Schaeffer's Trading Floor Blog

Buzz Stocks: Dollar General Corp., Sensata Technologies, Ingersoll-Rand PLC, and Tesla Motors Inc (TSLA)

Today's stocks to watch in the news include DG, ST, IR, and TSLA

by 8/18/2014 8:52 AM
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Stock futures are pointed solidly higher today, as potentially upbeat developments between Ukraine and Russia help stoke investor sentiment. In company news, here are some stocks to watch today.

  • Dollar General Corp. (NYSE:DG) put in an all-cash bid for rival Family Dollar Stores, Inc. (NYSE:FDO) for roughly $8.95 billion, or $78.50 per share, topping Dollar Tree, Inc.'s (NASDAQ:DLTR) previous per-share offer of $74.50. DG's counter-bid represents a premium of 3.2% to FDO's Friday closing price of $76.06. (MarketWatch)

  • Also on the M&A front, Sensata Technologies Holding N.V. (NYSE:ST) has agreed to purchase tire-sensor issue Schrader from private equity firm Madison Dearborn Partners LLC for roughly $1 billion. Elsewhere, Ingersoll-Rand PLC (NYSE:IR) will acquire Cameron International Corporation's (NYSE:CAM) centrifugal compression arm for around $850 million. (The New York Times; Bloomberg Businessweek)

  • Tesla Motors Inc (NASDAQ:TSLA) said on Friday it will extend the warranty on its Model S sedan, after Consumer Reports last week called into question technical issues surrounding the electric vehicle. The new warranty will increase coverage to eight years and unlimited mileage, matching that of the vehicle's battery pack. (Reuters)

  • Apache Corporation (NYSE:APA) announced a potentially historic discovery in Western Australia after it uncovered an oil field that could hold up to 300 million barrels of crude. The country's crude production has been sliding in recent years, and the last big discovery of 127 million barrels occurred 15 years ago. (The Wall Street Journal)

  • The Food and Drug Administration has approved Biogen Idec Inc's (NASDAQ:BIIB) multiple sclerosis drug Plegridy. The injectable treatment is targeted toward those with relapsing forms of the disease. (CNBC)

  • Elsewhere, JinkoSolar Holding Co., Ltd. (NYSE:JKS) reported earnings. (MarketWatch)

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When It Comes to the VIX, Nothing Is a Sure Thing

While fading VIX-plosions has worked well in the past, there are always exceptions

by 8/18/2014 8:30 AM
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Got this on Twitter the other day, in regards to my recent look at CBOE Volatility Index (VIX) futures:

Hi Adam. Interesting article. You seem to be saying that VIX is always a good short on any pop. Don't you think the low vol regime will end?

To which I replied:

I've never said on any pop, it's ultimately mean reverting, that's all

And he shot back:

True. My takeaway was that selling VIX is a sure win. But someday vol will actually rise and that strategy will blow up.

It then occurred to me that I better clarify my opinion on VIX, and tradable VIX.

Selling VIX (presumably futures, though I suppose it could mean volatility in general) into pops is NOT a sure thing. Nothing is ever a sure thing. Everything I ever write, every data study I ever provide, every chart I ever post all are intended to highlight probabilities, never certainties. Certainties don't exist.

When VIX makes an abrupt lift, it generally will extend enough above a mean where we may seek to derive a signal. I use 20% above the 10-day simple moving average as a general trigger point. But you can use more, or less, or Bollinger Bands, or whatever --it's more about the concept than anything else.

In my humble opinion, that generally becomes a time to look for mean reversion. That is, VIX will stall and stocks (which are presumably in decline) will stabilize.

But importantly, again, that's a probability, not EVER a sure thing. Over the course of time, data suggests that fading VIX-plosions works well over most time frames. There are often exceptions however, as some sell-offs persist, and crashes (however you define one) essentially all start from already-oversold markets.

In more statistical-speak, fading VIX pops will give you a positive expected gain, but you may have to withstand some scary drawdowns along the way.

As to whether I think the current low-volatility regime will end, of course I do. I know not when it ends; we can only answer that in hindsight. Long-term regimes tend to last about four to six years, and we're inexactly a few years into one. So perhaps in a year or so, VIX starts trending up.

It's important to remember, though, that long-term trend changes are, by definition, very rare. And I'm absolutely not going to be the one to declare some future VIX pop THE start of the new regime. I'll let someone else be a hero on that; I'd rather miss the first boat and adjust my strategy going forward from there.

And finally, as to VIX futures, that perpetual upslope in the term structure has proven wrong for the better part of five years now. That lasting VIX rally pretty much hasn't happened. It will someday. But just know that there's no real reason why the curve should slope up as much as it still does. The local, low-volatility regime mean of VIX is in the 16-17 range, depending on how far back you want to go. In my humble opinion, that's a fair level for an out-month VIX future -- not the 18, 19, and even 20 we've seen over the last few years.

But again, that's going to change at some point, too. Someone will absolutely buy a VIX future in the high teens and ride it and sell for a big profit someday. I'm just not prepared or inclined to guess when that happens.

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

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Analyst Update: J C Penney Company Inc, Monster Beverage Corp, and Gilead Sciences, Inc.

Analysts adjusted their ratings on JCP, MNST, and GILD

by 8/15/2014 2:14 PM
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Analysts are weighing in today on department store operator J C Penney Company Inc (NYSE:JCP), energy drink distributor Monster Beverage Corp (NASDAQ:MNST), and biopharmaceutical firm Gilead Sciences, Inc. (NASDAQ:GILD). Here's a quick look at today's brokerage notes on JCP, MNST, and GILD.

  • JCP has lost 3.6% this afternoon to trade at $9.39, as a downbeat margin forecast has overweighed the company's second-quarter earnings beat. Ahead of the event, traders predicted technical troubles for J C Penney Company Inc by loading up on put options. However, J.P. Morgan Securities raised its price target on JCP to $11 from $9, representing an unusually bullish forecast for the stock. The equity's average 12-month price target stands at $9.42, just pennies above JCP's current price.

  • News of a high-profile investment has sent MNST soaring more than 28% to $91.93, with the stock fresh off an all-time high of $94.93. The news also elicited a batch of bullish endorsements for Monster Beverage Corp, as CLSA upgraded the stock to "outperform," BMO raised its price target to $95, and Stifel lifted its target to $94. Most analysts are already upbeat toward MNST, as the stock boasts 60% "strong buy" recommendations.

  • GILD touched its own record peak of $99.37 earlier, with the stock last seen up 2.2% at $98.52. Traders are cheering a patent victory for Gilead Sciences, Inc., which effectively eliminated the threat of what RBC called a "Doomsday scenario" for the biotech firm. Following this positive news, FBR started coverage of GILD with an "outperform" rating, while Cowen and Company upped its price target to $105 from $95. There could be additional upside in store for the stock if short sellers decide to hit the bricks. Short interest accounts for 6.6% of GILD's float, or 6.7 times the equity's average daily trading volume.

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Stocks On the Move: Achillion Pharmaceuticals, Inc., Nordstrom, Inc., and TASER International, Inc.

ACHN, JWN, and TASR are moving sharply in Friday's trading

by 8/15/2014 12:28 PM
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Around midday, three of the top market movers are antiviral developer Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), department store chain Nordstrom, Inc. (NYSE:JWN), and electronic control device maker TASER International, Inc. (NASDAQ:TASR). Here's a quick roundup of how ACHN, JWN, and TASR are performing on the charts so far.

  • ACHN is soaring on the heels of a successful hepatitis C drug trial and an "outperform" initiation at FBR, up 9.3% to trade at $9.23. In fact, the stock touched a fresh annual high of $9.94 earlier. Achillion Pharmaceuticals, Inc.'s technical tenacity isn't limited to today, either -- the shares are up 178% year-to-date. Additional gains could be on the way, too, should short sellers decide to hit the exits. Currently, 26.6% of ACHN's float is sold short, which would take 6.3 sessions to buy back, at the equity's average daily trading volume.

  • JWN is down 4.1% to hover near $65.87, following a price-target cut to $67 at BMO, and emerging concerns that the retailer's acquisition of Trunk Club will weigh on profits for the new few years. Taking a step back, shares of Nordstrom, Inc. are still sitting a solid 6.5% above breakeven on a year-to-date basis. The brokerage bunch isn't buying in, though. Twelve out of 20 covering analysts give JWN a "hold" or worse recommendation, compared to five "strong buys" and three "buys."

  • TASR has tacked on 7.5% today to trade at $13.66, as the company's body cameras have come into focus due to the situation in Ferguson, Missouri. Nevertheless, the shares remain off nearly 14% in 2014. Meanwhile, TASER International, Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 0.54 ranks in the 87th percentile of its annual range. In other words, short-term traders have rarely preferred puts over calls more strongly, looking back one year.

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Analysts are downwardly revising their ratings today on auto franchise operator Lithia Motors Inc (NYSE:LAD), casino developer Wynn Resorts, Limited (NASDAQ:WYNN), and biotech issue Intercept Pharmaceuticals Inc (NASDAQ:ICPT). Here's a quick look at today's bearish brokerage notes on LAD, WYNN, and ICPT.

  • LAD was hit with a Morgan Stanley downgrade to "underweight" from "overweight," sending the stock down 2.6% ahead of the open. The brokerage firm also raised its price target on the stock to $80 -- but that represents a discount of 14.4% to the stock's Thursday close at $93.47. Lithia Motors Inc has rallied 34.6% year-to-date, and most analysts are in the stock's corner. In fact, prior to today's downgrade, all six firms following LAD had deemed it a "buy" or better. Plus, the equity's average 12-month price target of $107.33 stands in all-time high territory.

  • Sterne Agee reduced its price target on WYNN to $245 from $260, just two sessions after Bank of America-Merrill Lynch lowered its forecast on the shares to $260 from $270. Despite the downward revisions, both firms still have fairly upbeat expectations for Wynn Resorts, Limited. The stock ended yesterday at $202.23, up just 4.1% in 2014. WYNN has recently been bouncing between the $195 and $220 levels, but could soon be due for a break to the downside. In recent sessions, the shares have been rejected by their 200-day moving average -- a former layer of support that's now serving as resistance.

  • After winning a few bullish notes earlier this week, ICPT this morning was slapped with a new "underperform" rating from FBR. The stock closed Thursday at $296.36, up 334% year-to-date -- but ICPT is off 3.2% in electronic trading. It looks like the shares will remain pinned below the psychologically significant $300 level for now. While Intercept Pharmaceuticals Inc has mounted multiple challenges to this region since early April, the security has managed only one daily close above the century mark. However, analysts seem to think that $300 will be in the rearview before too long -- ICPT's average 12-month price target stands at $457.09.

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