Schaeffer's Trading Floor Blog

Analyst Downgrades: GameStop Corp., EMC Corporation, and American Eagle Outfitters, Inc.

Analysts downwardly revised their ratings on GameStop Corp. (GME), EMC Corporation (EMC), and American Eagle Outfitters (AEO)

by 3/27/2015 9:25 AM
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Analysts are weighing in on video game retailer GameStop Corp. (NYSE:GME), IT service provider EMC Corporation (NYSE:EMC), and clothing concern American Eagle Outfitters (NYSE:AEO). Here's a quick roundup of today's bearish brokerage notes on GME, EMC, and AEO.

  • GME is pointed 4.2% lower in electronic trading, after last night's disappointing sales and full-year guidance was met with a round of bearish brokerage notes. Drilling down, no fewer than seven firms lowered their ratings on the equity, with the most dramatic cut coming from Benchmark, which decreased its price target to $27.98. Meanwhile, B. Riley downgraded GME to "neutral" and trimmed its price target to $44. On the charts, GameStop Corp. is up 22.4% from its Jan. 12 annual low of $31.69, to close yesterday at $38.79. Accordingly, option traders were picking up long calls at a rapid-fire rate ahead of earnings, as GME's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.54 ranks higher than 85% of all equivalent readings taken over the past year. Meanwhile, nearly 45% of GME's available float is sold short, which would take roughly six weeks to cover, at average trading volumes.

  • Last night, Pacific Crest cut its rating on EMC to "sector perform" from "outperform," sending the shares about 0.6% lower ahead of the bell. The downgrade comes as no surprise, considering that the shares of EMC Corporation have fallen 13.2% year-to-date to close yesterday at $25.81. As such, put buying in the options pits is nearing a yearly peak, as EMC's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.62 stands in the 99th percentile of its annual range.

  • AEO is down nearly 4.6% in pre-market trading, after Goldman Sachs reduced its opinion of the stock to "sell" from "neutral," citing waning mall traffic, growing competition, and high earnings expectations. The downgrade is somewhat surprising, given that the shares of American Eagle Outfitters have advanced 39.6% year-over-year to close yesterday at $16.92. What's more, the stock notched a fresh annual high of $17.40 on March 16. Option buyers have also grown increasingly pessimistic, as AEO's 50-day ISE/CBOE/PHLX put/call volume ratio of 2.88 is higher than 99% of all equivalent readings taken over the past 12 months. Elsewhere, the brokerage bunch is divided on the equity, with 48% of covering analysts rating the stock a "buy" or better, and the remaining 52% doling out "hold" or worse ratings.

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Are We in the Beginning of a VIX Regime Change?

Yemen is the latest 'cause' for an uptick in volatility

by 3/27/2015 9:14 AM
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As savvy late '80s options trader David Coverdale once sang -- "Here We Go Again."

Yes, it's yet another market drop/CBOE Volatility Index (VIX) pop. It seems like only a week ago we had gotten comfortable with the fact that the Fed would manage to get the word "patience" out of its statement and not spook the markets. Wait that was only a week ago.

We rallied for a couple days, but have gotten quite ugly since. VIX made up the entirety of its large drop last Wednesday. But we're still a bit away from getting "officially" overbought. Depending on the timing, it's going to take a close near 18.

Maybe it's a little shakier this go around since we don't have our usual cast of drivers for the turn this week. "Causes" for market moves are often specious (to say the least). TV needs to come up with a "reason" for every move, but in all fairness, we humans do like explanations, so it's tough to blame them. It's just usually in the form of "here's the news backdrop, and here's the market move, so ergo the news led to the market move."

So, for what it's worth, we're blaming Yemen and worries about a mediocre earnings season for the current bout of malaise. The irony is that if you buy the Yemen part, it's putting a bid under oil. It wasn't that long ago that we were blaming cascading oil prices for market dips.

The volatility market has acted pretty unemotionally to the recent selling. Here's the VIX futures:

VIX Futures Term Structure in 2014

That's pretty much how VIX futures always look -- it just flattens out slightly as VIX lifts. And VIX itself around 16 doesn't tell us much in a vacuum. It's still down in 2015 about 18%, in fact. But as you may remember, VIX spiked into the close of 2014, which makes comps kind of misleading, given it just uses an arbitrary endpoint.

"Mean" VIX for 2015 is 16.67 so far, which is a considerable uptick from 14.17 in 2014. It's not a perfectly fair comp. Summer tends to weigh on volatility, as do holiday stretches. On the other hand, we haven't had our annual Fall VIX-plosion yet, either. We do figure to close the year with a higher mean than 2014, though, as we're likely transitioning from the low-volatility "regime" of the last five years or so into a high-volatility "regime." And that's just a long-winded way of saying one of these volatility pops will actually "stick."

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


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The Week Ahead: Jobs, Janet, and Micron Technology, Inc. Earnings

Next week's calendar features jobs data and a speech from Janet Yellen, as well as earnings from Micron Technology, Inc. (MU)

by 3/27/2015 8:13 AM
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Jobs will be the focus of the holiday-shortened week. The ADP's employment report and weekly jobless claims -- slated for release on Wednesday and Thursday, respectively -- will serve as precursors to the monthly nonfarm payrolls report, which will hit the (shuttered) Street on Friday. In addition, a handful of central bankers will take the mic -- most notably, Federal Reserve Chair Janet Yellen. Among the companies reporting earnings are semiconductor concern Micron Technology, Inc. (NASDAQ:MU), agricultural titan Monsanto Company (NYSE:MON), and automotive holding company CarMax, Inc (NYSE:KMX).

Below is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.

Monday

  • On Monday, we'll see data on personal income and spending, along with pending home sales and the Dallas Fed manufacturing survey. Fed Vice Chair Stanley Fischer will give a speech, too. Cal-Maine Foods (CALM) and UTi Worldwide (UTIW) will present earnings.

Tuesday

  • The S&P/Case-Shiller home price index is due out on Tuesday, plus the Chicago purchasing managers index (PMI), and Conference Board's latest consumer confidence index. There will also be speeches from Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, and Richmond Fed President Jeffrey Lacker. Conn's (CONN) and Real Goods Solar (RGSE) will release earnings reports.

Wednesday

  • April Fools' Day will be busy, as the calendar features motor vehicle sales, the ADP employment report, construction spending, the Markit PMI, the Institute for Supply Management's (ISM) manufacturing index, and weekly crude inventories. Plus, there will be speeches from San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart. Acuity Brands (AYI) and Monsanto (MON) will flex their earnings muscle.

Thursday

  • Thursday's docket is highlighted by Fed Chair Janet Yellen's speech at the St. Louis Fed community development conference. International trade figures, weekly jobless claims, and factory orders will be released. On the earnings front, CarMax (KMX) and Micron Technology (MU) will present.

Friday

  • Markets will be closed for Good Friday. However, the Labor Department's nonfarm payrolls report will be released, and Minneapolis Fed President Narayana Kocherlakota and St. Louis Fed President James Bullard will speak.

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Earnings Preview: BlackBerry Limited, Carnival Corporation, and GameStop Corp.

Analyzing recent option activity on BlackBerry Ltd (BBRY), Carnival Corp (CCL), and GameStop Corp. (GME)

by 3/26/2015 1:03 PM
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Among the stocks gearing up to report earnings are mobile device concern BlackBerry Ltd (NASDAQ:BBRY), cruise line Carnival Corp (NYSE:CCL), and video game retailer GameStop Corp. (NYSE:GME). Below, we'll break down how options traders are positioning themselves, and how much speculators are willing to pay for their bets on BBRY, CCL, and GME.

  • Nomura cut its price target on BBRY to $9.70 from $10.30 ahead of tomorrow morning's earnings release, sending the shares down 0.4% to hit $9.24. Short sellers have been active, as nearly 20% of BlackBerry Ltd's available float is sold short, which would take about 8.5 sessions to buy back, at average trading volumes. Meanwhile, in the session immediately following its last six earnings reports, BBRY has gained an average of 3.8%, including a 9.7% bump last June. Should the stock once again enjoy post-earnings upside, a short squeeze could help BBRY rebound off support in the $9 region. Near-term options are available for historically expensive prices, as the stock's 30-day at-the-money (ATM) implied volatility (IV) of 64.2% stands in the 93rd percentile of its annual range.

  • CCL has been in recovery mode, with the shares up roughly 34.6% since notching an annual low of $33.11 on Oct. 15 to linger near $44.56. However, sentiment in the options pits has been bearish ahead of tomorrow morning's earnings release, as Carnival Corp's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.29 ranks higher than 96% of all equivalent readings taken over the past year. Traders banking on a post-earnings slide have history on their side -- in the session immediately following its last four earnings reports, CCL has shed an average of 1.7%. Short-term options are available for middling prices, as CCL's Schaeffer's Volatility Index (SVI) of 32% sits in the 47th percentile of all similar readings taken over the last 12 months..

  • GME has been trending upwards as well, with the shares gaining about 23.7% from their Jan. 12 annual low of $31.69 to reach $39.19. Today, though, the shares are down about 1.6% ahead of tonight's earnings release. Sentiment in the options pits has been bullish, as GameStop Corp.'s 10-day ISE/CBOE/PHLX call/put volume ratio of 2.54 stands higher than 85% of all equivalent readings taken over the past year. Nearly 45% of GME's available float is sold short, and it would take traders over 47 sessions to cover these bets, at average daily volumes. Looking elsewhere, in the session immediately following its last four earnings reports, GME has lost an average of 1.7%. Speculators are paying above-average prices for their bets on the security, as GME's 30-day ATM IV of 47.6% reads in the 76th percentile of its annual range.

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3 Reasons to Like the NFL's Online Streaming Experiment

CBS Corporation (CBS) and DIRECTV (DTV) have largely been denied broadcasting rights to the Bills-Jags game

by 3/26/2015 12:09 PM
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The NFL made headlines earlier this week when it announced the 2015 season will feature the first-ever game streamed strictly online. Participating in the historic matchup are the Buffalo Bills and Jacksonville Jaguars, with the contest to be played in London on Sunday, Oct. 25.

Of course, there is one exception to the all-digital broadcast. CBS Corporation (NYSE:CBS) will still have TV broadcasting rights in the teams' home markets. So if you live in Buffalo or Jacksonville, you can tune in on your flat screen. However, DIRECTV (NASDAQ:DTV) has been entirely locked out of the deal, meaning the Bills-Jags tilt won't be shown on NFL Sunday Ticket.

To most, the matchup leaves something to be desired. The Jacksonville Jaguars are perhaps the worst franchise in the NFL. For years, the team tarped thousands of seats it wasn't able to sell for home games -- a necessity to avoid regional blackouts, triggered by low attendance. Eventually, Jags ownership had a stroke of genius, and decided to convert 9,500 seats to pools and cabanas to reduce the number of people required to fill EverBank Field.

The Buffalo Bills, meanwhile, haven't made the playoffs in 15 years. No other current NFL squad has suffered such a long drought.

Regardless, I have several reasons to be really excited about this game. For one, I don't own a TV, so it doesn't matter if CBS and DTV go AWOL. In fact, I already watch NFL games almost exclusively online -- every Monday morning, via NFL Game Rewind. So whether the league sells online broadcasting rights to Facebook Inc (NASDAQ:FB), YouTube, or some other Internet company -- the details haven't been worked out yet -- matters little. Internet broadcasting is the future, so this is a positive step for the NFL.

Second -- and full disclosure here -- I'm a Bills fan. And this is actually a game the Bills should win. Heading into the season, the team is solid at almost every position, save quarterback. But against the Jaguars -- whose starter Blake Bortles posted an anemic 69.5 passer rating last year -- the position's a wash.

Bills Jaguars Game Online

Finally, this will be a revenge game between Buffalo and former head coach Doug Marrone. In case you missed it, Marrone opted out of his contract with the Bills after two seasons -- presumably seeking greener pastures elsewhere. After weeks of waiting, he ended up as the "Assistant Head Coach-Offense/Offensive Line Coach" of a 3-13 Jaguars team, reporting to a guy named Gus Bradley.

So while football purists moan and groan about the changing of the NFL, and others lament the international spotlight being shined on two league laughingstocks, I plan on cheering my Bills to victory. And watching Doug Marrone lose.


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