Schaeffer's Trading Floor Blog

Analyst Downgrades: athenahealth, Inc, SanDisk Corporation, and Philip Morris International Inc.

Analysts issued bearish brokerage notes on ATHN, SNDK, and PM

by 10/20/2014 9:46 AM
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Analysts are downwardly revising their ratings on medical billing firm athenahealth, Inc (NASDAQ:ATHN), data storage solutions specialist SanDisk Corporation (NASDAQ:SNDK), and tobacco titan Philip Morris International Inc. (NYSE:PM). Here's a quick look at today's bearish brokerage notes on ATHN, SNDK, and PM.

  • ATHN's uninspiring third-quarter earnings report from last Thursday prompted a wave of price-target cuts from the brokerage bunch. Among those weighing in on the stock were Cowen, which slashed its price target by $10 to $134, and Goldman Sachs, which reduced its target price by $8 to $133, with both brokerage firms maintaining their equivalents of a "neutral" recommendation. On the charts, the security has struggled in 2014, and is currently staring at a 16% year-to-date deficit. Should the shares continue to struggle, another round of price-target reductions could be on the horizon. In fact, athenahealth, Inc's consensus 12-month price target of $147 not only stands at a steep 30% premium to the equity's current perch at $112.91, but also in territory not charted since mid-April.

  • Since hitting an all-time high of $108.77 in mid-July, SNDK has surrendered 21.4% to churn at $85.61 -- and Friday, the shares gave back 2.9% following a third-quarter earnings miss, a lower-than-expected current-quarter revenue outlook, and round of bearish brokerage notes. Nevertheless, the shares are rallying today, even in the wake of a price-target cut to $110 from $120 at Jefferies (although the brokerage firm reiterated its "buy" rating). Should the stock resume its longer-term downtrend, another round of bearish brokerage notes could pressure the shares lower. At present, 81% of covering analysts maintain a "buy" or "strong buy" recommendation toward the shares, and the consensus 12-month price target of $109.41 represents a lofty 27.8% premium to SNDK's present price.

  • Exane BNP Paribas reduced its price target for PM by 2% to $86 -- in line with the equity's current perch -- and underscored its "neutral" rating. On the charts, PM is off 1.3% year-to-date, and option traders think there is more downside ahead. At 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 2.17 ranks in the 97th percentile of its annual range. Simply stated, puts have been bought to open over calls on Philip Morris International Inc. with more rapidity just 3% of the time within the past year.

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Buzz Stocks: Microsoft Corporation, Family Dollar Stores, Inc., and Valeant Pharmaceuticals Intl Inc

Today's stocks to watch in the news include MSFT, FDO, and VRX

by 10/20/2014 9:39 AM
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U.S. stocks are lower out of the gate, with disappointing earnings from IBM Corp. (NYSE:IBM) dragging down the Dow. Among the equities in focus, today's stocks to watch are software titan Microsoft Corporation (NASDAQ:MSFT), discount retailer Family Dollar Stores, Inc. (NYSE:FDO), and drugmaker Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

  • MSFT is down 1.4% at $43.05, but remains nearly 15% higher year-to-date. Ahead of the company's quarterly earnings report, slated for release after the close on Thursday, traders are digesting reports of a smart watch in the works. Specifically, the firm is allegedly planning to debut the wearable device within the next few weeks. Despite outperforming the broader S&P 500 Index (SPX) during the past three months, Microsoft Corporation's bullish bandwagon is far from crowded. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.01 stands just 4 percentage points shy of a 52-week peak, implying that short-term options players have rarely been more put-biased during the past year. Meanwhile, more than half of the analysts following MSFT maintain tepid "hold" opinions. Should Microsoft impress with its earnings report or smart watch debut, an unwinding of pessimism in the options pits or among analysts could help the shares continue their longer-term run higher.

  • Last night, FDO traders learned that activist Elliot Management Corp. nominated seven candidates to the Family Dollar Stores, Inc. board, citing a missed opportunity to "facilitate a bidding war" between Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR), the former of which had a "clearly superior" bid rejected. Speaking of, FDO on Oct. 30 will host a special meeting of shareholders to approve the DLTR transaction. On the charts, the recent M&A back-and-forth has translated into a year-to-date gain of 19% for FDO, which was last seen 0.7% higher at $77.35.

  • Finally, VRX is 1.1% higher at $121.71 in early trading. Bolstering the stock is a stronger-than-expected earnings report and forward guidance, and Valeant Pharmaceuticals Intl Inc CEO's confession that the company is just waiting on the "appropriate time" to up its bid for Allergan, Inc. (NYSE:AGN). While the brokerage bunch is already bullish toward VRX -- the stock boasts nine "buy" or better ratings, compared to two "holds" -- options traders could be caught off-guard by today's upside move. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 2.80 stands higher than 92% of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls during the past two weeks.

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Analyst Upgrades: Twitter Inc, Micron Technology, Inc., and E TRADE Financial Corporation

Analysts issued bullish brokerage notes on TWTR, MU, and ETFC

by 10/20/2014 9:24 AM
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Analysts are upwardly revising their ratings on microblogging issue Twitter Inc (NYSE:TWTR), semiconductor concern Micron Technology, Inc. (NASDAQ:MU), and online broker E TRADE Financial Corporation (NASDAQ:ETFC). Here's a quick look at today's bullish brokerage notes on TWTR, MU, and ETFC.

  • Following reports of a new partnership, TWTR saw its price target raised to $63 from $62 at Topeka -- with the brokerage firm underscoring its "buy" rating -- representing expected upside of 29.2% to Friday's closing price of $48.77. A move of such magnitude isn't out of the question for a stock that's rebounded more than 65% since hitting an all-time low of $29.51 in early May. Plus, if past is prologue, TWTR could get an additional boost after it steps into the earnings confessional next Monday evening. After reporting its second-quarter earnings results in late July, the shares rallied roughly 20% in the subsequent session. Additionally, another round of bullish brokerage notes could help buoy the shares, as 13 out of 28 covering analysts maintain a "hold" or "strong sell" suggestion toward Twitter Inc.

  • Pacific Crest upped its outlook for MU to "outperform" from "sector perform," echoing the majority of analysts covering the shares. This optimism isn't surprising, though, considering MU is up more than 32% in 2014 -- and nearly 69% year-over-year -- to trade at $28.76. However, not everyone on the Street has taken this glass-half-full approach toward Micron Technology, Inc. Short interest, for example, accounts for nearly 10% of the stock's available float. Elsewhere, the equity's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.33 ranks in the 83rd annual percentile. In other words, puts have been bought to open over calls at a faster-than-usual clip in recent months. Should MU continue to make its way up the charts, a capitulation by these bearish bettors could help fuel the stock's fire.

  • Goldman Sachs weighed in on ETFC -- which is scheduled to report third-quarter earnings after tomorrow's close -- by adding the stock to its "Conviction Buy" list. The equity has performed well over the long term, tacking on 15% over the past 52 weeks to trade at $20.12. In the options pits, short-term speculators have shown a preference for puts over calls, as evidenced by ETFC's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 11.03. Simply stated, near-the-money put open interest outweighs call open interest by a more than 11-to-1 margin in the November-dated series. Going forward, this set-up could create an options-related foothold for E TRADE Financial Corporation, as the hedges related to these bets unwind over the next five weeks.

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Volatility Pops: The Exception to the Rule

The staggering returns of volatility ETFs are hard to catch

by 10/20/2014 8:29 AM
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This panic about a CBOE Volatility Index (VIX) contagion has gone too far! I hereby graciously accept the position of VIX Czar. OK, so I appointed myself -- there was a power vacuum and I stepped in to fill it.

For my first act, I am going to send an intern out for iced coffee. What's that you say? No interns? What kind of budget does my new cabinet-level department have, zero? OK, it really does have no budget. Oh well.

Anyway, for my first act, I would like to remind everyone that the recently staggering returns in volatility ETFs are way more the exception than the rule. They truly were staggering, though. The iPath S&P 500 VIX Short-Term Futures ETN (VXX) closed at 29.55 on Oct. 8. On Oct.16 it peaked at 44.60, very near the open. That's a 50% pop in basically a week.

The news was even better in the VelocityShares Daily 2x VIX Short-Term ETN (NYSEARCA:TVIX), as you might expect, considering TVIX tracks 2x VXX. It closed at 2.89 on Oct. 8, then peaked at 6.15 on Oct. 16.

If you caught any of that, many congrats. It's moments like these that show why it's extremely risky to sit short on any of these pups. And, that includes shorting on the way up to try to nail a top. But, I'm ordering my unpaid staff to remind everyone that past performance of the last week does not predict future returns.

Even though VIX is way down from its own highs on Oct.15, it's still up about 60% in 2014. VXX, on the other hand, is actually down on the year. It closed 2013 at $42.55. Yes, that's correct. It's still down in 2014 despite a surge in the last week and a year that at the moment has worked quite well for VIX itself. But at least VXX wiped out its losses in 2014, however briefly. TVIX closed out 2013 at $7.50, so it peaked well short.

VXX, as I hope you know, proxies a 30-day VIX future. And, with futures generally in contango and at a premium to VIX itself, that costs it money every day. The script did flip recently as near-term VIX futures went into backwardation, but ironically those ostensibly favorable conditions occurred right as negative market sentiment was peaking. That is, it took pretty extreme and unsustainable negative sentiment to get VXX into a spot where its structure actually worked to its advantage.

VXX didn't exist yet in 2008, but you really need that kind of never-ending volatility pop to keep it heading north.

Anyway, I want to end my first day as VIX Czar with this reminder: VXX -- and TVIX, and its less evil twin, the ProShares Trust Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY) -- are purely trading vehicles on the long side. If you can catch a move, terrific. But, don't sit with them for any important length of time.

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: Carnival Corporation, ITT Educational Services, Inc., and Repros Therapeutics Inc

CCL, ESI, and RPRX are moving sharply in Friday's trading

by 10/17/2014 12:22 PM
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U.S. stocks are bouncing back today, as traders cheer a round of solid earnings reports. Among the names making significant moves are cruise operator Carnival Corporation (NYSE:CCL), for-profit education concern ITT Educational Services, Inc. (NYSE:ESI), and drugmaker Repros Therapeutics Inc (NASDAQ:RPRX). Here's a quick look at how CCL, ESI, and RPRX are faring on the charts today.

  • It's been a wild ride for CCL, which dropped nearly 2% out of the gate, due to concerns about a potential Ebola case aboard one of its cruise ships. However, the fears have since subsided, with CCL now 1.5% higher at $35.22. From a longer-term standpoint, the shares of Carnival Corporation have dropped 12.4% year-to-date, and the stock's 14-day Relative Strength Index (RSI) now sits at 32 -- on the cusp of oversold territory. In the options pits, meanwhile, traders have been gambling on more downside for CCL. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 2.55 stands higher than 87% of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls of late.

  • ESI has skyrocketed 78.3% to $9.99 -- making it the biggest advancer on the Big Board, and sparking a temporary halt -- and peaked at $11.75 in early trading, marking its first foray into double-digit territory since early August. Bolstering the stock, ITT Educational Services, Inc. said it signed up more students than expected in the most recent quarter, suggesting demand for for-profit education providers is on the mend. Prior to today, ESI was flailing on the charts, and still sits 70% lower year-to-date. In fact, the equity has underperformed the broader S&P 500 Index (SPX) by 60 percentage points during the past three months, so it's no surprise that short interest makes up a whopping 82% of the equity's total available float. These bearish bets represent more than seven sessions' worth of pent-up buying demand, at ESI's average pace of trading, so a short-squeeze situation could add fuel to the equity's fire.

  • RPRX, on the other hand, is the biggest Nasdaq loser thus far, down 36% at $6.75. Earlier in the session, the shares touched a two-year nadir of $6.01, due to a regulatory blow for its testosterone treatment. The equity is now sitting on the short-sale restricted (SSR) list, sending bears to the options pits instead. So far today, the stock has seen more than 7,000 puts change hands -- 15 times the norm, and more than seven times the number of RPRX calls exchanged. In light of today's drop, Repros Therapeutics Inc has surrendered 63% in 2014, and could be vulnerable to a reversal in sentiment among the brokerage crowd. Seventy-five percent of the analysts following RPRX maintain "strong buy" opinions, and the consensus 12-month price target of $28.30 stands more than 300% higher than the stock's current price.

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