Schaeffer's Trading Floor Blog

Analyst Downgrades: AbbVie Inc, Lululemon Athletica inc., and Netflix, Inc.

Analysts downwardly revised their ratings on ABBV, LULU, and NFLX

by 10/16/2014 9:19 AM
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Analysts are weighing in today on drugmaker AbbVie Inc (NYSE:ABBV), yoga apparel designer Lululemon Athletica inc. (NASDAQ:LULU), and streaming content provider Netflix, Inc. (NASDAQ:NFLX). Here's a quick roundup of today's bearish brokerage notes on ABBV, LULU, and NFLX.

  • Just a day after wavering on its Shire PLC (ADR) (NASDAQ:SHPG) takeover bid, ABBV saw its price target slashed to $59 from $71 at BMO, which nevertheless reaffirmed its "outperform" rating. On the charts, it's been a forgettable year for the stock -- up just 3.4% to trade at $54.63. If this ho-hum price action continues, AbbVie Inc could be vulnerable to additional bearish brokerage notes. After all, five out of seven covering analysts still dole out "strong buy" ratings on the shares, and ABBV's consensus 12-month price target of $67.67 stands in territory never before charted. On the fundamental front, the company is slated to enter the earnings confessional sometime between Thursday, Oct. 23, and Monday, Oct. 27.

  • LULU has had a terrible year, shedding nearly one-third of its value to rest at $39.60. Macquarie responded to this technical trend by assuming coverage on the stock with an "underperform" rating and $34 price target. The firm isn't the only one that's bearish on Lululemon Athletica inc. Roughly 21% of the stock's float is sold short, which would take more than two weeks to buy back, at LULU's typical daily trading levels.

  • Finally, NFLX is poised to drop 26% out of the gate, after getting hit with a flurry of bearish brokerage notes on news of impending competition from HBO and disappointing new subscriber data. Specifically, the shares were slammed with nearly 20 price-target reductions -- and CRT Capital even cut its assessment to "fair value" from "buy." On the flip side, Jefferies raised its rating on Netflix, Inc. to "hold" from "underperform." Getting back to the technicals, this is a huge setback for the equity, which -- as of yesterday's close at $448.59 -- had advanced 21.8% year-to-date. Elsewhere, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been tilted in a bullish direction of late, per NFLX's 10-day call/put volume ratio of 1.10, which ranks in the 84th percentile of its 12-month range.

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Analyst Upgrades: Baidu Inc (ADR), Bristol-Myers Squibb Co, and Tiffany & Co.

Analysts upwardly revised their ratings on BIDU, BMY, and TIF

by 10/16/2014 8:48 AM
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Analysts are weighing in today on Chinese Internet company Baidu Inc (ADR) (NASDAQ:BIDU), pharmaceutical firm Bristol-Myers Squibb Co (NYSE:BMY), and high-end jeweler Tiffany & Co. (NYSE:TIF). Here's a quick roundup of today's bullish brokerage notes on BIDU, BMY, and TIF.

  • BIDU, which is slated to enter the earnings confessional after the close on Wednesday, Oct. 29, saw its rating raised to "outperform" from "perform" at Oppenheimer. The upgrade is well-deserved, as the shares have advanced nearly 16% year-to-date to trade at $205.73. The bullish brokerage note is by no means rare, either. Eleven of the 13 analysts following Baidu Inc (ADR) have given it a "strong buy" endorsement, compared to two "holds" and not a single "sell" recommendation.

  • Despite a nearly 8% year-to-date deficit to rest at $48.96, BMY was upgraded to "outperform" at BMO. Traders in the stock's options pits are similarly optimistic. During the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Bristol-Myers Squib Co has racked up a call/put volume ratio of 4.50, with more than four calls bought to open for every put. What's more, this number ranks in the 77th percentile of its annual range, suggesting speculators have picked up BMY calls over puts at an accelerated clip, relatively speaking. Looking ahead, the company will report third-quarter earnings next Friday morning.

  • Finally, Macquarie boosted its assessment on TIF to "outperform" from "neutral." This, despite the equity's year-to-date loss of 5.4% to close yesterday at $87.77, and recent sell-off after notching a record high in late August. Elsewhere on the Street, sentiment isn't nearly as rosy. Tiffany & Co.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 3.09 ranks just 4 percentage points from a 12-month peak, suggesting the stock's puts are being bought to open at a faster-than-usual pace.

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By the Numbers: The SPY and Its 200-Day Moving Average

Examining the SPDR S& 500 ETF Trust (SPY) and the aftermath of breaching its 200-day moving average

by 10/16/2014 8:11 AM
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So, as you probably have heard, all the major indices have crossed below their 200-day simple moving averages (SMA) recently. Now, there's no more basic measure of a long-term trend than the 200-day moving average. But does it really work as an investing guide?

Well, the SPDR S&P 500 ETF Trust (SPY) was pretty much the last holdout. It closed below the 200-day last Friday for the first time since Nov. 19, 2012. If you bought that day and then sold on Friday, you earned 36.9% on your money -- pretty nice.

So I thought, hey, let's start with $100,000 and create and compare two very simple trading systems. We'll call one "SPY Over." It goes 100% long when SPY closes above the 200-day SMA, and goes to cash when it closes below. We'll call the other "SPY Under," and it does the opposite. Starting with an SPY Under on March 25, 1994, there were 73 signals each way. Here are the results:

SPY Over vs SPY Under

I don't factor in dividends or anything earned on cash. SPY Over keeps you long about two-thirds of the time.

And yes, those numbers are odd-looking. If you go long when SPY closes below the 200-day and wait until it goes back above, you are overwhelmingly likely to make a winning trade -- 67 wins in 73 tries, and a median return of 1.12%.

Sounds great on the surface, right? Well, it's a generally bad idea, as you can see on the bottom line.

The wins tend to be small, and they get you out in front of the longer-term rallies. And, three of the losses were huge. You took an 18.11% hit starting on Sept. 29, 2000, a 21.93% hit starting on April 2, 2002, and a 33.21% loss starting May 20, 2008. That almost entirely wiped out 70 other instances that included 67 gains and three modest losses. And, of course, simply owning only in SPY Over times got you almost the entirety of the market gains over the past 20-plus years, while only staying long two-thirds of the time.

SPY Over has the exact opposite experience of SPY Under. Only 16 winners in 73 tries, but some of those wins were fantastic. As noted above, we're off a nearly two-year run that returned 34.7%. Others include a 11.33% win starting on Sept.13, 2010, a 19.36% win starting July 13, 2009, a 13.13% lift starting Aug. 15, 2006, a 23.62% pop starting April 17, 2003, and a 16.87% rise starting Oct. 29, 1998. And then there's the mother of all trend moves. If you went long on July 30, 1996, you took in 63% before selling on Aug. 27, 1998.

If you want a good sign for our present plight, the aftermath in 1998 wasn't so bad. Within two days of dropping below the 200-day, the SPY had lost another 7%, closing at 96. But, that turned into a very long-term low. It spent the next two months almost entirely below the 200-day, in an SPY range from the high 90s to low 100s, then broke out again in October 1998, as I mentioned above.

I'm not big on sample sizes of one, but it's an interesting parallel to now.

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


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Stocks On the Move: T-Mobile US Inc, Microchip Technology Inc., and Peregrine Pharmaceuticals

TMUS, MCHP, and PPHM are moving sharply in Wednesday's trading

by 10/15/2014 12:31 PM
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U.S. stocks are decidedly lower this afternoon, as traders digest a raft of dismal economic data and mounting concerns about Ebola. Among the names making significant moves are telecom concern T-Mobile US Inc (NYSE:TMUS), semiconductor issue Microchip Technology Inc. (NASDAQ:MCHP), and drugmaker Peregrine Pharmaceuticals (NASDAQ:PPHM). Here's a quick look at how TMUS, MCHP, and PPHM are faring on the charts today.

  • TMUS is down 4.7% at $25.16, and earlier tagged a new annual low of $24.50, a day after France's Iliad scrapped its bid for the U.S. carrier. TMUS has underperformed the broader S&P 500 Index (SPX) by nearly 12 percentage points during the past three months, and its 14-day Relative Strength Index (RSI) now sits at 28 -- in oversold territory. Against this backdrop, short-term options players have rarely been more put-biased during the past year, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98 sits just 2 percentage points from a 12-month peak. On the flip side, analysts remain optimistic toward T-Mobile US Inc, as 12 out of 15 brokerage firms have doled out "buy" or better endorsements.

  • MCHP also touched a new low, dropping to $37.44 after rival QUALCOMM, Inc. (NASDAQ:QCOM) dashed its dream of buying CSR Plc. Microchip Technology Inc. shares have surrendered nearly 20% so far this month, after last week gapping lower on an industry warning, and were last seen 1.7% lower at $37.57. The security has underperformed the SPX by more than 17 percentage points during the past 60 sessions, translating into a 14-day RSI of 18 for MCHP. However, not everyone on Wall Street is ruing the stock's fall from grace. Short interest accounts for 11.8% of the shares' total available float, representing nearly 17 sessions' worth of pent-up buying demand, at MCHP's average pace of trading.

  • PPHM -- along with other Ebola-related stocks -- is bucking the trend lower, up 14.3% at $1.60. The company -- which will host its annual shareholder meeting tomorrow -- this morning said it will test its experimental Ebola antibody, and traders are waxing optimistic in light of another confirmed case in Dallas. On a year-to-date basis, Peregrine Pharmaceuticals shares have added more than 15%, yet option buyers have been bracing for the worst. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.31 stands higher than 99% of all other readings from the past year. In other words, options traders have bought to open PPHM puts over calls at a near-annual-high clip during the past two weeks.

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Analyst Update: Intel Corporation, ARM Holdings plc (ADR), and Peabody Energy Corporation

Analysts are weighing in on INTC, ARMH, and BTU

by 10/15/2014 11:25 AM
Stocks quoted in this article:

Stocks have taken a turn for the worse today, amid a number of growing concerns both here and abroad. Among equities in focus, tech issues Intel Corporation (NASDAQ:INTC) and ARM Holdings plc (ADR) (NASDAQ:ARMH), as well as coal concern Peabody Energy Corporation (NYSE:BTU) have all attracted the attention of analysts.

  • Disappointing sales in INTC's mobile and communications division have overshadowed a generally upbeat third-quarter earnings report, sending shares plunging 4% to $30.84 -- and analysts weighing in. No fewer than eight brokerage firms upped their price targets on INTC, but Morgan Stanley took the road less travelled, and cut its outlook on the stock to "underweight" from "equal weight." Today's sharp move lower only highlights the security's recent troubles, with shares of Intel Corporation down 8.3% from last Thursday's close at $33.62. Should the shares continue to struggle, another round of downgrades could apply additional pressure. At present, 16 covering analysts maintain a "strong buy" recommendation, versus 14 tepid "holds" and just two "sells."

  • Ahead of ARMH's turn in the earnings confessional after Tuesday morning, Canaccord Genuity reduced its price target on the stock to $55 from $58 -- and underscored its "buy" rating. However, this new target still represents expected upside of 38% to the security's current perch at $39.93, and should ARM Holdings plc (ADR) extend its 27% year-to-date deficit, another price-target cut could be on the horizon. Elsewhere, option traders have taken a decidedly bearish route, as evidenced by the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio, which ranks in the 86th percentile of its annual range.

  • It's been a terrible year for BTU, with the shares down more than 46%. In today's session, the stock was last seen 3.1% lower at $10.47, after Imperial Capital started the security with an "underperform" rating -- and assigned certain senior notes with a "sell" recommendation -- citing increasing leverage and instability in the international coal community. Despite Peabody Energy Corporation's long-term technical troubles, pockets of optimism can still be found around the Street. In fact, 10 out of 15 analysts maintain a "buy" or better suggestion toward the stock, versus five "hold" or "sell" ratings. If BTU disappoints when it takes to the earnings stage ahead of next Monday's open, the door is wide open for another round of bearish brokerage notes.

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