Schaeffer's Trading Floor Blog

Buzz Stocks: Facebook, Inc., Alibaba Group Holding Limited, and Novartis AG

Today's stocks to watch include Facebook Inc (FB), Alibaba Group Holding Ltd (BABA), and Novartis AG (ADR) (NVS)

by 1/27/2015 9:08 AM
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Stocks are set to open in the red, as traders digest a round of lackluster blue-chip earnings and a surprise drop in durable goods. Among the equities in focus are social networking titan Facebook Inc (NASDAQ:FB), Chinese e-commerce concern Alibaba Group Holding Ltd (NYSE:BABA), and Swiss drugmaker Novartis AG (ADR) (NYSE:NVS).

  • FB is pointed 1% lower ahead of the bell, after the website -- as well as Instagram and other some notable apps -- went down this morning. Despite hacking group Lizard Squad claiming responsibility for the blackout -- which lasted about an hour -- Facebook Inc said it "was not the result of a third party attack." On the charts, FB has spent most of the past six months dancing in the $74-$82 range, and settled at $77.49 on Monday. From a longer-term perspective, the equity has advanced nearly 45% year-over-year, yet short-term option traders are unusually put-heavy ahead of the company's turn in the earnings spotlight tomorrow night. The security's Schaeffer's put/call open interest ratio (SOIR) of 0.67 stands higher than three-quarters of all other readings from the past year.

  • BABA is set to dip 0.8% out of the gate, after the company's entertainment arm warned of a loss for 2014 (subscription required). Separately, BABA said Chinese movie star Zhao Wei bought a sizable stake in Alibaba Pictures. Technically speaking, BABA is just a hair north of its year-to-date breakeven, landing at $103.99 on Monday. Since skimming $120 -- an all-time peak -- in mid-November, the equity has surrendered 13.3%, with rebound attempts halted by its 10-week trendline. Still, option buyers are optimistic ahead of Alibaba Group Holding Ltd.'s turn in the earnings confessional Thursday morning. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open about 1.7 calls for every put during the past two weeks.

  • Finally, NVS is flirting with a 2% gain in pre-market action, and could test its mettle near the century mark, after finishing at $96.49 on Monday. While the firm said fourth-quarter earnings fell 26%, annual profit rose 12% in 2014, and the future looks bright. Specifically, Novartis AG said it expects sales in 2015 to grow at a mid-single digit rate. A post-earnings rally could spook some of the recent option bears, as NVS' 10-day ISE/CBOE/PHLX put/call volume ratio of 0.76 stands higher than 68% of all other readings from the past year, pointing to a healthier-than-usual appetite for long puts over calls of late. In addition, short interest grew nearly 28% during the past two reporting periods, yet still accounts for a scant 0.06% of the security's total available float.

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Analyst Update: Goldcorp Inc., Pfizer Inc., and Yahoo! Inc.

Analysts adjusted their ratings on Goldcorp Inc. (USA) (GG), Pfizer Inc. (PFE), and Yahoo! Inc. (YHOO)

by 1/26/2015 12:34 PM
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Analysts are weighing in today on gold producer Goldcorp Inc. (USA) (NYSE:GG), pharmaceutical titan Pfizer Inc. (NYSE:PFE), and Internet heavyweight Yahoo! Inc. (NASDAQ:YHOO). Here's a quick look at today's brokerage notes on GG, PFE, and YHOO.

  • Last night, HSBC cut GG to "neutral" from "overweight," while raising its price target 30 cents to $25.30. The brokerage note, along with gold's dip, has sent the shares sliding 1.8% this afternoon to sit at $23.51. Although the stock has advanced more than 25% in 2015, many traders remain bearish on Goldcorp Inc. (USA), with its 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.51 ranking in the 77th percentile of its annual range. Elsewhere, the brokerage bunch isn't nearly as pessimistic on GG, with 10 of the 16 covering analysts rating the stock a "buy" or better, with only one "sell" rating on the books.

  • PFE is up 1% to $32.78 this afternoon, following a price-target hike to $32 from $31 at BMO, which also reiterated its "market perform" rating. What's more, the pharmaceutical company --which will release its earnings data before the open tomorrow -- has beaten the S&P 500 Index (SPX) by nearly 8 percentage points over the last three months, and touched a 10-year high of $33.50 last week. Surprisingly, put buying is the popular choice in Pfizer Inc.'s options pits -- the equity's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.58 is a mere 18 percentage points away from an annual pessimistic peak. Considering PFE's long-term uptrend, though, some of those puts may have been purchased as hedges. However, the analyst community is still optimistic on PFE, with 67% of covering brokerage firms rating the stock a "buy" or better, with only one "sell" or worse recommendation to be found.

  • YHOO has increased 0.8% to $49.35, even after FBR cut its price target by $4 to $56. However, the analysts maintained their "outperform" ranking. The Internet behemoth is now up 34.7% over the past 52 weeks, and will report its latest earnings data after the close tomorrow. Despite this positive price action, sentiment in Yahoo! Inc.'s options pits is nearing a pessimistic climax. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.52 is higher than all but 2% of all similar readings taken over the past year, and short-term bears are paying up to play YHOO ahead of earnings; the stock's Schaeffer's Volatility Index (SVI) of 47% registers in the 64th percentile of its annual range.

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Analyst Upgrades: Shire plc, Garmin Ltd., and Visa Inc.

Analysts upwardly revised their ratings on Shire PLC (ADR) (SHPG), Garmin Ltd. (GRMN), and Visa Inc (V)

by 1/26/2015 9:31 AM
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Analysts are weighing in today on biopharmaceutical issue Shire PLC (ADR) (NASDAQ:SHPG), GPS maker Garmin Ltd. (NASDAQ:GRMN), and credit card concern Visa Inc (NYSE:V). Here's a quick roundup of today's bullish brokerage notes on SHPG, GRMN, and V.

  • SHPG is headed for a 2.3% gain out of the gate, after the Food and Drug Administration approved Natpara, the hypoparathyroidism drug from NPS Pharmaceuticals, Inc. (NASDAQ:NPSP) -- which Shire PLC (ADR) is buying for $5.2 billion. In light of the news, SHPG scored price-target hikes from RBC (to $248) and Leerink (to $240) -- complementing yesterday's upward revision to $263 from $247 at Jefferies. Since hitting a recent low of $156.25 in October, the shares of SHPG have rebounded 38.3% to land at $216.03. Still, option buyers remain bearish, as the equity's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 1.00 stands higher than 73% of all other readings from the past year.

  • GRMN is poised to pop 3.7%, thanks to an upgrade to "outperform" from "sector perform" at RBC. The brokerage firm also lifted its price target to $67, representing expected upside of 26.4% from Garmin Ltd.'s closing price of $53.01 on Friday. The upbeat analyst attention is relatively rare for GRMN, which sports just three "buy" or better recommendations, compared to seven "holds" and one "strong sell." In the same pessimistic vein, short interest accounts for 15.7% of the stock's total available float, and would take nearly three weeks to repurchase, at GRMN's average daily trading volume. On the charts, GRMN is a hair's breadth north of its year-to-date breakeven level, and has struggled to topple its 20-week moving average in recent weeks.

  • Finally, V scored a price-target hike to $300 from $248 at J.P. Morgan Securities, which also reiterated its "overweight" opinion. Visa Inc is no stranger to optimism, though, as 20 out of 24 brokerage firms consider the stock a "buy" or better. Plus, the average 12-month price target of $283.50 stands in uncharted territory for the shares. That's not to say the analyst appreciation isn't deserved, though. V has added 16.7% during the past year, and touched an all-time peak of $269.32 in late December. On Friday, V settled at $258.29. Looking ahead, the company will report fiscal first-quarter earnings Thursday night.

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Analyst Downgrades: Agnico Eagle Mines Limited, Ocwen Financial Corporation, and Teva Pharmaceutical Industries Ltd

Analysts downwardly revised their ratings on Agnico Eagle Mines Ltd (USA) (AEM), Ocwen Financial Corp (OCN), and Teva Pharmaceutical Industries Ltd (ADR) (TEVA)

by 1/26/2015 9:27 AM
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Analysts are weighing in today on commodities issue Agnico Eagle Mines Ltd (USA) (NYSE:AEM), mortgage lender Ocwen Financial Corp (NYSE:OCN), and drugmaker Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). Here's a quick roundup of today's bearish brokerage notes on AEM, OCN, and TEVA.

  • HSBC cut its rating on AEM to "neutral" from "overweight," but upped its price target to $34.10 from $32. The downgrade is slightly surprising, considering the shares have rallied a brow-raising 30.8% year-to-date to trade at $32.56, and have outperformed the broader S&P 500 Index (SPX) by almost 40 percentage points in the last month. More broadly speaking, most of the brokerage bunch is already in the bulls' corner when it comes to Agnico Eagle Mines Ltd. Twelve out of 17 covering analysts have handed out "buy" or better opinions, versus five "holds" and not a single "sell." Plus, the stock's consensus 12-month price target of $42.13 sits at a 29.4% premium to AEM's current trading level. Ahead of the open, the equity is pointed 2.6% lower.

  • OCN saw its price target trimmed by $2 to $12 at KBW, which also reiterated its "market perform" rating. Nevertheless, the shares are up nearly 29% in electronic trading, after reaching a $2.5 million settlement with California regulators -- avoiding the potential suspension of its state mortgage license. What's more, the company responded to investors' attempts to remove it as a servicer of residential mortgage-backed securities, describing unspecified allegations as "baseless" (subscription required). Last Friday, Ocwen Financial Corp settled at $6.35, and touched a nearly six-year low of $5.66, as well. Not surprisingly, options traders have been overwhelmingly bearish toward the stock. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), OCN has racked up a put/call volume ratio of 2.93 -- in the 92nd percentile of its annual range.

  • Finally, despite advancing 39.5% year-over-year to trade at $59.88 -- and hitting a multi-year peak of $61.90 on Friday -- TEVA was started with a "sell" rating and $49 price target at Berenberg. This negativity echoes what's been seen in the options pits. TEVA's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.01 registers at a 52-week high. However, given Teva Pharmaceutical Industries Ltd's technical tenacity, a portion of these long puts may have been initiated by shareholders seeking a downside hedge. Ahead of the open, TEVA is 2.1% lower.

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What the 1990s Can Teach Us About Today's VIX

Putting the recent SPY-VIX relationship in historical context

by 1/26/2015 9:25 AM
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CBOE Volatility Index (VIX) is showing "All Quiet on the Western Front" now, but it wasn't all that long ago that fear ruled the roost. I'd say, about a week. One Mr. James Cramer took note of this on a recent "Mad Money" as he channeled my friend Mark Sebastian of Options Pit.

As Mark notes, VIX only closed above 20 four times between 2012 and August 2014, but since then it has closed above 20 on 14 separate occasions. Is that cause for worry? Well …

"In a healthy market, there should be an inverse correlation between the S&P and the VIX. Meaning as the S&P gets higher, investors have a sense of relief and the VIX goes down. Thus, fear subsides when the market goes up and grows when the averages plunge.

"Out of all of the red flags lingering in the charts, what worried Sebastian the most about the VIX is the lack of an inverse relationship. The charts show that volatility is actually getting higher as the S&P churns in place or reaches new highs.

"According to Sebastian, when the VIX and averages rally together this is a sign that something big is about to happen, and it will be bad.

"Sebastian thinks the patterns that he is seeing are reminiscent to the debt-ceiling crisis in 2011 where the S&P 500 was slammed and lost 16.5 percent of its value in one month. He is concerned that we are about to replay this scenario."

Let me start by saying I don't disagree with the overall thesis. I don't love viewing VIX through an absolute-number lens -- but if you're going to use a number, I would also use "20," as it's near the long-term VIX average (albeit above the long-term median). I go with moving averages and deviations from, but it gets to the same conclusions. As I've noted recently, we've seen a cluster of overbought VIX readings, and that doesn't bode well. It's somewhat similar to 2007 (cue ominous music from "Jaws").

I can see the similarity to the less ominous -- but still ugly -- 2011, as well. But on the rosier side, I bring you The Roaring '90s!

The VIX ended 1995 at 12.52, and SPDR S&P 500 ETF Trust (SPY) closed at 61.48 (and no, that's not split-adjusted). VIX actually had a mean of 12.42 in 1995, so that close was pretty representative of volatility that year. 1996 saw a bit of a pickup -- the mean reading was 16.47, and it closed at 20.92.

So the market must have tanked, right? Not exactly -- SPY rallied 20%! The pattern continued. VIX closed at 24.01 in 1997, with a mean of 22.38, yet the market rallied 31.5%. 1998 and 1999 saw essentially flat volatility on both a mean and closing basis, but an exploding market, up nearly 50% total.

I'm not at all predicting a late '90s bubble move, though it's almost the reverse black swan of expected outcomes going forward. I would guess volatility is at the beginning of an uptrend, so I concur with Mark's point. I just don't believe it necessarily portends bad things for the market itself, at least for the right here and right now. A year or so from now? Maybe not so much, but that's a ways off.

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


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