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Analysts are weighing in today on home beverage system Sodastream International Ltd (NASDAQ:SODA), BlackBerry maker Research In Motion Ltd (NASDAQ:BBRY), and banking issue SunTrust Banks, Inc. (NYSE:STI). Here's a quick roundup of today's bearish brokerage notes.
- SODA -- which has soared nearly 104% during the past year to linger in the $64.83 neighborhood -- was downgraded to "neutral" from "overweight" at J.P. Morgan Securities today. However, the brokerage firm also lifted its price target for the stock to $70 from $56. Despite Sodastream International Ltd's technical prowess, bearish speculation toward the equity remains alive and well. In fact, short interest currently accounts for a hefty 40% of the security's available float. It would take more than 14 sessions to unwind these shorted shares, at SODA's average daily trading volume.
- Although BBRY sports a year-to-date gain of more than 24%, the stock was cut to "underperform" from "neutral" at Exane BNP Paribas in pre-market action. Research In Motion Ltd is certainly no stranger to skepticism from the brokerage bunch, though. Just six analysts have handed out "buy" or better endorsements, compared to 11 "holds" and 13 "sell" or worse suggestions. What's more, the security's average 12-month price target of $12.30 reflects a discount to yesterday's closing price of $14.77. This leaves plenty of room for future upgrades and/or price-target hikes, which could push BBRY higher.
- STI was lowered to "perform" from "outperform" at Oppenheimer ahead of the opening bell, despite a year-over-year advance of roughly 43% to explore the $32.15 area. Meanwhile, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 7.62, confirming traders have bought to open more than seven calls for every put during the past two weeks. This ratio is just 4 percentage points shy of a yearly acme, signaling speculators have been snapping up bullish options over bearish at a near annual-high clip lately.
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Analysts are weighing in today on banking behemoth Citigroup Inc (NYSE:C), Internet radio concern Pandora Media Inc (NYSE:P), and data storage provider NetApp Inc. (NASDAQ:NTAP). Here's a quick roundup of today's bullish brokerage notes.
- Up nearly 92% on a year-over-year basis to trade at $51.66, C received a price-target boost to $60 from $53 at Credit Suisse ahead of the open. The security has also bested the broader S&P 500 Index (SPX) by north of 12 percentage points during the past three months, so it's no surprise that calls have been favored over puts lately. In fact, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 1.51 for Citigroup Inc. In other words, calls bought to open have outstripped puts during the past 10 weeks.
- P -- which has gained more than 76% so far this year and is presently docked at $16.20 -- saw its price target lifted to $20 from $16 at Needham Research this morning. This bullish attitude toward the equity is evident among the short-term options crowd, as well. Schaeffer's put/call open interest ratio (SOIR) for Pandora Media Inc sits at 0.37, with calls almost tripling puts among options scheduled to expire within the next three months. This ratio arrives in the 19th percentile of its annual range, indicating near-term options players are much more call-heavy toward the stock than usual.
- NTAP was flooded with bullish attention today, after reporting stronger-than-expected per-share earnings and announcing a share-buyback plan. Deutsche Bank raised its price target to $48 from $40, while brokerage firms including RBC, Evercore Partners, and Credit Suisse followed suit. NetApp Inc has advanced more than 9% year-to-date and is perched at $36.63, but there is still plenty of skepticism levied against the equity. Short interest ramped up by close to 22% during the past two reporting periods, and now accounts for a healthy 5.6% of the security's available float. It would take almost three days to cover these pessimistic bets, at NTAP's average pace of trading.
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Looks like we have some possible pushback in our never-ending Man vs. Machine trading saga. This, from The Wall Street Journal:
A Federal Reserve official has called for fundamental changes in financial markets to slow trading and allow investors to better compete with the ultrafast computer programs used by some participants.
A paper due to be presented Tuesday by the Federal Reserve Bank of Chicago proposes altering the structure that allows a nonstop stream of trades and instead execute orders every half-second.
The proposal is expected to ignite controversy among some traders and exchanges, which have invested heavily in the technology to profit from ultrafast trading. The paper said high-frequency trading has inflated transaction costs, with limited benefits for liquidity and pricing.
It sure sounds like a reasonable first step, though I'm not sure how many humans can enter orders a half-second apart. The idea as I understand it is to curtail the machines from their "probes" where they enter, and cancel orders over and over again at lightning speed. It makes a bad joke out of the quaint notion of "price discovery."
So, how will this proposed time lag help?
The proposal would mean that stocks or futures contracts would change hands about as quickly as humans can read changing numbers, according to Mr. McPartland. Randomizing the process every half-second would ensure that neither high-speed firms nor traders would know precisely when trades are matched, and algorithmic trading strategies would have less cause to blast the market with thousands of price quotes, he said.
Fewer prices quoted and then retracted would also trim the flow of data that exchanges and trading platforms pump out daily to brokers. "Right now, [exchanges] have to retransmit a fire hose of data world-wide to people who can't possibly read it," Mr. McPartland said.
It is hard to believe that we've gotten to this point. I really don't see how slowing it "down" all the way to two execution windows per second will change the world all that much. But what do I know?
In Options World, we always have to ask how changing market structures impact volatility. Realized volatility has trended lower as the algorithmic trading systems have grown to dominate the market. Is it causality or mere coincidence? It's always tough to say.
It seems likely that the more the Machines trade, the lower the volatility (with occasional accidents like the Flash Crash). It's something like having every stock in the world near a strike price on expiration day, and all the machines are long gamma and flipping to make back their decay. The buying and selling for tiny edges can only serve to reduce volatility on the margins. Except, of course, when they "virtually" walk away at times.
But this isn't the only development in the world over the past five years, and since there's no "control" market where they already take steps to slow the machines down, we don't know whether it will impact volatility. If I had to guess, I'd say if we see any real changes in market structure, it will be incremental. And whatever impact they have on volatility will remain.
Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.
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The major market indexes are modestly higher this afternoon, as investors digest blue-chip earnings and await Fed Chairman Ben Bernanke's appearance on Capitol Hill. Among the equities in focus include social gaming concern Zynga Inc (NASDAQ:ZNGA), professional networking issue LinkedIn Corp (NYSE:LNKD), and streaming video titan Netflix, Inc. (NASDAQ:NFLX), which have all attracted the attention of analysts.
- ZNGA has tacked on 3.8% to trade at $3.53, after Piper Jaffray upped its price target to $3.50 from $2.75. The shares are up roughly 50% in 2013, yet remain plagued by pessimism in the options pits. Schaeffer's put/call open interest ratio (SOIR) for the stock is 0.83, which sits just 6 percentage points from a 12-month peak. In other words, near-term options players have rarely been more put-skewed during the past year. Meanwhile, short interest advanced 25.5% during the most recent reporting period, underscoring our theory that the ZNGA bears are alive and well.
- Moving on, analysts at BGC partners launched coverage of LNKD with a "buy" rating and $225 price target, representing expected upside of 22% to LinkedIn's current price of $184.46. Of course, there could be more positive analyst attention on the horizon for LNKD, which has outperformed the broader S&P 500 Index (SPX) by more than 4 percentage points during the past three months. Currently, 15 out of 26 brokerage firms maintain tepid "hold" opinions of the equity.
- With summer comes lower TV ratings for the networks, which could translate into money in the proverbial banana stand for NFLX, opined analysts at BTIG. In fact, considering Netflix's influx of original content like "Arrested Development" (premiering Sunday), the streaming video service could top The Walt Disney Company's (NYSE:DIS) namesake channel and even News Corp.'s (NASDAQ:NWSA) Fox in June. Despite outpacing the SPX by 23 percentage points during the past two months, NFLX remains underappreciated among the brokerage crowd. Just six analysts offer up "strong buy" endorsements, compared to 16 "holds" and four "sell" or worse suggestions. Meanwhile, the security's SOIR of 1.20 stands higher than 83% of all other readings of the past year. At last check, NFLX is trading at $237.65. Should the stock continue its year-to-date advance -- currently north of 150% -- a round of upgrades or a mass exodus of option bears could add fuel to the fire.
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The Dow Jones Industrial Average (INDEXDJX:.DJI) is up 35 points, or 0.2%, to 15,370.76, as investors await Fed Chairman Ben Bernanke's Congressional testimony tomorrow. Meanwhile, blue-chip component The Home Depot, Inc. (NYSE:HD) revealed stronger-than-expected quarterly earnings ahead of the open, which propelled the home improvement retailer to a fresh record peak of $79.40. Although the Dow has pared this morning's gains, it still managed to tag another all-time intraday high of 15,401.17 within the first 30 minutes of trading.
Here are a few noteworthy stats at midday:
- The equity put/call volume ratio across all 11 options exchanges checks in at 0.73, with 3.6 million calls changing hands so far today, versus 2.7 million puts.
- Among the equities with heavy call activity is Saks Inc (NYSE:SKS), which has gained about 8.6% -- and touched a new multi-year high of $13.54 -- since the opening bell, after the firm topped analysts' quarterly revenue estimates this morning. Currently, calls account for 93.5% of the retailer's intraday option volume. At last check, SKS was trading at $13.34.
- The New York Stock Exchange (NYSE) shows an advance/decline ratio of 0.89, with the number of downward movers outweighing the advancers.
- Among the NYSE's major decliners is hhgregg, Inc. (NYSE:HGG), which has plummeted about 12.4% in intraday action, after reporting an 82% drop in fiscal fourth-quarter earnings post-close yesterday. Despite these downbeat results, however, analysts at UBS, Janney, Jefferies, and J.P. Morgan Securities lifted their price targets for the stock in pre-market trading. HGG is presently trading at $13.67.
- The CBOE Market Volatility Index (INDEXCBOE:VIX) is 0.04 point, or 0.3%, higher, to rest at 13.06.
- The put/call volume ratio on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) -- which is currently docked at 18.23 -- sits at 1.86, with puts almost doubling calls.
View a real-time chart of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI).