Schaeffer's Trading Floor Blog

Analyst Downgrades: Tesla Motors, Inc., Chevron Corporation, and iDreamSky Technology Limited

Analysts downwardly revised their ratings on Tesla Motors Inc (TSLA), Chevron Corporation (CVX), and iDreamSky Technology Ltd (ADR) (DSKY)

by 3/25/2015 9:13 AM
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Analysts are weighing in on electric car concern Tesla Motors Inc (NASDAQ:TSLA), blue chip Chevron Corporation (NYSE:CVX), and China-based mobile gaming platform iDreamSky Technology Ltd (ADR) (NASDAQ:DSKY). Here's a quick roundup of today's bearish brokerage notes on TSLA, CVX, and DSKY.

  • TSLA is pointed 1.5% lower ahead of the bell, after CLSA downgraded the equity to "underperform" from "outperform," and cut its price target to $220 from $275. On the charts, Tesla Motors Inc has been sliding, down 30.8% from its Sept. 4 all-time high of $291.42, to close yesterday at $201.72. Accordingly, puts have been prominent in the options pits, as TSLA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.13 ranks higher than 88% of all equivalent readings taken over the past year.

  • SocGen cut its price target on CVX by $4 to $115, however, the shares are 0.4% higher in electronic trading. The negative note comes as no surprise, considering the shares of Chevron Corporation have shed 22.9% since notching an all-time high of $135.10 on July 24, to close yesterday at $104.20. Sentiment in the options pits has been bearish, as CVX's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.41 stands in the 96th percentile of its annual range. Elsewhere, the brokerage bunch is divided on the security, with half of covering analysts rating the stock a "buy" or better, and the remaining half doling out "hold" or worse recommendations.

  • Despite Monday's well-received fourth-quarter earnings report, J.P Morgan Securities downgraded DSKY to "neutral" from "overweight," and sliced its price target to $9 from $24. iDreamSky Technology Ltd -- which closed at $7.55 yesterday -- is looking at 3.9% drop out of the gate today, which will add to a 55.8% year-to-date deficit. In fact, if selling pressure heats up, DSKY could approach record-low territory, after just hitting an all-time low on March 17. Short sellers have taken notice of this negative price action, as roughly 10.6% of DSKY's available float is sold short, which would take nearly eight sessions to cover, at average trading volumes.

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Analyst Upgrades: Groupon, Inc., Sonic Corp., and NVIDIA Corporation

Analysts upwardly revised their ratings on Groupon Inc (GRPN), Sonic Corporation (SONC), and NVIDIA Corporation (NVDA)

by 3/25/2015 9:12 AM
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Analysts are weighing in on coupon concern Groupon Inc (NASDAQ:GRPN), drive-in restaurant operator Sonic Corporation (NASDAQ:SONC), and chipmaker NVIDIA Corporation (NASDAQ:NVDA). Here's a quick roundup of today's bullish brokerage notes on GRPN, SONC, and NVDA.

  • GRPN has been enjoying a lift higher from its 100-day moving average since an earnings-induced bull gap sent the shares barreling north of this rising trendline in late October. After closing last night at $7.56, the equity is poised to take a sharp bounce from here today, as Wunderlich Securities upped its outlook to "buy" from "hold," and raised its price target to $10 from $6 -- territory not charted since February 2014. More upgrades could be on the horizon, too, should the stock extend today's positive price action. Of the 20 analysts covering Groupon Inc, 12 maintain a lukewarm "hold" recommendation, compared to eight "strong buys."

  • SONC received no fewer than four price-target hikes, after the company unveiled better-than-expected fiscal second-quarter earnings. Included in the bunch was Sterne Agee, which raised its price target to $41 from $37, and Jefferies, which boosted its target price to $36 from $29. Elsewhere on the sentiment front, short-term speculators have shown a preference for calls over puts toward a stock that's rallied nearly 35% year-to-date, and hit a record high of $36.73 yesterday before settling at $36.66. Specifically, Sonic Corporation's Schaeffer's put/call open interest ratio (SOIR) of 0.34 ranks lower than 88% of similar readings taken in the past 12 months.

  • Susquehanna upped its price target on NVDA to $19 from $18, although this still represents a discount to Tuesday's close at $22.40. Technically speaking, the stock has been a standout over the past 52 weeks, boasting a 21.4% lead -- and tagging a four-year peak of $23.60 last Friday. In spite of this, there's still plenty of skepticism to be found. Roughly 57% of covering analysts maintain a "hold" or worse rating on the shares, while the average 12-month price target of $23.20 sits just 3.6% above NVDA's current price. Elsewhere, a healthy 9.3% of the security's float is sold short, representing more than two weeks' worth of pent-up buying demand, at average daily trading levels. Should NVIDIA Corporation continue to linger in multi-year-high territory, another round of bullish brokerage notes and/or a capitulation among short sellers could help fuel the equity's fire.

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A $61M Trade on One of the Worst Products Ever Created

A massive put buy on ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) may have influenced iPath S&P 500 VIX Short-Term Futures ETN (VXX)

by 3/25/2015 8:50 AM
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Maybe there was more to Friday's iPath S&P 500 VIX Short-Term Futures ETN (VXX) blip than meets the eye:

The CBOE Volatility Index (VIX) sonar video seems to have disappeared into the ether. But here's the deal -- about the same time as the VXX fireworks, a player bought 120,000 January 2017 9-strike puts in ProShares Trust Ultra VIX Short Term Futures ETF (UVXY) for $5.10.

UVXY is more or less identical to VelocityShares Daily 2x VIX Short Term ETN (TVIX). It tracks two times the VXX, but it's an exchange-traded fund (ETF), whereas TVIX is an exchange-traded note (ETN). Other than that fun time when TVIX stopped creating new shares for a couple weeks and sat above net asset value -- then started creating shares again, and promptly imploded -- they move in unison. And by unison, I mean "drift to zero."

These pups are basically the worst products ever created. VXX drifts lower over time, as we all know. Trackers also tend to drift lower on their own, thanks to compounding. A tracker can actually outperform over a specific time frame if the "trackee" makes a trend move. But since VXX always trends down over the long haul, all that means is that TVIX and UVXY trend down even faster. Throw in the two times leverage, and you have a perfectly horrendous hold. They may explode up in blips, as VXX does occasionally pop. But over time, they will go towards zero.

UVXY is near $15 as I type. So in a vacuum, paying $5.10 for these puts seems nuts. That's a $61.2 million dollar investment. For it to pan out, UVXY will have to go below $3.90 in 22 months. That's more or less three-fourths of its current "value" … but I hereby predict the buyer makes a profit.

Back in the here and now, I'm not sure I get the cause and effect between this trade and the VXX action on Friday. Someone (probably multiple someones) filled the UVXY put buy. So they're now long UVXY, which you can convert to a de facto long in VXX. So the "effect," on the margins, should be to knock VXX down. But it was the opposite -- VXX blipped up.

Clearly there was a connection, as it all took place at the same time. Maybe the same party entered the order simultaneously? If so, nice trade by the "locals," though I'm not sure at the end of the day that a VXX short really hedges a LEAPS put sale in UVXY all that well.

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


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Analyst Update: Century Aluminum Company, Freeport-McMoRan Inc., and Zagg Inc.

Analysts adjusted their ratings on Century Aluminum Co (CENX), Freeport-McMoRan Inc (FCX), and Zagg Inc (ZAGG)

by 3/24/2015 11:40 AM
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Analysts are weighing in today on commodity concerns Century Aluminum Co (NASDAQ:CENX) and Freeport-McMoRan Inc (NYSE:FCX), as well as mobile accessories designer Zagg Inc (NASDAQ:ZAGG). Here's a quick look at today's brokerage notes on CENX, FCX, and ZAGG.

  • Morgan Stanley downgraded CENX to "underweight" from "equal weight" and cut its price target by $6 to $12, with the brokerage firm citing "weak demand ... improving supply, [and] a strong dollar" as a few of the headwinds facing the industrial metals group. At last check, the shares of Century Aluminum Co were down 6.2% to hit $13.41, contributing to a 45% year-to-date loss. Accordingly, sentiment in the options pits has been bearish, as CENX's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 6.40 ranks in the 89th percentile of its annual range. Echoing this indicator is the security's Schaeffer's put/call open interest ratio (SOIR) of 1.31, which is the highest such reading taken over the past year. Simply stated, traders have never been this put-skewed over the past 12 months.

  • FCX also saw a price-target cut from Morgan Stanley, with the brokerage firm lowering its target by $5 to $20 while keeping its "equal weight" rating. What's more, Freeport-McMoRan Inc announced today it is decreasing its quarterly dividend by 84%, with the firm saying, "The reduction in the dividend is a prudent measure to strengthen our balance sheet during a period of volatile market conditions." Despite yesterday's rally, FCX has been a technical underperformer, with the shares down 18.2% year-to-date to reach $19.10, including a 1.3% dip today. Options traders are betting on more downside to come, as FCX's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.05 ranks higher than 97% of all equivalent readings taken over the past year.

  • Craig-Hallum downgraded ZAGG to "hold" from "buy," sending the shares down 7.7% to hit $8.70. Zagg Inc has advanced roughly 87.5% year-over-year -- and in a note to clients, Craig-Hallum attributed the move to valuation concerns. Although the stock has been a technical juggernaut, puts have been prominent in the options pits, as ZAGG's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.43 sits in the 84th percentile of its annual range. Meanwhile, the analyst community is divided on the equity, with 40% of covering analysts doling out lukewarm "hold" ratings.

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Digital Ally, Inc. (DGLY) Spikes on Earnings Win

Roughly 27% of Digital Ally, Inc.'s (DGLY) float is sold short

by 3/24/2015 11:07 AM
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Digital Ally, Inc. (NASDAQ:DGLY) is soaring today, up 26% at $15.83. Also, the stock is back in the black on a year-to-date basis, and on pace for its first close north of $15 since Jan. 5. Taking another step back, shares of the surveillance products maker have nearly doubled in value on an annual basis.

Accounting for today's surge is a strong earnings report that hit the Street last night. Not only did the company swing to a fourth-quarter profit of 5 cents per share (from the prior year's loss of 50 cents), but it also reported a 55% rise in revenue. In fact, a statement from DGLY described the quarter as the "strongest three-month period in the past twelve quarters."

One potential explanation for Digital Ally, Inc's (NASDAQ:DGLY) sharp move on the charts is short-covering activity. Specifically, a lofty 27% of the stock's float is sold short -- though, at DGLY's average trading levels, it would take a little more than one session to buy back all these bearish bets.

Daily Chart of DGLY since January 2015


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