the company's first turn in the earnings spotlight on Tuesday, Nov. 4, short-term options buyers are favoring calls over puts.

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Analysts are upwardly revising their ratings on telecom concern Nokia Corporation (ADR) (NYSE:NOK), blue-chip financial firm Goldman Sachs Group Inc (NYSE:GS), and farm supply specialist Tractor Supply Company (NASDAQ:TSCO). Here's a quick look at today's bullish brokerage notes on NOK, GS, and TSCO.

  • NOK is up 5% at the open to trade at $8.30 -- moving into the black on a year-to-date basis -- after its better-than-expected third-quarter earnings report was met with a price-target hike to 7.49 euros from 7.41 euros at Jefferies, which also underscored its "buy" rating. Today's post-earnings pop could come as a disappointment to option traders, who were upping the bearish ante on Nokia Corporation (ADR) ahead of last night's results. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 10-day put/call volume ratio of 0.69 ranks higher than 95% of similar readings taken in the past year.

  • Deutsche Bank weighed in on a number of banks this morning, and for GS, this meant a price-target hike to $195 from $181 -- representing expected upside of 8.9% to the stock's current perch at $179.08, and a move into six-year-high territory. On the charts, Goldman Sachs Group Inc has put in an uninspiring performance in 2014, with the shares just above their year-to-date breakeven mark. However, sentiment among options traders remains optimistic, per the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.23, which ranks in the bullishly skewed 72nd percentile of its annual range. Additionally, short interest accounts for a low 2.2% of the stock's available float, and would take just over three sessions to cover, at the equity's average daily pace of trading.

  • TSCO rallied more than 11% right out of the gate to $68.98, thanks to a stronger-than-forecast third-quarter earnings report and an upbeat full-year outlook. The news was met with no fewer than eight price-target hikes, as well as an upgrade to "strong buy" from "market perform" at Raymond James. Heading into today's session, Tractor Supply Company was sitting on a roughly 21% year-to-date deficit, and more recently, was feeling the heat from its 120-day moving average, currently located at $62.66. As such, short sellers have been increasing their presence in recent weeks. Specifically, short interest rose 11.4% over the last two reporting periods, and it would take more than six sessions to cover these shorted shares, at TSCO's average daily pace of trading.

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Remembering the Great VIX Panic of Fall 2014

Volatility hit peak levels last week, only to quickly reverse course

by 10/23/2014 9:11 AM
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Remember The Great CBOE Volatility Index (VIX) Panic of Fall 2014? That was so last week. I mean, literally, last week. VIX hit a high of 31.06 on Oct. 15. Just four trading days later, it bottomed at 16.03, not too far from a 50% retracement in under a week. Not sure I've ever seen that happen. It dropped over 10% three days in a row, which I know I've never seen because it's unprecedented, according to Bloomberg.

You can't trade VIX. Yes, I know, there's something called VIX that you can trade futures on, but it's not actually VIX -- I can't emphasize that often enough. You can trade the iPath S&P 500 VIX Short-Term Futures ETN (VXX), and its double, evil cousins ProShares Trust Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY) and VelocityShares Daily 2x VIX Short-Term ETN (NYSEARCA:TVIX), though. And, TIVX did actually lose about half its "value" from the pre-open on Oct. 16 into the close of Oct. 22.

If you're ever tempted to hold TVIX for any length of time, please save this chart of a mere six trading days (click chart to enlarge):

Daily Chart of TVIX from Oct. 14 through Oct. 21

It rallied 50% in about two days, gave it all back in one day, then lost another 25% two days later. Yes, it's great to catch that elevator up. But, you better have timed it pretty darn well. And, traders/investors are trying their best to catch these waves. VXX saw record dollar volume last week.

Meanwhile, there's strong interest in betting against volatility. This, from Bloomberg:

About $757 million has been added to the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) in October, the most for any month since the note began trading in 2011, according to data compiled by Bloomberg.

Hard to make much of a market call based on all this, as there's action every which way. Well, there's one clear beneficiary -- the Chicago Board Options Exchange (CBOE)!

If there's one big takeaway in all this, it's that times change and technology changes, and so on, but market dynamics remain pretty constant. Stocks periodically shake out investors. And, every time that happens, we humans look for reasons why. But, all we really do is take whatever is going on in the world at the moment the markets get shaky and assume there's some sort of causation. But, it's really more coincidence than anything else. There are always 10 or 20 or 50 bad stories around, it's just that none of them matter as far as the market is concerned, until they absolutely matter. And then, before you know it, the same stories don't matter anymore.

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


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Options Check-Up: CVS Health Corp, First Solar, Inc., and Starbucks Corporation

Analyzing recent option activity for CVS, FSLR, and SBUX

by 10/23/2014 8:40 AM
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Among the stocks attracting attention from options traders lately are pharmacy chain CVS Health Corp (NYSE:CVS), alternative energy expert First Solar, Inc. (NASDAQ:FSLR), and coffee king Starbucks Corporation (NASDAQ:SBUX). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on CVS, FSLR, and SBUX.

  • CVS hit a record high of $83.79 yesterday, before settling with a 0.4% gain at $83.25. Longer term, the shares have tacked on a healthy 16.3% year-to-date. Therefore, it comes as no surprise that options traders have bought to open nearly three times as many calls as puts over the past two weeks, per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resultant 10-day call/put volume ratio of 2.66 ranks in the bullishly skewed 78th percentile of its annual range. What's more, those looking to buy CVS Health Corp options have an encouraging track record on their side, as the stock's Schaeffer's Volatility Scorecard (SVS) checks in at 75. In other words, over the last 52 weeks, the shares have tended to make bigger moves than what their options have priced in.

  • FSLR fell 2.8% yesterday to close at $54.75, placing the shares just above their year-to-date flat line. In options land, traders have bought to open puts (relative to calls) at an accelerated rate recently, per the stock's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.56 -- which sits just 10 percentage points from a 12-month peak. What's more, based on the security's SVS of 79, shares of First Solar, Inc. have tended to make outsized moves, relative to what the options market has been expecting. Looking ahead, FSLR is scheduled to report third-quarter earnings between Wednesday, Oct. 29, and Monday, Nov. 3.

  • Finally, SBUX, which will report fiscal fourth-quarter numbers after next Thursday's closing bell, ended Wednesday 0.3% higher at $74.60. Nevertheless, the stock is sitting on a year-to-date deficit of 4.8%. At the ISE, CBOE, and PHLX, traders have been buying to open puts over calls at an extreme rate during the past two weeks, based on Starbucks Corporation's 10-day put/call volume ratio of 2.74 -- which bests all other readings from the last year. Meanwhile, the cost of short-term SBUX options is middle-of-the-road, per the equity's Schaeffer's Volatility Index (SVI) of 23%, which rests in the 50th annual percentile.

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