Schaeffer's Trading Floor Blog

Buzz Stocks: Digital Ally, Inc., Tiffany & Co., and Wal-Mart Stores, Inc.

Today's stocks to watch in the news are DGLY, TIF, and WMT

by 11/25/2014 9:34 AM
Stocks quoted in this article:

Markets are poised to continue their record-setting run today, as traders digest the preliminary update on third-quarter gross domestic product (GDP). Among specific equities in focus are security and surveillance specialist Digital Ally, Inc. (NASDAQ:DGLY), high-end retailer Tiffany & Co. (NYSE:TIF), and blue chip Wal-Mart Stores, Inc. (NYSE:WMT).

  • DGLY jumped more than 12% yesterday to close at $14.05, ahead of last night's grand jury decision to not indict a police officer in the shooting death of an unarmed teenager. Following the announcement -- and despite the subsequent eruption of riots in Ferguson, Missouri -- shares of the wearable camera maker are roughly 0.9% lower right out of the gate. Year-to-date, Digital Ally, Inc. has tacked on around 50%, yet short sellers have been betting on the stock's momentum to run out of steam. Short interest jumped 5.4% in the last two reporting periods, and now accounts for more than one-quarter of the stock's available float.

  • TIF is opened nearly 5% higher, after closing last night at $105.01 -- and tagged a new record peak of $110.51 -- as traders digest the company's third-quarter earnings results. While both top- and bottom-line numbers missed consensus estimates due to sluggish growth in the Asia-Pacific region, a robust reading on same-store sales in the Americas has sparked some optimism around the Street. Heading into today's session, the stock was enjoying a respectable 13.2% year-to-date lead, and option traders have been gambling on more upside for Tiffany & Co. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, TIF's 10-day call/put volume ratio of 2.22 ranks in the bullishly skewed 76th percentile of its annual range. Echoing this call-skewed bias is the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.80, which ranks lower than 77% of similar readings taken in the past year.

  • WMT has edged 0.2% lower at the open, as traders react to reports the company's chief merchandising officer is ready to announce his departure just a few days before the all-important Black Friday shopping event. On the sentiment front, analysts are skeptical toward a stock that's tacked on more than 8% in 2014. In fact, more than half of those covering the shares maintain a "hold" or "strong sell" suggestion, while the consensus 12-month price target of $82.04 stands at a discount to the equity's current perch at $85.40. Should Wal-Mart Stores, Inc. resume its uptrend, a round of upgrades and/or price-target hikes could help propel the shares higher.

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Analyst Downgrades: Cyberark Software Ltd, Nu Skin Enterprises, Inc., and Workday Inc

Analysts downwardly revised their ratings on CYBR, NUS, and WDAY

by 11/25/2014 9:33 AM
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Analysts are weighing in today on cyber-security firm Cyberark Software Ltd (NASDAQ:CYBR), nutritional supplements marketer Nu Skin Enterprises, Inc. (NYSE:NUS), and HR specialist Workday Inc (NYSE:WDAY). Here's a quick roundup of today's bearish brokerage notes on CYBR, NUS, and WDAY.

  • CYBR got hit with a pair of bearish brokerage notes earlier. William Blair downgraded the stock to "market perform" from "outperform" -- which cited long-term growth concerns -- while Nomura reduced its rating to "neutral" from "buy." This, despite the shares advancing 88% since their late-September public debut to close last night at $47.01. Out of the gate, though, Cyberark Software Ltd has given back 4.8%. On the sentiment front, options traders have bought to open 5.91 calls for every put during the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). However, short interest on CYBR spiked 66.5% in the latest reporting period, suggesting some of these bullish options bets may have been at the hands of short sellers seeking an upside hedge.

  • NUS was initiated with a "neutral" rating at Citigroup, which is about par for the course. Of the six analysts covering the shares, two-thirds rate them the equivalent of a "hold" or "sell." Short sellers are also skeptical of Nu Skin Enterprises, Inc., as 11.3% of the stock's float is sold short -- which would take a week to buy back, at average daily trading volumes. On the charts, NUS has shed about 70% of its value in 2014 to rest at $41.43, and has underperformed the broader S&P 500 Index (SPX) by roughly 19 percentage points during the last month.

  • Finally, WDAY has plunged 6% out of the gate, following a poorly received third-quarter earnings report, and a round of bearish brokerage notes. Specifically, no fewer than seven brokerage firms reduced their price targets on Workday Inc, including Deutsche Bank, which lowered its target by 10% to $90, and reiterated its "hold" opinion. On the charts, the equity was up 11.2% year-to-date as of Monday's close at $92.49, but this morning has broken south of its month-long sideways pattern in the $90-$97 range, at $86.97. Should WDAY continue to plummet in the wake of today's negative analyst attention, there will be plenty of short sellers cheering. More than 9% of the stock's float is sold short, which would take almost seven sessions to cover, at WDAY's average daily trading rate.

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Analyst Upgrades: General Electric Company, Medtronic, Inc., and Palo Alto Networks Inc

Analysts upwardly revised their ratings on GE, MDT, and PANW

by 11/25/2014 9:02 AM
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Analysts are weighing in today on Dow component General Electric Company (NYSE:GE), medical technology firm Medtronic, Inc. (NYSE:MDT), and network security platform Palo Alto Networks Inc (NYSE:PANW). Here's a quick roundup of today's bullish brokerage notes on GE, MDT, and PANW.

  • RBC initiated coverage on GE with an "outperform" rating this morning. While the shares are sitting nearly 4% below year-to-date breakeven, they've rallied 11.2% since hitting a mid-October closing low of $24.28 to their current perch at $27.00. Meanwhile, options traders have been bearishly arrayed toward General Electric Company for some time. The equity's 50-day put/call volume ratio of 0.40 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 96th percentile of its annual range. Elsewhere, short interest ramped up 33.6% during the last two reporting periods -- though, more broadly speaking, less than 1% of GE's float is dedicated to short interest.

  • RBC was also busy upping MDT's price target to $81 from $73, while underscoring its "outperform" recommendation. The positive analyst note appears to be well-deserved, considering the shares have rallied 27% since the start of 2014 to land at $72.93, and have outperformed the broader S&P 500 Index (SPX) by 12.2 percentage points over the past two months. Additional upside could be sparked by short-covering activity, as 6.9% of Medtronic, Inc.'s float is sold short -- which would take seven sessions to buy back, at the equity's typical daily trading volume.

  • Finally, PANW is pointed 1.2% higher ahead of the bell, after the company's fiscal first-quarter earnings beat was met with no fewer than a dozen price-target hikes. Leading the way were Morgan Stanley and Raymond James, which handed out the loftiest targets of $136 and $131, respectively. On the charts, Palo Alto Networks Inc has nearly doubled in value this year, closing yesterday at $113.26, after hitting an intraday record high of $113.38. Not surprisingly, 84% of the brokerage firms covering the stock rate it a "buy" or better, with not a single "sell" recommendation to be found.

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Will Rising Implied Volatility for Oil Spill Over to Stocks?

While SPY volatility stays flat, expectations for a big oil move are ramping up

by 11/25/2014 8:41 AM
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I'm listening to the TeeVee when I hear a feature on oil volatility and anticipation thereof. My first thought is that, yeah, it was volatile for a few months. But that has kind of abated, albeit at lower levels. And the pundit-sphere tends to overstate volatility. Like we noted last week, it's the rare person that comes out and says they expect less volatility going forward -- in anything.

Silly me, they actually have a good point in oil.

United States Oil Fund LP (USO), which is sort of the iPath S&P 500 VIX Short-Term Futures ETN (VXX) in crude (at least, the way it will drift slowly over time amidst what looks like equilibrium), has had a rough four months. It was 39.44 at its 2014 peak in mid-June. It's now about 29, not too far above its lows near 28 a few days ago. USO's 10-day realized volatility is about 25, almost near the 2014 highs of 28, and well above typical levels in the mid-to-high teens.

For the record, 10-day realized volatility in SPDR S&P 500 ETF Trust (SPY) still carries a 3 full, so USO volatility is downright respectable.

If you told me all this and asked me to guess the implied volatility in USO, I'd expect to see it above-average, given that USO itself is near the lows. But I'd also expect to see it at a discount to the current realized volatility. Mean reversion coming up, right? That translates to something like an 18 "VIX" in USO.

Well, I would have lost a mint selling options at or near that volatility. The USO VIX is now about 34.5, essentially the high for the year. That's somewhat enormous, given that volatility here generally stayed around 20-21 and below until early October.

So I stand completely corrected on this topic. The market truly does anticipate some major price action in oil over the next month.

Will it translate over to general equity volatility? Stocks themselves were moving with some reasonable correlation to crude while the recent shakeout was going on. But that ended about a month ago. Crude has stayed in the doldrums, while stocks flipped the script and took out old highs.

As to volatility spilling over, there's not much sign of that just yet. The equity volatility we know is pathetic. Bond volatility has trended lower as well, though not quite as abruptly. Currencies are meh. The only major spot where we see volatility somewhat elevated is gold, which makes some sense in that it ties into crude a bit.

Oil volatility is definitely something to keep on the radar, but not to obsess much over.

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


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Analyst Update: Aruba Networks, Inc., Priceline Group Inc, and Verizon Communications Inc.

Analysts offered their two cents on ARUN, PCLN, and VZ

by 11/24/2014 1:28 PM
Stocks quoted in this article:

U.S. stocks are flat in early afternoon action, as traders sit on the sidelines amid a holiday-shortened week. Among equities attracting the attention of analysts are tech concern Aruba Networks, Inc. (NASDAQ:ARUN), travel site Priceline Group Inc (NASDAQ:PCLN), and telecom issue Verizon Communications Inc. (NYSE:VZ).

  • ARUN is 1.6% higher at $19.12, paring a portion of Friday's 13.7% post-earnings plunge. In fact, Raymond James waxed optimistic on Aruba Networks, Inc., predicting the company will "grow 17% this fiscal year" -- outpacing expected industry growth -- "while expanding margins at the same time." As such, the brokerage firm upgraded ARUN to "outperform" from "market perform," overshadowing a downgrade to "underperform" from "neutral" at BofA-Merrill Lynch. In the wake of last week's bear gap, ARUN's 14-day Relative Strength Index (RSI) dropped to 31 -- on the cusp of oversold territory, suggesting a short-term rebound may have been in the cards. Meanwhile, most analysts remain devoted to ARUN, as 11 out of 21 maintain "buy" or better opinions.

  • PCLN is 0.4% higher at $1,156.01, after Credit Suisse launched coverage with an "outperform" rating. Priceline Group Inc's sector peers weren't so fortunate, with Orbitz Worldwide, Inc. (NYSE:OWW) and HomeAway, Inc. (NASDAQ:AWAY) earning new "neutral" opinions. On the charts, PCLN is just south of its year-to-date breakeven level, with recent rally attempts stalling in the $1,200 neighborhood -- home to the equity's 40-week moving average. Nevertheless, Wall Street remains upbeat, as 16 out of 17 analysts offer up "buy" or better endorsements. Plus, the consensus 12-month price target of $1,334.60 represents expected upside of 15.4% to the stock's current perch, and stands in territory not explored since mid-March.

  • Finally, VZ has shed 1.7% to linger near $49.35 -- and is in danger of ending south of $50 for the first time this month -- after a downgrade to "neutral" at Citigroup. The negative note is relatively rare for Verizon Communications Inc., which boasts 17 "strong buys" and two "buy" ratings, compared to five lukewarm "holds" and not a single "sell." Echoing that optimism, option buyers have been upping the bullish ante on VZ, even though the Dow component has lagged the blue-chip barometer in 2014. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 5.24 sits just 1 percentage point from a 12-month peak. In other words, option traders have picked up VZ calls over puts at a near-annual-high clip during the past two weeks.

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