Schaeffer's Trading Floor Blog

Midday Market Stats: Dow Jones Industrial Average Stumbles on Mixed Economic News

The Pep Boys - Manny Moe & Jack plunges on earnings outlook; EMC Corporation sees heavy call trading ahead of its earnings report

by 4/15/2014 12:03 PM
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The Dow Jones Industrial Average (INDEXDJX:.DJI) was earlier trying to extend Monday's positive momentum, and helping toward this goal were Dow components The Coca-Cola Company (NYSE:KO) and Johnson & Johnson (NYSE:JNJ), which remain in the black on well-received earnings reports. At last check, however, the blue-chip index had surrendered early gains and was down 68.1 points, or 0.4%, at 16,105.32.

News has been mixed on the economic front, with New York's Federal Reserve reporting an unanticipated drop in manufacturing activity, while the National Association of Home Builders' housing market index came up short of expectations in April. Meanwhile, the Labor Department reported a 0.2% increase in the consumer price index (CPI) last month, edging past economists' estimates. The core CPI (which excludes the food and energy variables) also ticked up 0.2%.

Here are a few noteworthy stats at midday:

  1. The equity put/call volume ratio across all 12 options exchanges currently stands at 0.97, with call volume and put volume near parity. So far today, 3.90 million calls have changed hands, compared to 3.79 million puts.

  2. One name seeing notable options trading today is EMC Corporation (NYSE:EMC), which has slipped 0.5% today to rest at $26.63 after beginning the day with gains. Option volume is running at almost three times the usual pace, and the lion's share of the action has transpired on the call side. EMC is scheduled to report first-quarter earnings ahead of the open next Wednesday.

  3. The advance/decline ratio on New York Stock Exchange (NYSE) stands at 0.58. Declining stocks are currently outpacing advancing names by a margin of nearly 2-to-1.

  4. Among today's biggest decliners on the Big Board is The Pep Boys - Manny, Moe & Jack (NYSE:PBY), which has tumbled nearly 14.6% to $10.22 and earlier hit a new annual low of $10.06. The auto parts retailer posted a decline in fourth-quarter revenue, and warned that the upcoming two quarters' results would be negatively impacted by weak pricing.

  5. The CBOE Volatility Index (VIX) has edged higher today, up 0.8 point, or 5%, to trade at 16.91.

  6. Today's put/call volume ratio on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) stands at 0.73, with call volume easily exceeding put volume. The ETN has gained 3% today to $45.70.

View a real-time chart of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI).

Unusual Option Volume at Midday

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Buzz Stocks: Google Inc, BlackBerry Ltd, Aaron's, Inc., and Motorola Solutions Inc

Today's stocks to watch in the news include GOOGL, BBRY, AAN, and MSI

by 4/15/2014 9:28 AM
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Following a pair of better-than-expected earnings reports from Dow components Johnson & Johnson (NYSE:JNJ) and The Coca-Cola Company (NYSE:KO), stocks are pointed slightly higher in pre-market trading. In company news, here are some stocks to watch today:

  • Google Inc (NASDAQ:GOOGL) has agreed to buy Titan Aerospace, with the intent of using the startup's solar-powered drones to help collect aerial images. Facebook Inc (NASDAQ:FB) had previously courted Titan Aerospace, but instead bought U.K.-based aerospace firm Ascenta. (USA Today)

  • BlackBerry Ltd (NASDAQ:BBRY) announced it has bought a minority stake in health care IT company NantHealth. The two firms are reportedly working toward developing a smartphone to meet the specific needs of health care professionals, including the ability to view 3D images and CT scans while on the go. (FOX Business)

  • Aaron's, Inc. (NYSE:AAN) is purchasing rent-to-own financing issue Progressive Finance Holdings from Summit Partners for $700 million in cash. Separately, AAN announced it has rejected a $30.50-per-share takeover bid from Vintage Capital Management. (AP, via Bloomberg Businessweek)

  • Supply chain specialist Zebra Technologies Corp. (NASDAQ:ZBRA) said it will buy Motorola Solutions Inc's (NYSE:MSI) enterprise unit -- which specializes in barcode scanners, tablets, and rugged mobile computers -- for $3.45 billion in cash and debt. MSI CEO Greg Brown added that his company intends to return the proceeds of the transaction to shareholders, as soon as the deal closes. (Reuters, via Chicago Tribune)

  • Also, JNJ and KO reported quarterly earnings. (CNBC; Reuters)

  • Finally, the Dutch 14-year-old who was arrested for a threatening tweet against American Airlines Group Inc (NASDAQ:AAL) has been released from prison. However, the teen's Twitter Inc (NYSE:TWTR) followers won't be hearing from her any time soon; her account has been suspended. (Mashable)

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Analyst Downgrades: General Motors Company, Wal-Mart Stores, Inc., and Bed Bath & Beyond Inc.

Analysts downwardly revised their ratings on GM, WMT, and BBBY

by 4/15/2014 9:27 AM
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Analysts are weighing in today on automaker General Motors Company (NYSE:GM), global retail giant Wal-Mart Stores, Inc. (NYSE:WMT), and home décor retailer Bed Bath & Beyond Inc. (NASDAQ:BBBY). Here's a quick roundup of today's bearish brokerage notes.

  • RBC lowered its price target on GM to $45 from $46, amid news that two of the automaker's executives will leave the company. General Motors Company -- which is down 20.4% year-to-date to trade at $32.55 -- may receive more bearish brokerage notes in the near term, as well, which could negatively impact the shares. Currently, 10 of the 13 covering analysts maintain "strong buy" endorsements on the stock, plus the average 12-month price target of $44.87 towers over GM's current price.

  • WMT -- which is sitting 1.7% below its year-to-date flat line to trade at $77.38 -- received a downgrade to "underperform" from "market perform" at William Blair this morning. Meanwhile, in the options pits, speculators have ignored the stock's less-than-stellar 2014 performance, buying to open more than two calls for every put during the past two weeks. The resulting 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.5 ranks 8 percentage points from a 12-month peak, indicating the recent rate of call buying, relative to put buying, is nearing an annual-high level.

  • SunTrust Robinson cut its price target on BBBY to $77 from $80 this morning, which comes as no surprise considering the stock tanked last Thursday on a a poorly received earnings report, and is currently sitting about 20% lower year-to-date at $64.40. Elsewhere, Bed Bath & Beyond Inc. sports 12 "hold" recommendations, compared to seven "strong buy" endorsements. Meanwhile, the consensus 12-month price target among analysts comes in at $72.56, representing expected upside of 12.7% from the shares' current perch.

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Analyst Upgrades: Citigroup Inc, Visa Inc, and Southwest Airlines Co

Analysts upwardly revised their ratings on C, V, and LUV

by 4/15/2014 9:20 AM
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Analysts are weighing in today on financial heavyweight Citigroup Inc (NYSE:C), credit card issuer Visa Inc, and airline operator Southwest Airlines Co (NYSE:LUV). Here's a quick roundup of today's bullish brokerage notes.

  • Bernstein upgraded C to "outperform" from "market perform," and lifted its price target by $5 to $57, after yesterday morning's earnings win sent the stock 4.4% higher to close at $47.67. Nevertheless, C shares remain 8.5% below their year-to-date breakeven mark, and could come face to face with more technical headwinds in the near term. To be specific, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.59 ranks in the 20th annual percentile, indicating short-term speculators are more call-heavy than usual on the underperformer. This means, should Citigroup Inc continue on its downward trajectory, option bulls may hit the exits, which could create additional pressure on the shares.

  • Although V has shed about 9% over the past month to trade at $201.01, the stock received its second bullish brokerage note of the week, when Janney upgraded its rating to "buy" from "neutral" this morning. On the options front, Visa Inc sports a SOIR of 0.66, which ranks just 1 percentage point from a 12-month low. In other words, short-term speculators have been more call-biased than usual, with call open interest outpacing put open interest by a margin of 3-to-2 among options expiring within the next three months.

  • LUV received a ratings lift to "buy" from "hold" at Argus, after yesterday announcing a record-setting profit-sharing plan for its employees this year. While Southwest Airlines Co has tacked on 19.5% so far this year to trade at $22.51, its SOIR of 0.79 ranks in the 80th annual percentile, demonstrating activity in the stock's short-term options pits is more put-heavy than usual. As such, a continuation of LUV's uptrend may cause a capitulation of bearish bettors, which could offer the shares additional support.

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Does the Market's 'Fear Gauge' Have a Magic Number?

Whatever metric you use on VIX, view it in shades of gray

by 4/15/2014 7:26 AM
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We must be getting close to a near-term top in the CBOE Volatility Index (VIX). I say that because I see Zero Hedge looking at it … or rather, looking at someone else looking at it:

While US equities have spent much of the past several weeks under pressure (the NASDAQ bio tech index has fallen over 21%, the NASDAQ Comp is down over 8% and the S&P 500 is down over 4%), BofAML's Macneil Curry is concerned that the VIX index suggests conditions should deteriorate further before greater signs of a base materialize.

Hey, I actually agree with that! I'd substitute "could" for "should" in that last sentence, but I expressed those same sentiments Sunday night. I'm encouraged, tell me more!

Since 2012 most tradable market lows have come only after the VIX has pushed north of 20%. It is currently only 17%.

OK, I got my hopes up too soon, as that lost me a bit. 2012 seems like an arbitrary end point. We've been in an uptrend for about five years -- why lop off three of them? Or maybe even four of them, as it says "since 2012," which might mean we're talking about just 2013 and the first quarter of 2014.

What's a "tradable market low," anyway? One that preceded a nice bounce? Well, that part is true. But they were all also great times to just get long and hold. "Tradable market low" implies you bought and sold somewhat quickly. The buying part worked ... but the selling part? No way to know without specifics, but I'm guessing lots of money was left on the table.

OK, I'm being picky. No matter what you did when VIX closed above 20 over the last 2.25 years, you did well. My biggest problem with this sort of analysis is that it's looking backwards, selectively and unclearly choosing end points, retro-fitting conclusions, and creating a rule that has no long-term basis for success.

We're in a low-volatility regime now, and have been for the last few years, depending on how you define it. The forever-term mean of VIX is about 20, but in low-volatility regimes, the mean of VIX is probably more like 15. In those times, a VIX of 20 is high, so it's not at all out of bounds to say or imply that it's a good time to look for a market low.

What I also take issue with is making 20 VIX out to be a magical level of some sort. If you consider VIX a contra-tell of sentiment, any higher VIX means you should get more bullish than you are at lower VIX. The market should do better after 17 VIX than it does after 16 VIX, should do better after 18 VIX than after 17 VIX, and so on.

I like using deviations from moving averages or violations of Bollinger Bands as the definition of an "overbought" VIX. But I understand most people just use absolute numbers in VIX and go from there. It's not optimal, in my humble opinion, but it's not disastrous. I'd just suggest that whatever metric you use on VIX, view it in shades of gray. Higher shows more fear than lower. Twenty is just a number in VIX; it's not at all magic.

Why's that an important point? Well, maybe you caught five tradable lows in the last 2.25 years going long when VIX closed above 20. But maybe you missed 10 other pretty good tradable longs that you could have started scaling into when VIX hit 17 or 18 or 19.

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

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