Schaeffer's Trading Floor Blog

Analyst Downgrades: Advanced Micro Devices, Inc., Halliburton Company, and Salesforce.com, inc.

Analysts downwardly revised their ratings on AMD, HAL, and CRM

by 12/19/2014 9:27 AM
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Analysts are weighing in today on semiconductor concern Advanced Micro Devices, Inc. (NYSE:AMD), oil-and-gas issue Halliburton Company (NYSE:HAL), and cloud company Salesforce.com, inc. (NYSE:CRM). Here's a quick roundup of today's bearish brokerage notes on AMD, HAL, and CRM.

  • It's been a dismal year for AMD, which has shed more than 34% to churn at $2.55. BofA-Merrill Lynch thinks there's more downside on the horizon, too, and cut its price target on the shares to $2.25 from $3.25. This bearish positioning toward Advanced Micro Devices, Inc. isn't relegated to the brokerage bunch, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMD's 50-day put/call volume ratio of 1.02 ranks in the 81st annual percentile, meaning puts have been bought to open over calls at a faster-than-usual clip in recent months.

  • Citigroup chimed in on a number of energy names this morning, and for HAL, this meant a price-target reduction to $50 from $68. However, the brokerage firm reiterated its "buy" rating, echoing the majority of the 25 analysts currently covering the shares. Additionally, the equity's consensus 12-month price target of $56.19 stands at a steep 43.2% premium to last night's close at $39.23. Should Halliburton Company extend its nearly 23% year-to-date deficit, another round of bearish brokerage notes could be on the horizon.

  • Jefferies slashed its price target on CRM to $47, representing expected downside of 20.8% to Thursday's close at $59.33 -- as well as territory not seen by Salesforce.com, inc. since August 2013. In fact, the stock has been bouncing steadily higher over the past 12 months, tacking on 11.8%. Option traders have kept the faith, though, as evidenced by the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 4.30. Not only does this show that more than four calls have been bought to open for every put over the past two weeks, but it ranks just 2 percentage points from a 52-week peak.

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Buzz Stocks: Nike Inc, Orexigen Therapeutics, Inc., and Xerox Corp

Today's stocks to watch in the news include NKE, OREX, and XRX

by 12/19/2014 9:17 AM
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U.S. equities are poised to end the week on a high note, with futures pointed sharply higher in pre-market trading. In company news, today's stocks to watch include athletic apparel titan Nike Inc (NYSE:NKE), drugmaker Orexigen Therapeutics, Inc. (NASDAQ:OREX), and business support company Xerox Corp (NYSE:XRX).

  • NKE is sitting 1.5% lower ahead of the bell, despite reporting better-than-expected quarterly profit and revenue figures. Overshadowing the solid results are disappointing global future orders, particularly in Japan and emerging markets. Taking a step back, Nike Inc has had a solid 2014, gaining 23.4% as of last night's close at $97.08, and recently bounced off its 50-day moving average. Nonetheless, the brokerage crowd is fairly divided on the shares, with 12 sporting "buy" opinions, compared to nine "holds." What's more, NKE's consensus 12-month price target of $101.56 is less than 5% from its current perch.

  • OREX's diet pill, known in the U.S. as Contrave, has been recommended for approval in Europe by the European Medicines Agency (EMA). As a result, the shares are pointed nearly 9% higher ahead of the open. Longer term, Orexigen Therapeutics, Inc. has advanced almost 17% year-over-year to trade at $6.29. Should the stock continue to rally, short sellers may be forced to cover their bearish positions. Roughly 32% of OREX's float is sold short, which would take more than three weeks to cover, at the equity's typical daily trading volume.

  • Finally, XRX is up 1.2% in electronic trading, after the company agreed to sell its IT outsourcing unit to France-based Atos. The deal is worth just over $1 billion, and is expected to close in the first half of 2015. On the charts, Xerox Corp has tacked on approximately 18% since this time last year to rest at $13.89, ushered higher by its 40-week moving average. Still, analysts are skeptical of the shares, with more than half of the covering brokerage firms doling out "hold" or worse ratings. What's more, XRX's consensus 12-month price target sits at $13.77, a discount to last night's close. Should the stock maintain its upward momentum, it could benefit from upgrades and/or price-target hikes.

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'Normal Volatility' is an Oxymoron

'Normal' is a moving target, especially for the CBOE Volatility Index (VIX

by 12/19/2014 8:52 AM
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So, I'm half watching financial TV yesterday and, lo and behold, they start talking volatility. And guess what? The guest expected volatility to rise next year. This was shocking, of course, because no TV guest ever expects higher volatility on the horizon. And by none of them, I really mean all of them. But here's where he got my anger buzz up: he referred to what we've seen recently (presumably this year and/or a more extended time frame) as abnormal. And next year's volatility lift will merely return us to "normal."

Oh, where to begin?

First off, disabuse yourselves of any notion of "normal" volatility. There is no such animal. Yes, volatility can have a typical level, what we generally call a "mean." And we all look for mean-reversion of some form. The problem is that there's no single "mean" when defined this way. We can, of course, calculate moving averages. But then it comes down to time frames. Today's mean is yesterday's moonshot and tomorrow's implosion. And besides, "median" is a better statistical measure of the CBOE Volatility Index's (VIX) history, thanks to the occasional wild outliers. When we go after mean-reversion, we are really trying to figure out how far VIX is from a typical and expected level. Median expresses that better.

Since inception, VIX has a median of 18.46. So, any time it's below that, we should expect a rise, and any time it's above that, a decline, right? Well, I suppose -- but you might go broke waiting. Not to mention that by that definition, VIX was actually quite high over this past week. It went past "normal." The peak close of 23.57 is as abnormal as a close of 13.5.

But again, that's a bad lens through which to view VIX. I occasionally mention the concept of longer-term VIX regimes -- they last about four to six years. They are very loosely defined, but means and medians within those regimes give us a way better sense of a "normal" to trade against. Here's a look at means and medians in some of those loosely defined regimes:

VIX Mean and Median

Through the lens of these regimes, VIX actually got rather high this past week. We didn't just return to "normal" -- we went way beyond the station. So yes, the guy on TV could prove correct. "Normal" might change. This week's high is conveniently just about the same as the median from 2007 to 2010. And hey, it's the end of a four-year-low stretch, and that's also conveniently the time frame I used to break out the regimes.

My only real point is that "normal" is a moving target and that it's easier to predict a lasting volatility lift in words than it is to predict it in profitable investing and trading strategy.

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


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'The Interview' is Dead. What About Sony Corp (ADR) (SNE) Shares?

Sony Corp (ADR) put buyers have picked up the pace in recent weeks

by 12/18/2014 2:29 PM
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So the news everyone is talking about is the decision by Sony Corp's (ADR) (NYSE:SNE) movie studio to pull the plug on "The Interview" -- the Seth Rogen flick about the assassination of North Korean dictator Kim Jong-un -- following anonymous threats. Of course, this comes just days after Sony Pictures Entertainment balked at the notion of canceling the film.

The movie has been an incredible source of controversy -- which the filmmakers likely understood during production, considering they reportedly consulted the U.S. State Department about the movie's final scene, featuring Kim's fiery death. Of course, it comes as little surprise in this digital age that the controversial scene has hit the Internet, despite the best efforts of hackers to suppress the movie in toto. Even less surprising -- government officials have confirmed that North Korea was "centrally involved" in the cyberattack.

Amid all of these developments, SNE shares have moved sharply. The market seemingly ignored the initial data breach, which surfaced during the final week of November. In fact, the stock continued to trend higher atop its 10-day moving average, eventually topping out at an annual high of $22.32 on Dec. 1, before entering a brief period of consolidation in the $22 area.

In the ensuing days, however, SNE began a sharp descent. The equity gapped lower on Dec. 8 -- as hackers took down the company's PlayStation Network -- and eventually pulled all the way back to its 50-day moving average earlier this week. The shares have since bounced, up 3.4% today -- and 7% from their intraweek low of $19.71 on Monday and Tuesday -- to trade at $21.08.

Daily Chart of SNE Since October 2014 With 10-Day and 50-Day Moving Averages

All the while, sentiment in the options pits has swung to a bearish extreme. SNE's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 5.51 is higher than all similar readings from the past year. To put that in perspective, the ratio prior to the cyberattack was a slim 0.12, with long calls outweighing long puts by a nearly 10-to-1 margin.

Going forward, however, this could be a boon for Sony Corp (ADR) (NYSE:SNE). If the shares continue to rebound, a capitulation among the recent bearish bettors could spell additional upside.


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Analyst Update: OvaScience Inc, Bristol-Myers Squibb Co, and Cepheid

Analysts adjusted their ratings on OVAS, BMY, and CPHD

by 12/18/2014 2:07 PM
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Analysts are weighing in today on fertility concern OvaScience Inc (NASDAQ:OVAS), pharmaceutical firm Bristol-Myers Squibb Co (NYSE:BMY), and molecular diagnostics company Cepheid (NASDAQ:CPHD). Here's a quick look at today's brokerage notes on OVAS, BMY, and CPHD.

  • OVAS gapped up to touch an all-time high of $49.94 this morning after news that it achieved its 2014 corporate goals by advancing three of its fertility treatments. The announcement prompted no fewer than six brokerage firms to raise their outlook on the equity, including H.C. Wainwright, which raised its price target to $100 from $40, while reaffirming a "buy" rating. There's room for additional bullish brokerage notes to send the shares even higher, as 50% of covering analysts maintain a tepid "hold" recommendation. Plus, OvaScience Inc has easily surpassed its consensus 12-month price target of $34.20, meaning potential price-target hikes could add fuel to the stock's fire. The stock has added 40% today to trade at $48.81, putting its year-to-date advance over 436%.

  • Credit Suisse weighed in on several pharmaceutical companies today, including BMY. The brokerage firm raised its price target on the stock by $1 to $66, while reiterating its "outperform" rating. Bristol-Myers Squibb Co has since added 1.8% to its current perch at $60.22. With eight of the 17 covering firms maintaining a "hold" or worse recommendation, the equity could see more bullish brokerage notes if it adds to its 13.3% year-to-date gain. Like OvaScience Inc, BMY is trading above its average 12-month price target, suggesting it could be poised for additional price-target increases. Elsewhere, the security's Schaeffer's put/call open interest ratio (SOIR) of 1.05 is only 2 percentage points from an annual extreme, meaning short-term speculators have rarely been as put-focused in the past year. The stock could be pushed higher by an unwinding among option bears.

  • BofA-Merrill Lynch raised its price target on CPHD to $60 from $56, while increasing its rating to "buy" from "neutral" based on higher growth potential and gains in market share. The stock has benefited from the positive note by adding 7.8% today to its current price of $53.70. Cepheid's success on the charts may not be finished, considering six out of the 17 analysts covering it rate it a "hold." What's more, nearly 11% of the security's float is sold short, and would take almost 18 sessions to buy back, at its average daily pace of trading. CPHD could see a boost from analyst upgrades and/or a short-squeeze situation.

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