Schaeffer's Trading Floor Blog

Buzz Stocks: Google Inc, AbbVie Inc, Hewlett-Packard Company, and FedEx Corporation

Today's stocks to watch in the news include GOOGL, ABBV, HPQ, and FDX

by 7/18/2014 9:09 AM
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The major market indexes are poised to open in the green following yesterday's sell-off, as futures are pointed higher in pre-market trading. In company news, here are some stocks to watch today:

  • Google Inc (NASDAQ:GOOGL) Chief Business Officer Nikesh Arora is departing the company to serve as vice chairman of Japan-based Softbank. He'll be replaced on an interim basis by sales lead Omid Kordestani. In other news, GOOGL reported second-quarter earnings last night. (Reuters, via CNBC; Los Angeles Times)

  • U.S.-based pharmaceutical concern AbbVie Inc (NYSE:ABBV) agreed to purchase Shire PLC (ADR) (NASDAQ:SHPG) for roughly $55 billion in cash and stock, giving ABBV shareholders a 75% stake of the combined company. ABBV will also move its tax residence from Chicago to the U.K., reducing its tax rate 9 percentage points to 13%. (USA Today)

  • Hewlett-Packard Company's (NYSE:HPQ) board of directors has appointed President and CEO Meg Whitman to the additional position of chairman. Ralph Whitworth previously served as chairman, but stepped down earlier this week due to health concerns. (TechCrunch)

  • A federal grand jury has indicted FedEx Corporation (NYSE:FDX) for alleged drug trafficking, accusing the company of knowingly delivering prescription drugs for illegal online pharmacies. One top executive issued a statement denying the charges: "Whenever DEA provides us a list of pharmacies engaging in illegal activity, we will turn off shipping for those companies immediately. So far the government has declined to provide such a list." (USA Today)

  • Also, General Electric Company (NYSE:GE), International Business Machines Corp. (NYSE:IBM), and Advanced Micro Devices, Inc. (NYSE:AMD) reported quarterly earnings. (Reuters, via CNBC; USA Today; Associated Press, via Bloomberg Businessweek)

  • Finally, a French judge fined blogger Caroline Doudet about $2,000 for her negative review of the restaurant Il Giardino, saying the post was "too prominent" in GOOGL search results. In an interview, Doudet said she finds it "really serious if we no longer have the freedom to write. I don't see the point of criticism if it's only positive." (Mashable)

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Analyst Upgrades: Microsoft Corporation, Gilead Sciences, Inc., and Amgen, Inc.

Analysts issued bullish notes on MSFT, GILD, and AMGN

by 7/18/2014 8:51 AM
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Analysts are upwardly revising their ratings today on software giant Microsoft Corporation (NASDAQ:MSFT), plus biopharmaceutical stocks Gilead Sciences, Inc. (NASDAQ:GILD) and Amgen, Inc. (NASDAQ:AMGN). Here's a quick look at today's bullish brokerage notes on MSFT, GILD, and AMGN.

  • Following Thursday's well-received job-cuts announcement, MSFT today garnered a price-target hike to $50 from $44 at Barclays. Despite the blue chip's impressive year-to-date gain of 19%, most analysts remain on the fence when it comes to Microsoft Corporation. Less than half of the brokerage firms tracking MSFT have deemed it worthy of a "buy" or better rating, leaving plenty of room for upgrades on this outperforming stock in the future. MSFT shares closed at $44.53 yesterday, and are pointed fractionally higher ahead of the bell.

  • Nomura lifted its price target on GILD to $141 from $130, implying expected upside of nearly 66% to yesterday's close at $85.07. Most analysts have slightly tamer expectations for Gilead Sciences, Inc., as the average 12-month price target weighs in at $101.57. The stock is up 13.3% in 2014, and is currently testing support in the $85 region -- a former layer of resistance that could now switch roles to serve as a floor. Looking ahead, GILD will announce its second-quarter earnings results after the market closes next Wednesday, July 23.

  • After announcing positive trial results for its thyroid drug, AMGN scored a price-target increase to $149 from $144 at Deutsche Bank. Shares of Amgen, Inc. ended yesterday's session at $115.39, so the brokerage firm is banking on upside of more than 29%. To put that forecast in perspective, AMGN is up 10.1% year-over-year, and has gained only 1.1% so far in 2014. However, the stock's second-quarter pullback was contained by its rising 320-day moving average, and AMGN is up 0.7% ahead of the bell.

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The VIX: Wall Street Gospel, or a Piece of the Puzzle?

Is VIX analysis overdone?

by 7/18/2014 8:29 AM
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Stop watching the CBOE Volatility Index (VIX)! Or said an article on a few days ago:

The further removed financial analysis is from the fundamentals, the less likely it is to provide an actual indication as to whether a stock is a good value. Index funds exist at one remove, and options exist at one remove. The VIX is an index of the relative (to what, no one knows) price of options, i.e., the premium, since that is the only part of the price that fluctuates based on market sentiment. This means that it exists at two removes.

The premium in an option fluctuates based on the sentiments of options market makers. If options market makers believe stocks will gyrate wildly in the future, the premiums will be high, and the VIX will be high. That, it turns out, is the most important thing to understand about the VIX, so I'll say it again: the value of the VIX, at any given time, is a forecast as to how volatile options market makers believe stocks will be in the coming months. Right now, the VIX is very low, compared to its historical levels.

You can also trade options on the VIX. To understand how supposed professionals could, when looking at VIX options, completely blow an analysis, it helps to understand that VIX options exist three removes from stock value. An example of such a blown analysis was published just today by Bloomberg. The article examines the ratio of VIX calls to VIX puts, which is four-to-one. That ratio, for those still keeping score, is a number four removes from actual stock values; it is a quadruple derivative, the likes of which your most sadistic calculus teacher would have been ashamed to throw at you.

OK, I didn't love the inferences from that Bloomberg article, either, but this critique is too harsh. It's a valid point that VIX analysis has gotten a little too popular over time, And I'd add that even those of us actually in the options field probably read way too much into every little bit of noise (myself very much included). But it doesn't mean we should stop watching it.

The point he misses, in my humble opinion, is that it's just an indicator of sentiment -- just one piece of the puzzles that may prove helpful on the margins.

Until the end of that clip, he uses the term "remove" here in place of "derivative." And he's certainly right on that count. An index -- the S&P 500 Index (SPX) here -- is a derivative. Options on SPX are a derivative of that. VIX indexes the implied volatility on those derivatives. A VIX future is a derivative of VIX. A VIX option is a derivative of a VIX future. Roll it all together and a VIX option is a derivative of a derivative (VIX future) that's a derivative of a calculation (VIX) which proxies the implied volatility of options on a derivative (SPX).

So yes, we've gone very far out on this chain. It's like a math-y game of Telephone.

But there's nothing wrong with trying to read something into the trading action on parts of that chain. It's just important to recognize a few points.

Sample size is generally low. Twitter is filled with "Indicator X looked just like this in 2007, hence we're going to meltdown" sorts of analysis. Coincidence too often implies causality.

The context of the dollars committed to a "bet" is often lost as well. A month barely goes by without hearing about someone buying 10,000 out-of-the-money VIX calls, or $2 million of VIX calls, or whatever. Is he just hedging a portfolio? Is he running $10 billion and this is just a tiny play? Is this the 28th month in a row the same player has bet on a VIX explosion that rarely happens? I could go on.

And finally, and to me most importantly, what's the actual meaning when VIX pops or sentiment on VIX futures and options changes? As I often note, I find it a contrarian tell. The more that believe VIX is going to pop and the more money they place on that bet, the less likely it is to actually happen. At least, that's my view; others look at it the other way.

But whatever -- the larger point is we shouldn't stop watching the VIX entirely. It's never gospel, and it often just confirms something we already know, but there's often some good info there if you take in the entire picture.

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

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Analyst Update: Agnico Eagle Mines Ltd (USA), iGATE Corporation, and The Fresh Market Inc

Analysts adjusted their ratings on AEM, IGTE, and TFM

by 7/17/2014 2:33 PM
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Analysts are weighing in today on gold producer Agnico Eagle Mines Ltd (USA) (NYSE:AEM), IT services provider iGATE Corporation (NASDAQ:IGTE), and upscale grocery chain The Fresh Market Inc (NASDAQ:TFM). Here's a quick look at today's brokerage notes on AEM, IGTE, and TFM.

  • Reports of a downed Malaysian Airlines plane have sent gold futures soaring on safe-haven demand, and AEM is up 2.4% this afternoon to trade at $41.09. Late Wednesday, meanwhile, the stock scored a price-target hike to $50 from $48 at Credit Suisse, and the firm also backed its "outperform" endorsement for Agnico Eagle Mines Ltd (USA). The shares have rallied an impressive 55.9% so far in 2014, so it's no shock to find analysts crowded into the bullish camp for AEM. Currently, 59% of brokerage firms call the stock a "buy" or better.

  • IGTE is off 4.3% at last look to trade at $38.94, with the stock erasing Wednesday's post-earnings gains. A negative note from Nomura seems to have sparked today's slide, as the brokerage firm lowered its rating on iGATE Corporation to "reduce" from "neutral" ahead of the bell. The analysts softened the blow a bit by raising their price target on IGTE to $35 from $29 -- but the new target is still more than 10% below the equity's current perch. Technically speaking, IGTE was due for a pullback; heading into today's session, the stock's 14-day Relative Strength Index (RSI) of 74 was signaling an overbought condition.

  • Credit Suisse started coverage of TFM with an "underperform" rating, which has pressured the stock to a 2.5% loss in afternoon trading. Today's decline is just more of the same for The Fresh Market Inc, which has shed 23.5% year-to-date to hover at $30.98. Short sellers appear to be firmly in control of TFM, as the number of shares sold short ramped up by 9.6% during the past two reporting periods. These bearish bets now account for 27.1% of the equity's float, or 10.2 times TFM's average daily trading volume.

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Stocks On the Move: Mattel, Inc., Qiwi PLC, and Select Comfort Corp.

MAT, QIWI, and SCSS are moving sharply in Thursday's trading

by 7/17/2014 2:05 PM
Stocks quoted in this article:

In afternoon trading, three of the top market movers are Barbie parent Mattel, Inc. (NASDAQ:MAT), payment services provider Qiwi PLC (NASDAQ:QIWI), and mattress expert Select Comfort Corp. (NASDAQ:SCSS). Here's a quick roundup of how this trio of names is performing on the charts so far.

  • MAT has fallen 6.6% this afternoon to trade at $36.45, on the heels of this morning's second-quarter earnings miss. Today's losses only add to Mattel, Inc.'s 2014 turmoil, as the shares are down more than 23% year-to-date. Nevertheless, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have displayed optimism toward the stock in recent months. The equity's 50-day call/put volume ratio across this trio of exchanges checks in at 1.73 -- higher than 94% of comparable readings from the past year. Should MAT continue to stumble, a capitulation among option bulls could result in headwinds.

  • QIWI is in even worse shape than MAT today, down 8.6% at $40.65 amid fresh geopolitical tensions for Russia. However, the shares are testing support at their 50-day moving average and the $40 level. Today's pullback aside, Qiwi PLC has outperformed the market for some time -- besting the broader S&P 500 Index (SPX) by 30 percentage points during the past three months. Not surprisingly, the brokerage bunch is bullish. Three analysts rate the stock a "strong buy" (compared to just one "hold" and not a single "sell"), and QIWI's consensus 12-month price target rests at a lofty $54.60. If the stock fails to resume its longer-term uptrend, though, the shares could suffer from a round of downgrades and/or price-target reductions.

  • Unlike the previous pair of names, SCSS has rallied to the tune of an 8.1% gain, and currently hovers at $20.52. Sparking the upward move was last night's second-quarter earnings beat. Longer-term, however, Select Comfort Corp. has struggled on the charts, down nearly 23% year-over-year. As such, short sellers have flocked to the equity, with 7.8% of its float sold short (which would take more than two weeks to cover, at the stock's average daily trading volume). In fact, it's possible some of today's gains are the result of short sellers covering their bearish bets, following SCSS' positive fundamental news.

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