Schaeffer's Trading Floor Blog

Analyst Downgrades: Micron Technology, Inc., SanDisk Corporation, and Schlumberger Limited

Analysts downwardly revised their ratings on Micron Technology, Inc. (MU), SanDisk Corporation (SNDK), and Schlumberger Limited (SLB)

by 3/31/2015 9:23 AM
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Analysts are weighing in on semiconductor issue Micron Technology, Inc. (NASDAQ:MU), data solutions specialist SanDisk Corporation (NASDAQ:SNDK), and oil-and-gas concern Schlumberger Limited (NYSE:SLB). Here's a quick roundup of today's bearish brokerage notes on MU, SNDK, and SLB.

  • Wedbush cut its price target on MU by $5 to $35, but kept its "outperform" opinion, sending the shares down about 0.2% in electronic trading. On the charts, Micron Technology, Inc. has been sliding, down 32.6% since hitting a near-13-year high of $36.59 on Dec. 8, to close yesterday at $26.68. Accordingly, sentiment in the options pits has hit a pessimistic peak ahead of tomorrow's trip to the earnings confessional. Drilling down, MU's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.51 reads in the 100th percentile of its annual range. Simply stated, puts have never been bought to open over calls at a faster clip during the past year.

  • SNDK is 0.4% lower in pre-market trading, after RBC slashed its price target on the equity by $18 to $78, but reaffirmed its "outperform" rating. The price-target revision comes as little surprise, considering the shares of SanDisk Corporation have shed about 33.7% year-to-date to finish yesterday's session at $64.98. In fact, SNDK touched an annual low of $63.56 on Friday, as the stock gapped lower on disappointing guidance. Despite this weak performance of late, the brokerage bunch is still mostly bullish on the equity -- two-thirds of covering analysts rate the stock a "buy" or "strong buy," with no "sell" or worse recommendations to be found. Additionally, SNDK's consensus 12-month price target of $81.59 stands at a 25.6% premium to current trading levels, showing that more bearish brokerage attention could be on the horizon.

  • Wells Fargo weighed in on a number of oil-and-gas firms this morning, slashing its rating on SLB to "market perform" from "outperform." At last check, the shares of Schlumberger Limited -- which closed at $84.48 last night -- were following crude futures into the red, down 1.4% in electronic trading, and poised to steepen a 13.4% year-over-year deficit. Bears have been active in the options pits, as SLB's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.74 ranks higher than 91% of all equivalent readings taken over the past year. On the other hand, 74% of covering analysts rate the shares a "buy" or better, implying that a bullish mentality is still popular among the brokerage bunch.

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Buzz Stocks: Charter Communications, Inc., BioCryst Pharmaceuticals, Inc., and Lorillard, Inc.

Today's stocks to watch in the news include Charter Communications, Inc. (CHTR), BioCryst Pharmaceuticals, Inc. (BCRX), and Lorillard Inc. (LO)

by 3/31/2015 9:22 AM
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U.S. benchmarks are poised to pare a portion of yesterday's massive gains, with futures pointed lower on the last day of the first quarter. Among specific equities in focus are cable service provider Charter Communications, Inc. (NASDAQ:CHTR), drug developer BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX), and tobacco titan Lorillard Inc. (NYSE:LO).

  • M&A activity ruled the Street on Monday, and today it's CHTR in the spotlight. The company announced it will purchase Bright House Networks for roughly $10 billion. The deal will allow the latter's owner, Advance Newhouse, to become the former's biggest shareholder, and is contingent upon U.S. regulators approving the merger between Comcast Corporation (NASDAQ:CMCSA) and Time Warner Inc (NYSE:TWX). The news is being well-received, with shares of CHTR up 6.9% in electronic trading -- and headed for a fresh record high. Longer term, Charter Communications, Inc. has added 48.9% over the past 52 weeks, and settled last night at $183.39. In the options pits, long calls have been popular, per CHTR's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 4.37, which ranks in the 76th annual percentile.

  • BCRX is also signaling a strong start, with the shares 6.2% higher ahead of the bell. Stoking the buying power is news the firm landed a multi-million-dollar contract with the U.S. government to continue advancing possible treatments for various viral diseases, including Ebola. On the charts, the security has been making a series of lower lows throughout 2015 -- translating into a loss of 29.5% -- and closed Monday at $8.57. Against this backdrop, sentiment has been skewed toward the skeptical side. At the ISE, CBOE, and PHLX, BCRX's 10-day put/call volume ratio of 1.53 rests higher than 90% of all similar readings taken in the past year. Elsewhere, although short interest plunged 17% in the latest reporting period, it still accounts for a lofty 23.9% of BioCryst Pharmaceuticals, Inc.'s float.

  • LO is down 2.5% in pre-market trading, amid speculation the Federal Trade Commission (FTC) is looking to block the merger between the tobacco company and its peer Reynolds American, Inc. (NYSE:RAI). The reports are unconfirmed, and a meeting between LO, RAI, and federal regulators is rumored to be slated for this week. Since taking a sharp bounce off their 160-day moving average in mid-October, shares of LO have added 15.5% to trade at $66.42. However, today's projected price move could have the equity testing support atop its 80-day moving average. Options traders, meanwhile, have shown a preference for puts over calls among contracts expiring in three months or less. Specifically, Lorillard Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 1.59 ranks in the 68th percentile of its annual range.

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Analyst Upgrades: Priceline Group Inc., ImmunoGen, Inc., and Horizon Pharma PLC

Analysts upwardly revised their ratings on Priceline Group Inc (PCLN), ImmunoGen, Inc. (IMGN), and Horizon Pharma PLC (HZNP)

by 3/31/2015 9:17 AM
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Analysts are weighing in today on travel website Priceline Group Inc (NASDAQ:PCLN), as well as biotechs ImmunoGen, Inc. (NASDAQ:IMGN) and Horizon Pharma PLC (NASDAQ:HZNP). Here's a quick roundup of today's bullish brokerage notes on PCLN, IMGN, and HZNP.

  • PCLN received an upgrade to "buy" from "hold" at Stifel, which also underscored a $1,400 price target. As such, the shares are sitting more than 1% higher ahead of the bell -- though they remain 3.5% lower year-over-year, as of Monday's close at $1,149.83. The vast majority of brokerage firms are bullish toward Pricline Group Inc. Fourteen of 18 have given the stock a "buy" or better assessment, plus PCLN's consensus 12-month price target of $1,364 stands in territory not charted since last March, when the equity topped out at an all-time peak of $1,378.96.

  • IMGN has been a technical beast in 2015, soaring nearly 40% year-to-date to trade at $8.52, recently helped by a licensing agreement with Takeda Pharmaceuticals Co. It looks like this momentum will continue today, with the shares pointed 3.3% higher in electronic trading, following a pair of positive analyst notes. Specifically, UBS bumped its price target to $9 from $7, while Cantor Fitzgerald lifted its opinion to "buy" and its price target to $12 from $9. Not everyone's so confident in ImmunoGen, Inc., however. Eight of 11 analysts still rate the security a "hold" or worse. Plus, over 13% of the stock's float is sold short, which would take three weeks to buy back, at typical daily trading levels. This could set up IMGN to rally on another round of upbeat brokerage attention and/or short-covering activity.

  • Just a day after soaring 18.2% on M&A news, HZNP is pointed 1.9% higher in pre-market action after receiving no fewer than four price-target hikes. The most ambitious of the bunch was Brean Capital, which upped its price target by $6 to $33, and reiterated a "buy" opinion. Meanwhile, over at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have been buying to open calls over puts at a breakneck speed. Horizon Pharma PLC's 50-day call/put volume ratio across this trio of exchanges is 7.36, which outranks nearly four-fifths of comparable readings from the past 12 months. Technically speaking, HZNP has doubled in value on a year-to-date basis, and closed yesterday at $25.78 after earlier notching a record high of $25.95.

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Betting on VXX? Better Get Your Timing Right

More and more people are putting money into the iPath S&P 500 VIX Short-Term Futures ETN (VXX)

by 3/31/2015 8:30 AM
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Don't look now, but our old friend the iPath S&P 500 VIX Short-Term Futures ETN (VXX) has gotten trendy again. This, via Callie Bost of Bloomberg:

"Speculators are again piling into an exchange-traded note that lets them bet on how long days of calm will last in the U.S. stock market.

"The trade, using a six-year-old security known as VXX that sees more average daily volume than shares of Microsoft Corp. and Facebook Inc., has usually backfired amid the biggest bull market since the 1990s. That hasn't curbed its popularity, with the iPath S&P 500 VIX Short-Term Futures ETN poised for an eighth straight week of inflows, a streak not seen in three years. Shares outstanding in the note are at an all-time high."

Just how big has VXX gotten? The story continues:

"VXX, one of the most popular ways to bet on bigger market swings, has absorbed $715 million in seven consecutive weeks of inflows, its longest streak of inflows since one ending in July 2012. The infusion of fresh cash has continued this week, swelling its market value to $1.5 billion, the highest since September 2013.

"At the same time, short-sellers in VXX -- people effectively betting the bull market will persist -- have dropped out. Short interest has slid 35 percent since October, falling to the lowest in more than seven months last week, data compiled by Markit Ltd. show."

On the one hand, it looks like they at least piled in at/near VXX lows. On the other hand ... that's not a concept that matters much. VXX has no tangible value; it's essentially a CBOE Volatility Index (VIX) path-driven mathematical concoction. It makes some modest sense to buy VXX when you expect VIX itself to lift on the presumption that the VIX lift will spill over into a VIX futures lift.

But, as we all hopefully know, timing well is beyond essential. VXX will almost surely drift over any time frame. So, even if you catch a VIX bottom, you may not profit from the VXX trade. The better question, though, is how well did rushes into VXX predict the future course of volatility? We only have two data points to work with here, but neither suggests we had "smart" money behind the VXX push.

In July 2012, VIX had an average close of 17.57. That dropped to 15.69 in August, and to 15.29 in September. Buying volatility worked modestly better in September 2013, the last time VXX had a market value this large. VIX averaged 14.69 in September 2013, and that measure popped all the way to ... 15.43 in October. Unfortunately, it then dropped to 12.97 in November. Results may vary, but that's mediocre at best.

All of this makes sense, of course. A move into volatility "assets" at a time when volatility is either "eh" or falling should classically turn into a contrary indicator. Throw in the fact that VXX shorts have backed away and we have more fuel to the contra fire. It's all stuff on the margins, of course, but it's always very unlikely that the masses will time their volatility purchases well.

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


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Earnings Preview: Conn's, Inc., E-Commerce China Dangdang Inc., and Vitae Pharmaceuticals, Inc.

Analyzing recent option activity on CONN'S, Inc. (CONN), E Commerce China Dangdang Inc (ADR) (DANG), and Vitae Pharmaceuticals Inc (VTAE)

by 3/30/2015 2:28 PM
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Among the stocks gearing up to report earnings tomorrow are consumer products concern CONN'S, Inc. (NASDAQ:CONN), Beijing-based Internet merchant E Commerce China Dangdang Inc (ADR) (NYSE:DANG), and biotech firm Vitae Pharmaceuticals Inc (NASDAQ:VTAE). Below, we'll gauge the pre-earnings temperature of CONN, DANG, and VTAE.

  • CONN has been in recovery mode, with the shares up 103% since notching a three-year low of $14.02 on Dec. 16. Today, however, the equity is 4.4% lower to linger near $28.47. Some traders see downside in CONN's future, as nearly 36% of the stock's available float is sold short, which would take about 13 sessions to cover, at average trading volumes. Meanwhile, in the session immediately following its last two earnings reports, the shares have shed an average of 35.7%. Short-term options for CONN are available for historically inexpensive prices, as its Schaeffer's Volatility Index (SVI) of 105% sits in the 27th percentile of its annual range.

  • On the other hand, DANG has been a technical laggard, with the shares down about 50% from their Aug. 13 annual high of $16.42 to hit $8.25. Accordingly, sentiment in the options pits has been bearish, as E Commerce China Dangdang Inc's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.21 ranks in the 78th percentile of its annual range. Traders anticipating post-earnings downside for the security have history on their side -- in the session immediately following its last four earnings reports, DANG has lost an average of 9.1%, including a 14.5% drop last May. Near-term options for the security are available for relatively attractive prices, as its SVI of 73% stands in the 42nd percentile of all equivalent readings taken over the past year.

  • VTAE has been sliding as well, with the shares falling 51.8% from their Dec. 11 all-time high of $23.35 to trade around $11.25. However, the brokerage bunch is still universally optimistic on the security, as 100% of covering analysts rate it a "strong buy." Looking elsewhere, in the session immediately following its last trip to the earnings confessional on Nov.12, Vitae Pharmaceuticals Inc dropped 7.4%. Short sellers are apparently gambling on an extended slump for VTAE, as short interest grew 22.5% during the last reporting period.

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