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Around midday, three of the top market movers are drugmakers Amicus Therapeutics, Inc. (NASDAQ:FOLD) and Inovio Pharmaceuticals Inc (NASDAQ:INO), as well as China-based app store Sky-mobi Ltd (ADR) (NASDAQ:MOBI). Here's a quick roundup of how FOLD, INO, and MOBI are performing on the charts so far.
- FOLD has rallied 16% to trade at $6.60, following promising Phase 3 trial results for its Fabry disease treatment. Year-to-date, the shares have now tacked on more than 180%. In the options pits, however, short-term traders have been more put-focused than usual toward Amicus Therapeutics, Inc. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.06 ranks in the 89th percentile of its annual range.
- INO is down 8.2% to hover near $10.10, after ending its collaboration with Roche on a prostate cancer drug. The move lower has the equity now staring at a 2014 loss of roughly 13%, and at risk of closing below its 50-day moving average for the first time since Oct. 10. Should these technical struggles continue, Inovio Pharmaceuticals Inc could face a round of potential downgrades and/or price-target reductions. After all, each of the analysts covering the shares rate them a "strong buy," and INO's consensus 12-month price target of $21 is more than double the current stock price.
- MOBI is also deep in the red today, shedding 15.3% of its value to perch at $5.92. Pressuring the shares are a poorly received third-quarter earnings report, as well as the surprise resignation of the company's chief financial officer. Nevertheless, Sky-mobi Ltd (ADR) maintains a year-to-date advance of more than 58%. Not surprisingly, short-term speculators have been focused on calls relative to puts recently. MOBI's SOIR of 0.17 indicates call open interest is more than five times put open interest, among options expiring in the next three months. Plus, this reading is lower than 88% of comparable metrics from the past year.
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Analysts are weighing in today on retailer J C Penney Company Inc (NYSE:JCP), broadcasting giant CBS Corporation (NYSE:CBS), and semiconductor concern Marvell Technology Group Ltd. (NASDAQ:MRVL). Here's a quick roundup of today's bearish brokerage notes on JCP, CBS, and MRVL.
- JCP surrendered 5.6% last week to finish at $7.38, after the company's third-quarter earnings report was met with a bearish brokerage note at Morgan Stanley. The stock is adding to these losses today, after Goldman Sachs cut its price target to $5.50 from $6.00. This skepticism toward a stock that's shed 19.3% year-to-date is shared elsewhere on the Street. In the options pits, for example, JCP's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.00 ranks in the bearishly skewed 80th annual percentile. Additionally, 34.2% of J C Penney Company Inc's float is sold short, and would take nearly eight sessions to cover, at average daily trading levels.
- Evercore ISI followed in the footsteps of Bernstein, and reduced its price target on CBS to $63 from $65 -- citing lower revenue from political ads, and a drop-off in "profitable entertainment programming." However, this new target price still represents expected upside of roughly 18% to Friday's closing price of $53.41. Year-to-date, CBS Corporation is down 16.2%, yet option traders have kept the faith. At the ISE, CBOE, and PHLX, the equity's 10-day call/put volume ratio of 6.03 ranks higher than 72% of similar readings taken in the past year. Echoing this call-skewed trend is CBS' Schaeffer's put/call open interest ratio (SOIR) of 0.30, which ranks just 4 percentage points from a 52-week low. In other words, short-term speculators have rarely been as call-biased toward CBS as they are now. An unwinding of these bullish bets in the face of CBS' technical struggles could translate into a fresh wave of selling pressure.
- J.P. Morgan Securities trimmed its price target on MRVL to $19 from $20 (but maintained an "overweight" opinion). Technically speaking, Marvell Technology Group Ltd. has shed 8.6% in 2014, with recent rebound attempts rejected at its 20-week moving average. Additional price-target cuts could be in store, too, if MRLV extends its retreat or reports disappointing earnings after the close on Thursday. The average 12-month price target on the equity sits at $16.24, representing expected upside of 23.6% to the stock's current perch at $13.14. Likewise, nine out of 20 analysts maintain "buy" or better opinions, leaving the door wide open for potential downgrades to exacerbate selling pressure on the shares.
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U.S. stocks are pointed lower this morning, due to a surprise drop in Japan's gross domestic product (GDP). Among the equities in focus are drugmaker Allergan, Inc. (NYSE:AGN), entertainment issue DreamWorks Animation SKG, Inc. (NASDAQ:DWA), and oil-and-gas concern Baker Hughes Incorporated (NYSE:BHI), which are headlining Merger Monday.
- AGN is headed 5% higher, on reports that the firm is on the cusp of being acquired by Actavis plc (NYSE:ACT) for about $62.5 billion, or $210 per share -- trumping Valeant Pharmaceuticals Intl Inc's (NYSE:VRX) bid of $200 per share. AGN ended last week at $198.65, and has spent most of November dawdling just below the VRX bid price. In light of today's expected uptick, Allergan, Inc. will be sitting in record-high territory, much to the delight of recent option buyers. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 3.62 stands higher than 91% of all other readings from the past year, pointing to a healthier-than-usual appetite for long calls over puts during the past two weeks.
- DWA is poised to drop 14% out of the gate, amid reports that toymaker Hasbro, Inc. (NASDAQ:HAS) has backed out of talks to buy the studio. Sources say HAS turned tail after failed price negotiations and a negative shareholder reaction to the news -- which hit the Street last Thursday, and translated into a two-day drop of 6% for HAS. The shares of DreamWorks Animation SKG, Inc., meanwhile, soared 16.3% in the same span, settling at $26.02 on Friday. This morning's anticipated drop could catch some DWA options traders off-guard. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.46 stands just 8 percentage points from a 12-month low, suggesting short-term speculators are more call-biased than usual. Relatively speaking, buyers are paying up for their near-term contracts, too, as the security's Schaeffer's Volatility Index (SVI) of 60% ranks in the 74th percentile of its annual range.
- Finally, BHI is on pace for an 11% jump, after the firm said it reached a definitive agreement to be bought by Halliburton Company (NYSE:HAL) for close to $35 billion, or $78.62 per share -- a premium of 31.3% to BHI's closing price of $59.89 on Friday. The deal -- which has been approved unanimously by both companies' boards -- confirms chatter from late last week, before which Baker Hughes Incorporated was lingering just north of $50. Short-term options traders are likely cheering the news, as the equity's SOIR of 0.61 sits higher than just 19% of all other readings from the past year.
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Analysts are weighing in today on mobile phone maker BlackBerry Ltd (NASDAQ:BBRY), oil-and-gas issue Chesapeake Energy Corporation (NYSE:CHK), and cloud concern Salesforce.com, inc. (NYSE:CRM). Here's a quick roundup of today's bullish brokerage notes on BBRY, CHK, and CRM.
- BBRY rallied 6.4% last week to settle at $11.20, following a round of well-received fundamental developments. The equity is poised to extend these gains today in the wake of a price-target hike to $13 from $12 at TD Securities (although the brokerage firm maintained its tepid "hold" rating) and the welcoming of the newest member to its executive ranks. Should the stock maintain this upward momentum, another round of upwardly revised brokerage notes may be on the horizon, which could translate into a fresh wave of buying power. At present, all 20 analysts covering BlackBerry Ltd maintain a "hold" or worse suggestion, while the consensus 12-month price target of $10.79 stands at a discount to current trading levels.
- Bernstein raised its outlook on CHK to "outperform" from "market perform," and boosted its price target by $6 to $32, representing expected upside of nearly 38% to Friday's closing price of $23.21. This upbeat outlook is a bit surprising, given the stock's 9.5% year-to-date deficit -- and runs counter to CHK's withstanding sentiment backdrop. In fact, two-thirds of covering analysts have levied a "hold" or "strong sell" recommendation toward the stock. Elsewhere, CHK's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.05 ranks higher than all other readings taken in the past year. Simply stated, puts have been bought to open over calls on Chesapeake Energy Corporation at an annual-high clip in recent weeks.
- Ahead of CRM's turn in the earnings confessional this Wednesday evening, D.A. Davidson upped its price target on the shares to $65 from $60, and underscored its "neutral" rating. While the stock has jumped more than 25% from its mid-October low of $51.04 to its present perch at $63.91, CRM's historical post-earnings price action isn't so rosy. Over the past four quarters, specifically, the shares have averaged a loss of 2.2% in the session subsequent to reporting. Accordingly, option traders have taken the bearish route in recent weeks, as evidenced by Salesforce.com, inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 0.89, which ranks in the 78th annual percentile. It's a sentiment shared outside of the options pits, as well, with short interest accounting for a healthy 6.5% of the stock's available float. Additionally, it would take more than eight sessions to cover these bearish bets, at CRM's average daily pace of trading.
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I've written somewhat sarcastically a few times about the degree to which Ebola "caused" the market ugliness in October. I didn't mean to minimize Ebola -- it's horrible. I just meant to highlight what I thought was a pretty unlikely causality.
I understand there's a societal mood aspect to market action. And, putting "we're all going to get Ebola" on the cable news networks 24/7 could certainly impact that mood. But anyone who took the 10 seconds to read anything scientific beyond the hyperventilation would have seen that the likelihood of an epidemic here, or anywhere in the industrialized world, was very remote. So, it seemed illogical that the market would react much to cable news. Perhaps I was wrong, though. This, from Business Insider:
Bloomberg chief economist Michael McDonough tweeted this chart overlaying the frequency of ebola-related newswire stories with the VIX, or the CBOE Volatility Index. The VIX, a rough measure of traders' fears spiked as the markets sold off and then receded when the markets came back.
As you can see, there's a pretty decent correlation between the number of Ebola virus stories and the magnitude of the VIX.
I stand corrected. There are always lots of moving parts in a market. This doesn't "prove" Ebola led to the CBOE Volatility Index (VIX) pop and market drop. But visually, that's a pretty strong relationship. In hindsight, this is really market dynamics 101 more than anything else. The market was clearly ready for a shakeout; all it needed was a catalyst. And then along came Ebola, and away we went. And then, as the Ebola fears receded, so did market fears as evidenced by the VIX.
But to me, it's still a mistake to assume there's a causality there. If Ebola had stayed at the top of the news a little longer, it's likely the market would have started to ignore it and rally anyway. That's because we never got around to the whole "discounting" step. That is to say, news stays bad, but the market has "fully priced it in" and we start rallying anyway. We never really got there. The Ebola news did indeed get better, but even it if had gotten somewhat worse first, the market would have started looking past it.
Anyway, that chart of the correlation really is pretty interesting. I just don't think there's that much to learn from it going forward. If Ebola strikes here again (and, look, it's likely, since it's not eradicated), I doubt it corresponds to any sort of market move. VIX will pop and the market will shake out again -- it always does. It will just have a different driver.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.