Schaeffer's Trading Floor Blog

Buzz Stocks: Apple Inc., Goldman Sachs Group Inc, and Chesapeake Energy Corporation

Today's stocks to watch in the news include AAPL, GS, and CHK

by 10/16/2014 9:22 AM
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U.S. stocks are poised for another steep plunge this morning, as traders await economic data and speeches from the Fed. Among equities in focus, today's stocks to watch include tech titan Apple Inc. (NASDAQ:AAPL), big-cap financial firm Goldman Sachs Group Inc (NYSE:GS) and oil-and-gas issue Chesapeake Energy Corporation (NYSE:CHK).

  • AAPL is headed 2.1% lower, with Wall Street seemingly adopting a "been there, done that" attitude ahead of today's product launch. Specifically, Apple Inc. will unveil the details of its latest iPads later today, as well as its new Mac OS, though the firm stole its own thunder by posting premature pictures in its online user guide. On the charts, AAPL has struggled to make a notable breakout into triple-digit territory, and settled at $97.54 on Wednesday. Despite the stock's stagnation, though, analysts remain upbeat, with 27 out of 33 offering up "buy" or better ratings. Should Apple's event -- or its fiscal fourth-quarter earnings, due out after the close on Monday -- fail to impress, a round of downgrades could exacerbate recent selling pressure on the shares.

  • GS is poised to open 3.6% lower, despite reporting stronger-than-expected quarterly earnings and hiking its dividend. The equity landed at $177.24 on Wednesday, just south of its year-to-date breakeven mark and support at its 60-day moving average. Should the pre-market trajectory continue throughout today, Goldman Sachs Group Inc option traders will likely be feeling the heat. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.72 stands higher than just 8% of all other readings from the past year, suggesting short-term speculators have rarely been more call-biased.

  • Finally, CHK is on pace to buck the broad-market trend lower, with the shares headed for an 11% jump out of the gate. Chesapeake Energy Corporation this morning announced that it will sell $5.4 billion in assets to Southwestern Energy Company (NYSE:SWN), which "marks a major step in Chesapeake's transformation and a dramatic improvement in our financial strength," said CEO Doug Lawler. On Wednesday, CHK touched a new annual low of $16.69 before settling at $17.77, and has shed 22.7% so far this month. In fact, the stock's 14-day Relative Strength Index (RSI) sits deep in oversold territory, at 8, and it's no surprise to find most of the Street bearish. Short interest represents nearly seven sessions' worth of pent-up buying demand, at CHK's average pace of trading, and just four out of 19 analysts dole out "strong buy" opinions.

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Analyst Downgrades: AbbVie Inc, Lululemon Athletica inc., and Netflix, Inc.

Analysts downwardly revised their ratings on ABBV, LULU, and NFLX

by 10/16/2014 9:19 AM
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Analysts are weighing in today on drugmaker AbbVie Inc (NYSE:ABBV), yoga apparel designer Lululemon Athletica inc. (NASDAQ:LULU), and streaming content provider Netflix, Inc. (NASDAQ:NFLX). Here's a quick roundup of today's bearish brokerage notes on ABBV, LULU, and NFLX.

  • Just a day after wavering on its Shire PLC (ADR) (NASDAQ:SHPG) takeover bid, ABBV saw its price target slashed to $59 from $71 at BMO, which nevertheless reaffirmed its "outperform" rating. On the charts, it's been a forgettable year for the stock -- up just 3.4% to trade at $54.63. If this ho-hum price action continues, AbbVie Inc could be vulnerable to additional bearish brokerage notes. After all, five out of seven covering analysts still dole out "strong buy" ratings on the shares, and ABBV's consensus 12-month price target of $67.67 stands in territory never before charted. On the fundamental front, the company is slated to enter the earnings confessional sometime between Thursday, Oct. 23, and Monday, Oct. 27.

  • LULU has had a terrible year, shedding nearly one-third of its value to rest at $39.60. Macquarie responded to this technical trend by assuming coverage on the stock with an "underperform" rating and $34 price target. The firm isn't the only one that's bearish on Lululemon Athletica inc. Roughly 21% of the stock's float is sold short, which would take more than two weeks to buy back, at LULU's typical daily trading levels.

  • Finally, NFLX is poised to drop 26% out of the gate, after getting hit with a flurry of bearish brokerage notes on news of impending competition from HBO and disappointing new subscriber data. Specifically, the shares were slammed with nearly 20 price-target reductions -- and CRT Capital even cut its assessment to "fair value" from "buy." On the flip side, Jefferies raised its rating on Netflix, Inc. to "hold" from "underperform." Getting back to the technicals, this is a huge setback for the equity, which -- as of yesterday's close at $448.59 -- had advanced 21.8% year-to-date. Elsewhere, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been tilted in a bullish direction of late, per NFLX's 10-day call/put volume ratio of 1.10, which ranks in the 84th percentile of its 12-month range.

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Analyst Upgrades: Baidu Inc (ADR), Bristol-Myers Squibb Co, and Tiffany & Co.

Analysts upwardly revised their ratings on BIDU, BMY, and TIF

by 10/16/2014 8:48 AM
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Analysts are weighing in today on Chinese Internet company Baidu Inc (ADR) (NASDAQ:BIDU), pharmaceutical firm Bristol-Myers Squibb Co (NYSE:BMY), and high-end jeweler Tiffany & Co. (NYSE:TIF). Here's a quick roundup of today's bullish brokerage notes on BIDU, BMY, and TIF.

  • BIDU, which is slated to enter the earnings confessional after the close on Wednesday, Oct. 29, saw its rating raised to "outperform" from "perform" at Oppenheimer. The upgrade is well-deserved, as the shares have advanced nearly 16% year-to-date to trade at $205.73. The bullish brokerage note is by no means rare, either. Eleven of the 13 analysts following Baidu Inc (ADR) have given it a "strong buy" endorsement, compared to two "holds" and not a single "sell" recommendation.

  • Despite a nearly 8% year-to-date deficit to rest at $48.96, BMY was upgraded to "outperform" at BMO. Traders in the stock's options pits are similarly optimistic. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Bristol-Myers Squib Co has racked up a call/put volume ratio of 4.50, with more than four calls bought to open for every put. What's more, this number ranks in the 77th percentile of its annual range, suggesting speculators have picked up BMY calls over puts at an accelerated clip, relatively speaking. Looking ahead, the company will report third-quarter earnings next Friday morning.

  • Finally, Macquarie boosted its assessment on TIF to "outperform" from "neutral." This, despite the equity's year-to-date loss of 5.4% to close yesterday at $87.77, and recent sell-off after notching a record high in late August. Elsewhere on the Street, sentiment isn't nearly as rosy. Tiffany & Co.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 3.09 ranks just 4 percentage points from a 12-month peak, suggesting the stock's puts are being bought to open at a faster-than-usual pace.

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By the Numbers: The SPY and Its 200-Day Moving Average

Examining the SPDR S& 500 ETF Trust (SPY) and the aftermath of breaching its 200-day moving average

by 10/16/2014 8:11 AM
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So, as you probably have heard, all the major indices have crossed below their 200-day simple moving averages (SMA) recently. Now, there's no more basic measure of a long-term trend than the 200-day moving average. But does it really work as an investing guide?

Well, the SPDR S&P 500 ETF Trust (SPY) was pretty much the last holdout. It closed below the 200-day last Friday for the first time since Nov. 19, 2012. If you bought that day and then sold on Friday, you earned 36.9% on your money -- pretty nice.

So I thought, hey, let's start with $100,000 and create and compare two very simple trading systems. We'll call one "SPY Over." It goes 100% long when SPY closes above the 200-day SMA, and goes to cash when it closes below. We'll call the other "SPY Under," and it does the opposite. Starting with an SPY Under on March 25, 1994, there were 73 signals each way. Here are the results:

SPY Over vs SPY Under

I don't factor in dividends or anything earned on cash. SPY Over keeps you long about two-thirds of the time.

And yes, those numbers are odd-looking. If you go long when SPY closes below the 200-day and wait until it goes back above, you are overwhelmingly likely to make a winning trade -- 67 wins in 73 tries, and a median return of 1.12%.

Sounds great on the surface, right? Well, it's a generally bad idea, as you can see on the bottom line.

The wins tend to be small, and they get you out in front of the longer-term rallies. And, three of the losses were huge. You took an 18.11% hit starting on Sept. 29, 2000, a 21.93% hit starting on April 2, 2002, and a 33.21% loss starting May 20, 2008. That almost entirely wiped out 70 other instances that included 67 gains and three modest losses. And, of course, simply owning only in SPY Over times got you almost the entirety of the market gains over the past 20-plus years, while only staying long two-thirds of the time.

SPY Over has the exact opposite experience of SPY Under. Only 16 winners in 73 tries, but some of those wins were fantastic. As noted above, we're off a nearly two-year run that returned 34.7%. Others include a 11.33% win starting on Sept.13, 2010, a 19.36% win starting July 13, 2009, a 13.13% lift starting Aug. 15, 2006, a 23.62% pop starting April 17, 2003, and a 16.87% rise starting Oct. 29, 1998. And then there's the mother of all trend moves. If you went long on July 30, 1996, you took in 63% before selling on Aug. 27, 1998.

If you want a good sign for our present plight, the aftermath in 1998 wasn't so bad. Within two days of dropping below the 200-day, the SPY had lost another 7%, closing at 96. But, that turned into a very long-term low. It spent the next two months almost entirely below the 200-day, in an SPY range from the high 90s to low 100s, then broke out again in October 1998, as I mentioned above.

I'm not big on sample sizes of one, but it's an interesting parallel to now.

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


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Stocks On the Move: T-Mobile US Inc, Microchip Technology Inc., and Peregrine Pharmaceuticals

TMUS, MCHP, and PPHM are moving sharply in Wednesday's trading

by 10/15/2014 12:31 PM
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U.S. stocks are decidedly lower this afternoon, as traders digest a raft of dismal economic data and mounting concerns about Ebola. Among the names making significant moves are telecom concern T-Mobile US Inc (NYSE:TMUS), semiconductor issue Microchip Technology Inc. (NASDAQ:MCHP), and drugmaker Peregrine Pharmaceuticals (NASDAQ:PPHM). Here's a quick look at how TMUS, MCHP, and PPHM are faring on the charts today.

  • TMUS is down 4.7% at $25.16, and earlier tagged a new annual low of $24.50, a day after France's Iliad scrapped its bid for the U.S. carrier. TMUS has underperformed the broader S&P 500 Index (SPX) by nearly 12 percentage points during the past three months, and its 14-day Relative Strength Index (RSI) now sits at 28 -- in oversold territory. Against this backdrop, short-term options players have rarely been more put-biased during the past year, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98 sits just 2 percentage points from a 12-month peak. On the flip side, analysts remain optimistic toward T-Mobile US Inc, as 12 out of 15 brokerage firms have doled out "buy" or better endorsements.

  • MCHP also touched a new low, dropping to $37.44 after rival QUALCOMM, Inc. (NASDAQ:QCOM) dashed its dream of buying CSR Plc. Microchip Technology Inc. shares have surrendered nearly 20% so far this month, after last week gapping lower on an industry warning, and were last seen 1.7% lower at $37.57. The security has underperformed the SPX by more than 17 percentage points during the past 60 sessions, translating into a 14-day RSI of 18 for MCHP. However, not everyone on Wall Street is ruing the stock's fall from grace. Short interest accounts for 11.8% of the shares' total available float, representing nearly 17 sessions' worth of pent-up buying demand, at MCHP's average pace of trading.

  • PPHM -- along with other Ebola-related stocks -- is bucking the trend lower, up 14.3% at $1.60. The company -- which will host its annual shareholder meeting tomorrow -- this morning said it will test its experimental Ebola antibody, and traders are waxing optimistic in light of another confirmed case in Dallas. On a year-to-date basis, Peregrine Pharmaceuticals shares have added more than 15%, yet option buyers have been bracing for the worst. 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 0.31 stands higher than 99% of all other readings from the past year. In other words, options traders have bought to open PPHM puts over calls at a near-annual-high clip during the past two weeks.

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