Schaeffer's Trading Floor Blog

Buzz Stocks: Tesla Motors Inc (TSLA), Adobe Systems Incorporated, and Baidu Inc (ADR)

Today's stocks to watch in the news are TSLA, ADBE, and BIDU

by 12/12/2014 9:02 AM
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Futures are lower this morning, as crude gets dealt another blow. Meanwhile, among specific stocks to watch are electric car maker Tesla Motors Inc (NASDAQ:TSLA), software specialist Adobe Systems Incorporated (NASDAQ:ADBE), and Beijing-based Internet issue Baidu Inc (ADR) (NASDAQ:BIDU).

  • TSLA's president of its China operations, Veronica Wu, has resigned. Wu has been on the job for less than nine months, and will be replaced by Tom Zhu, who currently leads the charging network development division in China. Although TSLA is sporting a nearly 39% year-to-date gain, the stock has struggled in recent weeks. In fact, since hitting its most recent high of $259.99 on Nov. 18, shares of Tesla Motors Inc have shed 19.7%, and closed last night at $208.88. This is likely music to the ears of options traders, who have been initiating long puts over calls at a rapid-fire rate. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, TSLA's 10-day put/call volume ratio of 1.09 ranks just 2 percentage points from an annual bearish peak.

  • ADBE is ready to rally 5% out of the gate, after the company announced better-than-expected fiscal fourth-quarter earnings, as well as the $800 million all-cash acquisition of Fotolia -- a "microstock" firm that specializes in photo licensing. Wall Street has taken kindly to the news, with ADBE receiving no fewer than five price-target hikes. The most generous outlook came from Jefferies, which boosted its target by $7 to $90 -- and underscored its "buy" rating -- representing expected upside of 29% to yesterday's close at $69.74, as well as a trek into uncharted territory. Heading into today's session, shares of Adobe Systems Incorporated were already up an impressive 16.5% year-to-date, yet traders have shown a preference for puts over calls among options slated to expire in three months or less. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98 ranks in the 68th annual percentile, meaning short-term speculators are more put-heavy than usual toward ADBE.

  • BIDU is buying a minority stake in car-booking service Uber Technologies Inc. According to reports, the roughly $600 million investment will provide Uber with cash, as well as exposure to BIDU's online resources in China. On the charts, BIDU has had a standout year, advancing nearly 29% to its current perch at $229.23. More recently, Baidu Inc (ADR) has been consolidating near its 50-day moving average, after hitting a record peak of $251.99 in mid-November. As such, sentiment is tilted toward the bullish side. In the options pits, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.13 ranks higher than 84% of similar readings taken in the past year. Elsewhere, all 13 analysts covering the shares maintain a "strong buy" rating, and the consensus 12-month price target of $271.55 stands at an 18.5% premium to Thursday's closing price.

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How to Trade a Surging VIX, By the Numbers

There's more than one way to capitalize on a CBOE Volatility Index (VIX) pop

by 12/12/2014 8:55 AM
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In honor of our latest CBOE Volatility Index (VIX) pop, I decided to renovate my overbought VIX table a bit. From now on, I'm going to "Just Say No" to overlaps. If VIX goes overbought 29 days after the last time it went overbought, that data point will not make the cut into the one-month returns column.

This tweak didn't actually impact the one-month returns much, though it did knock down the three-month returns -- more on that in a few.

Previously, I only tracked the one-month and three-month returns of a strategy that goes long SPDR S&P 500 ETF Trust (SPY) anytime VIX closes greater than 20% above its 10-day simple moving average (SMA). Now, I will track a third strategy. What if you buy SPY when VIX closes greater than 20% above the 10-day SMA, and hold until VIX closes back below? I include that in the "VIX Close <10 Day" column. And, finally, I include the duration (in trading days) of that "new" strategy.

I will still go back to March 2009 so as to compare VIX Regime Apples to VIX Regime Apples. Spoiler alert -- no strategy that involved buying anything and holding for any measurable time period worked well in 2008. So, without further ado, here we go.

SPY Returns After Overbought VIX Signal since 2009

We now have 19 distinct overbought VIX instances since March 2009. Buying SPY on the first overbought VIX close has worked eight straight times, although the instance on July 17, 2014, only produced a 0.01% win. Overall, the trade won 10 times in 15 tries, for an average win of 2.22% and a median win of 4.83%. That compares very favorably with a randomly timed one-month hold, which has had an average return of 1.31% and a median return of 1.83%.

Going out three months minus the overlaps, we find some serious sample size issues. We now have only 10 occurrences, with five of them produced winning trades -- but just randomly buying and holding for three months worked better. Again, there's not enough data, but it's likely this isn't a useful signal out three months.

And, finally, buying SPY and holding until VIX closes back below the 10-day SMA has produced average returns of 0.13% and median returns of 0.57%. It has won 11 out of 18 times. This trade has taken an average of 5.5 days to hold.

I wouldn't get carried away with these returns so much as the bigger-picture concept. It suggests that the market typically has stabilized within a week of VIX going overbought. There are also very few clustered incidents.

Also, if you prefer buying into strength off the low, as opposed to fading the initial VIX pop, the numbers suggest you are barely the worse for wear. If you wait until VIX has dropped below the 10-day SMA, and then hold for three to four weeks, you will come close to replicating the results of buying when VIX goes overbought and holding for a month.

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

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Analyst Update: Altera Corporation, Eli Lilly and Co, and Vertex Pharmaceuticals Incorporated

Analysts adjusted their ratings on ALTR, LLY, and VRTX

by 12/11/2014 1:37 PM
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Analysts are weighing in today on semiconductor firm Altera Corporation (NASDAQ:ALTR), as well as drug developers Eli Lilly and Co (NYSE:LLY) and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Here's a quick look at today's brokerage notes on ALTR, LLY, and VRTX.

  • ALTR is nearly 3% higher at $38.20, following a round of price-target hikes from no fewer than five brokerage firms. The most ambitious among them is courtesy of Raymond James, which lifted its target by $5 to $45, and reiterated a "strong buy" opinion. Earlier, in fact, shares of Altera Corporation hit an annual high of $38.34, and longer term, they're up 17.5% year-to-date. Options traders remain unconvinced, however. ALTR's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a brow-raising 29.91, as nearly 30 puts have been bought to open for every call over the last two weeks. What's more, this number ranks just 1 percentage point shy of a 12-month high. However, a portion of these bearish positions may have been initiated by shareholders protecting against a pullback.

  • LLY has tacked on 3.1% to trade at $73.25, and earlier hit a fresh decade peak of $75.10, after Morgan Stanley upgraded the stock to "overweight" from "underweight," and boosted its price target to $85 from $60. On the charts, the shares have put on a show, advancing nearly 44% in 2014, ushered higher by their ascending 20-week moving average. That said, additional bullish brokerage notes could be forthcoming, potentially providing a tailwind. Three-fifths of covering analysts rate Eli Lilly and Co a "hold" or worse, and the stock's consensus 12-month price target of $68.16 represents a discount to current trading levels.

  • VRTX is benefiting from a massive price-target hike to $130 from $94 at Credit Suisse -- though the brokerage firm reiterated a tepid "neutral" opinion on the shares. Specifically, the stock has rallied almost 4% to trade at $121.78, and earlier touched an all-time high of $122.26. What's more, year-to-date, Vertex Pharmaceuticals Incorporated has gained roughly 64%. Not surprisingly, traders at the ISE, CBOE, and PHLX have been betting bullishly in recent weeks. VRTX's 10-day call/put volume ratio across these exchanges is 9.24, or in the 97th percentile of its annual range.

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Stocks On the Move: Ciena Corporation, Restoration Hardware Holdings Inc, and Walgreen Company

CIEN, RH, and WAG are moving sharply in Thursday's trading

by 12/11/2014 11:48 AM
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Around midday, three of the top market movers are networking equipment maker Ciena Corporation (NYSE:CIEN), home furnishings expert Restoration Hardware Holdings Inc (NYSE:RH), and drugstore chain Walgreen Company (NYSE:WAG). Here's a quick roundup of how CIEN, RH, and WAG are performing on the charts so far.

  • CIEN has spiked 9.5% to trade at $18.57, as stronger-than-expected quarterly sales trumped a surprise fourth-quarter loss. This intraday surge is putting the hurt on short sellers. Roughly 19.5% of Ciena Corporation's float is dedicated to short interest, which would take more than seven sessions to repurchase, at typical daily trading levels. Longer term, though, the equity has been a technical laggard. CIEN is sitting more than 22% below its year-to-date breakeven mark.

  • RH has run to a 13.6% lead at $97.93, and earlier touched a record high of $99.44, following last night's third-quarter earnings beat and upwardly revised full-year forecast. Further boosting the shares is a slew of price-target hikes from KeyBanc (to $100), CRT Capital (to $100), Raymond James (to $96), and Nomura (to $110), which all reiterated the equivalent of "buy" suggestions. Despite Restoration Hardware Holdings Inc's strength on the charts, about one-third of the stock's float is sold short -- which would take nearly three weeks to buy back, given the security's typical daily trading volume. In other words, RH could continue to run higher on short-covering activity.

  • WAG is up nearly 5% to perch at $71.45, bringing its year-to-date lead beyond 24%. The rally follows news that the drugstore chain's CEO will retire after the planned purchase of European peer Alliance Boots. Options traders, meanwhile, have been upping the bearish ante at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Walgreen Company's 10-day put/call volume ratio of 1.18 across these three exchanges ranks in the 86th percentile of its annual range, suggesting traders have bought to open puts over calls at a faster-than-usual rate recently. Although some of these puts may have been purchased by WAG shareholders as insurance, a capitulation among the "vanilla" bears could result in tailwinds. Looking ahead, the company will report fiscal first-quarter earnings before the open on Tuesday, Dec. 23.

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Analyst Downgrades: Ariad Pharmaceuticals, Inc., Travelers Companies Inc, and Goodrich Petroleum Corporation

Analysts downwardly revised their ratings on ARIA, TRV, and GDP

by 12/11/2014 9:55 AM
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Analysts are weighing in today on drugmaker Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA), blue-chip insurance issue Travelers Companies Inc (NYSE:TRV), and oil-and-gas firm Goodrich Petroleum Corporation (NYSE:GDP). Here's a quick roundup of today's bearish brokerage notes on ARIA, TRV, and GDP.

  • ARIA has stumbled 3.3% to $6.77, after Credit Suisse downgraded the stock to "underperform" from "neutral," and slashed its price target to $6 from $8. The stock is now testing a foothold atop its 200-day moving average, which served as long-term resistance until late November. Today's downgrade marks a change of pace for Ariad Pharmaceuticals, Inc., which sports six "strong buys" and four "hold" recommendations, with not a single "sell" in sight. However, pessimism isn't a total stranger; short interest represents nearly 27% of ARIA's total available float.

  • Despite notching a record high of $106.13 on Monday, TRV was downgraded to "neutral" from "buy" at UBS. Nevertheless, the Dow component was last seen 0.5% higher at $104.79, bringing its year-to-date surplus to 15.7%. Just eight out of 21 analysts consider Travelers Companies Inc worthy of a "buy" or better rating, and the average 12-month price target of $98.67 represents a discount to the stock's current price. In the same skeptical vein, the equity's Schaeffer's put/call open interest ratio (SOIR) is docked at an annual high of 1.94, implying short-term options players haven't been more put-biased during the past year.

  • Finally, GDP is up 2.7% at $3.83, despite RBC and KLR Group cutting their respective price targets to $14 and $6. However, both brokerage firms maintained the equivalent of "buy" ratings, and their revised targets still represent serious premiums to GDP's current perch. Yesterday, Goodrich Petroleum Corporation cut its 2015 exploration and production spending forecast, as crude oil plumbed five-year lows. The company also said it would explore options for its Eagle Ford shale stake. GDP shares are down roughly 77.5% in 2014, and fell to a decade-plus low of $2.96 earlier this week. What's more, a mass exodus of bullish holdouts could exacerbate selling pressure on the stock, as more than half the analysts following GDP uphold "buy" or better opinions, and the average 12-month price target of $16.53 is more than four times the stock's price.

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